Insights from the UK and beyond
Recent headlines alarmed us with news of the country’s budget deficit having risen to its largest in six decades, while top economists ominously declared that we’ve moved beyond merely tipping into a recession, to hurtling towards one.
More crucially, both Chancellor Alistair Darling and Prime Minister Gordon Brown have sought inspiration from revered economist Maynard Keynes’ oft-cited advice – spend and spend some more to fight off the ill effects of an economic slump. Keynesian theory’s greatest principle is the fundamental concept of the circular flow of money. He opined that when individuals rein in money outflow, the government needs to be “priming the pump”.
Brown and Darling insist that we may very well fall prey to a vicious circle if we curb spending – most people hoard money in turbulent times, but times become even more difficult when we’re tight with money. Whether this theory will work remains to be seen.
In November’s pre-budget report, Darling is expected to announce an easing of fiscal rules and outline plans for priority and targeted spending on infrastructural projects. “What I want to avoid is getting ourselves in a position governments have done in the past, where you face an immediate problem and cut back on the things the country will need in the future … ,” says the Chancellor.