Thursday, 16 October 2008

Labour will make it worse


Robert Peston writes on his blog today that, according ot his sources (HM Treasury) the government is very panicked by the less than stunning impact of Jonah Brown's plan to save the world.

Some people may have said as much. However, the global situation has many problems that are going to take years to sort out and a heavy recession is inevitable. The success of the banking bailout is that we will NOT have a DEPRESSION. Sometimes success is the lesser of two evils.

One way to burden us through recession is through excessive Government spending. This is Keynes worst advice. It never worked in the US in the 1930's - GDP falls, Share prices and unemployment all stayed at around the same levels until the early 1940's. FDR's great Keynesian experiment was a failure. Why?
Because government's do not spend the money wisely. They buy helicopters that cannot fly and bridges to nowhere. Yet to do this they borrow from the future and maintain high taxes that increase the mis-allocation of scarce capital. I don't advocate huge spending cuts which traumatises the situation, but a big planfor public programmes is not the answer.
If Labour do this, they will undo the relative success they have had in re-capitalising the banks.

11 comments:

Anonymous said...

I thought the failure of the Keynesian experiment was that people realised that increased spending would lead to extra taxation in the future and that in turn affected their spending decisions.

From that the theory of adaptive expectations in economics stemmed..

Anonymous said...

I think your post should include a reminder of the 'daily politics' body language woman describing him as having a compulsion to spend money...

CityUnslicker said...

anon - yes, we need a new paradigm!

Sammy - he is an incurable socialist!

Anonymous said...

2 - government wants to pour money into some holes in the ground, but which ones?

2 - I remember some Labour MP person saying (though I can't remember who) on television that we should have invested in developing renewable energy technologies - I think they mentioned some Scandanavian countries and Germany as having done this

5 - BBC News reports: "The British government increases its target for cutting greenhouse gas emissions from 60% to 80% by 2050."

2+2=5
Did we find out where the government is going to pour the money?

Anonymous said...

Renewable energies! Don't make me laugh. The entire renewables industry is nothing more than a system of outdoor relief for hard of thinking 'green' liggers. In the purest economic & technical terms it is not sustainable.

BTW - these lovely windmills, aside from providing no power when there is a winter anticyclone over the country, should be renamed the "ACME Patent Bird Slicer" due to damage they do. And don't get me started about what they do to bats.

CO2 on the other hand is a plant fertiliser which may help us feed ourselves. It is duplicitous propagandising to call it a pollutant.

Anonymous said...

we must remember, mr. weetabix, that while it wasn't the gold prospectors who made money in the wild west, it was the people who sold picks and shovels...

it won't be the people who invest in energy production from 'windmills' who make the money - it may well be the people who build the windmills and sell them to the government

this is convenient to me because I own some shares in a company which does that

Anonymous said...

Happily I work for a company (& have generous share options - hah -they're plummeting down by the day) which makes materials which go in these shitty things. To that extent I am delighted. But when the lights go out I shall be as pissed off as the next person.

Old BE said...

Tax cuts instead, please.

Anonymous said...

The thing is that in a downturn/recession, social security spending goes up for obvious reasons and tax revenue as a result goes down.

Thus they do need to find it from somewhere.

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