At LSS, we’ve always been good Keynesians, which means we don’t think that the State is always beastly and horrible, nor that government spending is always an evil sin. In time of downturn, Keynesians believe that government spending can be used to reflate the economy-with the proviso that it is paid back at some point. Keynesians are not socialists.
Keynesians boasted that their policy gave the world its longest period of growth and stability in the period 1945-1975. Factories hummed; markets of all sorts grew; living standards rose; inequality was mediated. Yet there was always a valid criticism, made by free marketeers, of whom Mrs Margaret Thatcher was the representative. Their key point was- If your factory is idle, is it because no one wants to buy the things which you make? In which case government stimulus of the economy won’t really help, it’s just a drug to keep over paid workers making shoddy, overpriced goods that no one wants. Think British Leyland. The result is ballooning government deficits, dodgy balance of trade numbers and inflation. People moving around doing things is not the same as a healthy economy.
Since March, Rishi Sunak has basically followed the Keynesian playbook splashing the cash on numerous schemes, including the famous “eat out to help out” Up to a point it has worked, as the economy seems to be growing again. Yet at this point, the Devil whispers in our ear, as he often does “What is the long term point of borrowing all that money only to blow it in the local pub? Shouldn’t we have spent the money on infrastructure, like the old-style Keynesians of the nineteen thirties did?
It is a telling point that the British Aviation industry is screaming for help, whereas the Germans have coolly extended help to theirs, ensuring the long term survival of a job creating industry. Britain blew North Sea Oil-will it make the same mistake again?
Larry Elliott, a writer who is at once erudite and succinct, covers all these issues and potentialities in his excellent Guardian piece What Now For Britain’s Economy. We say two cheers for Mr Sunak-but a lot of careful thinking needs to be done.
#larryelliott #jmkeynes #margaretthatcher #eatouttohelpout #furlough #britisheconomy #rishisunak