Communicator (communicator) wrote,
Communicator
communicator

Skidelsky on a big experiment

There is a good article by Warwick Uni economist Robert Skidelsky in the Guardian today 'We need a Plan C now'. There are two economic theories competing. The next 12 months tests them.

The Osborne theory is that any reduction in government borrowing is equivalent to transferring money to the private sector... the result will be a net increase in aggregate demand, and a higher growth rate... buoyant recovery.

The Keynesian view is the exact opposite. Taking £112bn out of the economy will be a net subtraction from aggregate demand... the money the government "saves" will simply disappear as the national income shrinks... stagnation, not recovery.

These two theories are about to be tested. The Keynesians – among whom I number myself – will have to eat their words if growth picks up and unemployment falls in the next 12 months, as £32bn is subtracted from the economy in taxes and spending cuts. Osborne should eat his words if there is no improvement in growth and unemployment.

By the way - I would be delighted if Skidelsky is wrong. I will be so happy if the economy recovers. OK, I will have mixed feelings if economic success for the coalition lends credibility to the reactionary triumphalist social baggage which accompanies their economic theories. Nevertheless I will be delighted if the next 12 months brings millions of new jobs, money coming back into people's lives, a renewed public sphere etc. But I do not think this will happen.
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  • Phew what a scorcher

    I see Gove has backed down on climate change and it's back in the curriculum again.

  • GCSE Computer Science

    My book is now for sale

  • LJ Settings

    At the moment I have set up this journal so that only friends can comment. I hate doing this, but I was just getting too much Russian spam.