Monday, 27 October 2008

Economists criticise Government economic plans

The debate over how to bring economic recovery continues with a letter to the Sunday Telegraph signed by 16 leading economists with the following :

"SIR - Further to your interview with Alistair Darling (October 19), we would like to dissent from the attempt to use a public works programme to spend the country's way out of recession. It is misguided for the government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink "too rapidly" in a recession. Thus the government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources.
Furthermore, public expenditure has already risen very rapidly in recent years, and a further large rise would take the role of the State in many parts of the economy to such a dominant position that it would stunt the private sector's recovery once recession is past.

Occasional economic slowdowns are natural and necessary features of a market economy. Insofar as they are to be managed at all, the best tool is monetary and not fiscal policy. It is inevitable that government expenditure and debt naturally rise in a recession but planned rises in government spending are misguided and discredited as a tool of economic management.

If it is believed that this recession has features that demand more active fiscal policy, which is highly disputable, taxes should be cut. This would allow the market to determine which parts of the economy shrink and which flourish to replace them."

The Chair of the Commons Finance Committee John McFall has argued for tax cuts saying "There is a need for a focused approach, to reduce the tax burden of the lowest paid working people. Now is the time for further reform of tax allowances to take millions of low-paid people out of income tax altogether, and benefit many millions more basic-rate taxpayers."

One of the main features of this downturn is that it has been caused by easy credit and loose spending by not only the people (easy credit kept the economy ticking over through consumer expenditure) but also by the Government when it spent so profligantly. We all had a hand in this and the Government must not try to spend its way out of this.

1 comment:

Michael Child said...

James. The fundamental problem that no one seems to be addressing here is that because of disproportionate lending house prices no longer relate to peoples incomes.

The disproportional amount of real money, by that mean money that has been produced by people actually producing something, that is being spent on financing property purchases means that we are doing something akin to buying our own country.