Why spending won't counter recession

Why spending won't counter recession




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The backlash has already begun over Darling’s ideas to spend our way out of recession. Hoping to breathe life back into the economy and create employment with big public spending projects, plans are already in place to “bring forward” public spending from future years.

 Now sixteen prominent economists – including chief economist at Lloyds TSB Corporate Markets, Trevor Williams, amongst other corporate and academic figures – have publicly disagreed with the Government’s Keynesian scheme, branding it “misguided and discredited.”
 
Writing to a Sunday newspaper, they attacked the Government’s approach, arguing: "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."
 
Fearing that the British state may become so dominant that it would “stunt the private sector’s recovery once recession is past”, the voices of dissent rang in ominously as Brown struggled to defend his plan, calling increased borrowing “the right thing to do.”
 
But with public borrowing reaching a record £37.6 billion between April and September – greater than the whole of the previous financial year – many have questioned if we’re just exacerbating the current financial situation through borrowing more and more.
 
The Keynesian idea of spending a country’s way out of recession has gone spectacularly wrong in recent years. The now infamous IMF bailout of the UK in the late 1970’s was the direct result of Keynesian policy and prompted Labour Prime Minister Jim Callaghan to affirm that the option of reversing an economic crisis by “deficit-spending” just “doesn’t exist”.
 
But has our current government listened? It appears not, and with economists warning that increased Government spending will only lead to rocketing national debts, mushrooming inflation and a sinking currency, let’s hope that the Prime Minister, who favours himself as an economic genius, takes note.

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