Don't cut spending; invest.


As a non-economist I think this blog article by Richard Murphy aboout why the cuts won't work is written in an understandable way. I remember from my accounting training that the classic response to a recession is for the government to invest but I had long forgotten the interconnectedness of a government's deficit with private savings and investment. Given that a government can influence but not control the latter hings it makes sense to concentrate on what it can control: investment. There are plenty of examples of such public investments being made during difficult economic times. Here's a couple of examples from my own experience: for five years I worked in Barnsley Town Hall, which was built in the 1930s to alleviate unemployment (and for which the councillors were surcharged for incurring the extravagant cost of a clock tower); and more recently, on a holiday in the USA I visited the Hoover Dam, which was constructed in 1931–36.

But if the government does not want to make expensive investments itself will the private sector step in and make them? It seems that the answer to that is, ‘No’, even when interest rates are very low. Forcing a company to invest is not a credible approach unless the government underwrites the investment and if a government were going to do that it might as well do it by imposing a tax on the companies and then spending the receipts itself. I am, however, attracted by Richard Murphy's proposal that pension funds should be required to make such investments. There's something appealing about one's pension being based upon tangible investment in the economy one works in rather than from speculation in complicated financial instruments traded in cyberspace.