Calls for second fiscal stimulus to economy

11:00 am - March 11th 2010

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A letter in the Guardian, co-ordinated by Colin Burgon MP, calls for a second fiscal stimulus to boost the economy:

The Conservative party’s calls for immediate cuts to the economy have been met by a growing chorus of criticism, warning that this risks sending the economy back into recession (Report, 8 March). The government was right to stimulate the economy with a variety of measures last year and so offset some of the worst effects of the recession. Yet, as some of the world’s leading economists have pointed out, the fragile nature of the recovery means that fiscal stimulus is still required. However, according to the IMF, Britain is one of only two G20 countries not currently planning any such fiscal stimulus in 2010.

A programme of government investment would not only stimulate the wider economy in the short term, but would increase long-term growth, thereby lowering the debt levels through a higher tax take. To this end, we encourage the chancellor to use the forthcoming budget to announce a second fiscal stimulus – especially in housing and transport, where investment has fallen most, and with a focus on developing a low-carbon economy – which would both help to secure economic recovery and create much needed jobs.

You can see the list of liberal-lefties who have signed it here.

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Compare the policy options and prescriptions summarised in this press release of 3 February for the: IFS Green Budget 2010:

“Whoever forms the Government after the forthcoming general election should put in place a fiscal tightening more ambitious over the next Parliament than that set out in the Pre-Budget Report (PBR), but without putting the recovery at undue risk with significant extra tax increases or public spending cuts in the coming year . . . ”

The full IFS Green Budget for 2010 is here:

Btw “Green” here indicates “consultative”, not “infused with environmental concerns”.

According to the NIESR reported in Wednesday’s news:

“The British economy is still growing despite a surge of disappointing economic data, a leading think-tank said today. The National Institute of Economic and Social Research (NIESR) said that GDP grew by 0.3 per cent between December and February, compared with the preceding three-month period. . . But NIESR said that although the recession was over, the country would not rebuild total economic output to the levels seen before the slowdown for another two years, leaving the country in ‘a period of depression’ until then.”

FWIW I take seriously anything produced by the IFS and the NIESR and suspect the letter in the Guardian is intended more for its impact on opinon in the gallery.

To this end, we encourage the chancellor to use the forthcoming budget to announce a second fiscal stimulus

Substantially to increase public spending? Funded by further borrowing of course (because if it’s funded by tax rises then it’s not a fiscal stimulus). Well, it’s a theory.

3. Stephen Rouse

Only a theory in this country. Policy in many others. You know, all the ones recovering from recession faster than us.

The special reasons why we have particular need to worry about the current scale of the government’s fiscal deficit are discussed in these two recent articles in The Economist:

See from the data table in the first of the links that the UK’s *cyclically-adjusted* primary deficit is larger than that of almost all the other countries shown. In the second link, the article assesses financial market data to show that the yield on 10-year government bonds is higher for UK bonds than for German government bonds. This is a clear warning sign.

The IFS shows in its Green Budget the urgency of dealing with the fiscal deficit while recognising the importance of avoiding the risk of a double-dip recession.

You know, all the ones recovering from recession faster than us.

They must be the ones with a deficit smaller than 12.5%, maybe the ones that didn’t run counter-cyclical deficits for the duration of the boom. If you’re pro-Keynsian recession deficits, you have to be pro-Keynsian boom surpluses. You don’t get to run deficits forever.

On the case for more income redistribution in Britain, see this recent Guardian report on a new OECD publication: Going for Growth:

“The chances of a child from a poor family enjoying higher wages and better education than their parents is lower in Britain than in other western countries, the OECD says”

A summary of the OECD’s recommended policy reforms for the UK is here:

Hot news update on Saturday night:

George Osborne agreed that I might sack him, says David Cameron

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  1. Liberal Conspiracy

    Calls for second fiscal stimulus to economy

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