UK must invest its way out of recession | Michael Burke | Comment is free | guardian.co.uk .
Also by Michael Burke this morning:
[A] piece of long-neglected Treasury research is its own “ready-reckoner” – Public finances and the cycle: Treasury economic working paper No 5, November 2008. This estimates two effects on government finances from a change in GDP.
The first is the improvement in tax receipts and the second is the reduction in government spending (lower welfare payments and so on). Taken together the ready-reckoner estimates that for every £1bn improvement in the economy, 75% of that will feed through to an improvement in government finances in the second year. So a £1bn increase in government spending leads to a £1.4bn increase in activity, which produces an improvement in government finances of £1.05bn. This is a positive return, which can be sued either for deficit reduction or further investment.
The argument that the only way out of recession is for the government to spend – precisely because the private sector won’t – is true.
So why not spend – a lot – now?
That’s the real question.
Sorry, the comment form is closed at this time.