The Bank of England buys the paradox of thrift

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Charlie Bean, deputy director of the Bank of England has said:

Britons should go out and spend to help invigorate the UK's economic recovery

In other words, he’s saying that the paradox of thrift is right now having a massive impact. People aren’t spending. Corporations are sitting on record piles of uninvested cash. Banks are not lending because people are not repaying.

This is precisely why the ConDems cuts won’t work. They and the IMF assume that the private sector will come rushing in to fill the gap that the state sector is going to leave in the economy. It won’t. In the face of the fear of unemployment, falling benefits, declining healthcare and so on people will save more. And corporations won’t invest because people will be saving yet more.

And as I have mentioned in ‚ÄòMaking Pensions Work’ – the state subsidy to pension saving does right now just exaggerate this problem.

So let’s be clear what the Bank is saying – it is saying the government has got its economic policy wrong. The only way to get out of recession, it is saying, is to spend now.

And as people and companies won’t only the government can. This is the reality we face. Government spending or recession. It’s an easy choice to make, isn’t it?