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Digging Holes

by on December 30, 2012

Is spending key? Anyone reading chapter John Maynard Keynes or Paul Krugman would believe so. Its argument is appealing, yet to specific as explained in“When is a General Theory really General?”. In chapter 10 of The General Theory, Keynes’, much quoted assessment is that, failing productive investment, even unproductive spending helps. The way to bring an economy out of a depression caused by a liquidity trap could, even be wars and alien invasions according to Krugman or the digging of holes if we believed Keynes.

by Blugeoner86


Unfortunately this unproductive investment has got us in not out of the crisis. Nick Silver in: “Government should focus on delivering higher quality services for less money,”  points to important paper by Tim Morgan. “Wrong Questions give Wrong Answers”, illustrates how between 2000 and 2007, economic growth resulted from two sectors, growth in debt-driven construction and increased government spending. Whilst analysing government spending in “Where’s all the Money” Morgan shows that between 1999 and 2010, the productivity of health and education, declined by 20 per cent. Whereas one would expect efficiency to increase over time given that the public sector was not exactly a model of efficiency in 1998. It is time for the focus on “spending” to stop. We have had our growth in unproductive spending, yet the state is addicted. It is time for the country to enter re-hab. Government activity should be limited and focus on delivering more productivity not less. It is the blind focus on spending, essentially a Keynesian Krugmanite fiscal expansion, that created the bubble.

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