If the economy does grow nicely, the deficit will take care of itself. And if it doesn’t, we’ll need a deficit to support the economy, and the chances are that global investors’ demand for government bonds will stay high, so we can continue to finance the deficit easily.Former MPC Member David Blanchflower says:
Either way, there’s no point jeopardizing people’s jobs through spending cuts that might be unnecessary or perhaps even counter-productive.
"Lesson one in a deep recession is you don't cut public spending until you are into the boom phase. Keynes taught us that. The consequence of cutting too soon is to drive the economy into a depression. That means rapidly rising unemployment, social disorder, rising poverty, falling living standards and even soup kitchens. The Tory economic proposals have the potential to push the British economy into a death spiral of decline that would be almost impossible to reverse for a generation.We're six or seven months from a general election and it's hard to imagine that Labour won't be able to portray the Tories as seizing upon the opportunity presented by the credit crisis to implement their old programme of spending and tax cuts then, as Tony Blair once put it, if we can't beat these Tories we really don't deserve to be in government.
The debate at such times is not about big government versus small government. It isn't about moving this service from public to private sector because the private sector can do it better. The debate here is about maintaining levels of aggregate demand. In a deep recession the choice is: the government does it or nobody does it; it is public spending v no spending. You don't worry about paying off debt when you are at war: you have other priorities. Win the war first."
But then there's the confidence factor isn't there? Labour may have a more effective position on silly little questions like 'how we will avoid totally schtupping the economy for generations to come', but at least the tories know how to work a pocket calculator, so maybe a change of government won't be such a disaster after all?