Can Governments Spend Their Way Out of the Economic Crisis

Of course, what to do about the current economic situation, is perplexing many Governments. It a bit like the fish after its been hooked, thrashing about as it’s reeled in to a certain death…But maybe if it can just twist and squirm it will slip off the hook to live another day…

In most countries, Governments have a few big macro bulldozers to push around such as flood money into the market and lower interest rates (which might take some subtle conniving with so called independent central bank – but whose taking orders from who anyway).  The problem wit the bulldozer strategies is you don’t have much control.  Lower interest rates are OK if it turns into lower credit and stimulates a bit of business activity.  But when there’s such an imbalance between haves and have’s not’s, its hard to point it in th right direction.  (I doubt anyone’s got the courage to set up business in Detroit at the moment.)

Then there are micro economic activities which generally no one wants to talk about when growth is strong but everyone justifies during the hard times – industry protection and subsidy policies which keep farm and motor vehicle companies going in most modern economies.  (The exception of course is in the US where the cars are clearly made to cross-subsidise the local oil industry – why else?).

But the popular one is infra-structure development because a government has some control over how the money is spent.  It sounds good.  Spend it on education roads and highways, health and the like.  Sure if a government can operate efficiently enough to find and approve expenditure strategies it employs lots of people.  This is the difference between just giving a tax cut because people might save it rather than buy something.  Even if they buy something it will probably be from  Asia, so won’t appeal to the western markets.  At least if you build a road, you employee locals even if they save some of their pay, after they’ve paid the rent or mortgage and bought the food.

I’m not sure why government spending plans should be any more successful than private sector.  If they ever get it off the ground then I hope its worthwhile – its my (or my kids) taxes they’ll be spending.  Worst case is it  just means a lot of employment for do nothing public servants but that’s definitely not the intention.  There aren’t to many desk jobs for bricklayers down at Council…

Here’s hoping.