One objection to the use of fiscal policy is simply that governments get the timing of it wrong. Today‘s figures (pdf) seem to bear this out. As I point out in my day job, these show - amazingly - that the output of government services actually fell in the fourth quarter by as much as the output of the business services and finance sector.
In this sense, the government has contributed to the recession, not relieved it.
But don’t make too much of this. For one thing, this is only a partial measure of government activity; it ignores social security payments. And for another, it would be odd for the government’s critics to complain about a shrinking in the size of the state.
Whilst I’m on the subject, I suspect popular discussion of fiscal policy is coloured by the homoerotic undertone in Keynes’ idea that we should pay men to dig holes and fill them in again*. A latter-day heterosexual Keynes might suggest instead a different metaphor - paying Carol Vorderman (a victim of the credit crunch) to lightly oil herself.
Ricardian equivalence suddenly becomes less persuasive, doesn’t it?
Which shows the importance to political discourse of choosing the right metaphor.
* In fairness, this undertone exists more in what Keynes is supposed to have said informally. The relevant passages in the General Theory have no such connotation. They are:
In this sense, the government has contributed to the recession, not relieved it.
But don’t make too much of this. For one thing, this is only a partial measure of government activity; it ignores social security payments. And for another, it would be odd for the government’s critics to complain about a shrinking in the size of the state.
Whilst I’m on the subject, I suspect popular discussion of fiscal policy is coloured by the homoerotic undertone in Keynes’ idea that we should pay men to dig holes and fill them in again*. A latter-day heterosexual Keynes might suggest instead a different metaphor - paying Carol Vorderman (a victim of the credit crunch) to lightly oil herself.
Ricardian equivalence suddenly becomes less persuasive, doesn’t it?
Which shows the importance to political discourse of choosing the right metaphor.
* In fairness, this undertone exists more in what Keynes is supposed to have said informally. The relevant passages in the General Theory have no such connotation. They are:
If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment (chapter 10, page 129 in my copy)
And:
To dig holes in the ground,” paid for out of savings, will increase, not only employment, but the real national dividend of useful goods and services (chapter 16, p220).
I think the critical bit here is " paid for out of savings". What is proposed now is NOT digging holes, and NOT paying for them out of savings, in fact, quite the contrary.
In terms of Carole V oiling herslf, would it not be better if someone did it for her - thus creating employment?
Posted by: kinglear | January 23, 2009 at 02:28 PM
CD, do you take requests? I'd be interested in your thoughts on those two new Cabellero posts on Vox.Eu
Posted by: Luis Enrique | January 23, 2009 at 03:09 PM
Did Keynes really despair of governments being capable of identifying and managing any useful investments?
Posted by: dearieme | January 23, 2009 at 03:20 PM
Holes in Liverpool:
http://www.williamsontunnels.com/
Surely digging holes for fiscal reasons is Williamsonian, rather than Keynesian?
Posted by: Charlieman | January 23, 2009 at 06:53 PM
Holes? Carol Vorderman?
Are you writing a new book at the moment Chris? and is it about Sex and Economics?
The last two days seem to suggest so, in fact by Monday I envisage the blog morphing into a porn site (not that I am complaining as long as its free)
Posted by: passer by | January 23, 2009 at 08:55 PM
The Hellfire club seem to have dug holes in the ground near High Wycombe to create jobs (and for other activities).
http://en.wikipedia.org/wiki/Hellfire_Club
http://en.wikipedia.org/wiki/West_Wycombe_Caves
Probably that's the example Keynes had in mind.
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Posted by: Karoly Domonyi | January 24, 2009 at 03:54 AM
On why Cameron and Osborne are economic illiterates:
"the Conservatives were correct in their warning last year that the rise in debt might take a generation to pay off. But they were wrong to lay most of the blame on the temporary VAT cut and other stimulus measures."
Robert Chote, Director of the IFS, on the IFS Green Budget 2009
http://www.thisislondon.co.uk/standard/article-23630141-details/We+will+still+feel+the+effects+of+this+in+2030/article.do
"Despite the thinktank's dire warning about the health of the public finances in the years ahead, it does offer some support for the government's fiscal-stimulus measures, in particular the 2.5% temporary cut in VAT announced in the pre-budget report. It argues that the decision may have boosted consumption by up to 1.2% and says: 'Those dismissing it as a failure ignore the likelihood that things would have been even worse without it.'"
Heather Stewart
http://www.guardian.co.uk/business/2009/jan/28/alistair-darling-economic-policy-warning
Posted by: Bob B | January 28, 2009 at 02:18 PM
Update:
Try this interview on video with Olivier Blanchard on the international recession in Wednesday's new (28 Jan):
http://news.bbc.co.uk:80/1/hi/business/7856868.stm
He is a distinguished academic economist, currently chief economist at the IMF and previously at the MIT.
Posted by: Bob B | January 28, 2009 at 09:46 PM