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December 19, 2009


Innocent Abroad

" It could also be the case that capitalists’ confidence - profit expectations - improves if they see a government attacking workers."

How would you test that hypothesis?


Good question. My point is a variation of the animal spirits hypothesis, which is also awkward to test. One problem is that business investment is horribly noisy, which makes testing any hypothesis tricky.
I guess one thing to look for would be if business confidence - which can be measured by things like the CBI survey in the UK - improves more than normal in times when the government wage bill falls.


We're in a liquidity trap, so Guido is insane.

chris strange

Alternatively it could be because if you shrink the number of people in government it will do less. Bureaucracy is bad within an organisation (you've posted loads of papers showing this), so externally imposed bureaucracy should also be bad and therefore getting rid of it should be good.

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>>The question, though, is: what’s the mechanism whereby lower public spending can raise GDP growth?<<

The other question, which you neglect, is what happens to interest rates if public spending is not brought under control ?
The UK government will not be able to carry on borrowing on present terms for very much longer.

We are in a position where there are no good choices. The best we can expect is less bad ones.

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I don't believe Guido as I cannot personally imagine how economy can grow without the government spending on the things that lets the economy grow.


These businesses are mean, take a look at point 3.


good post, even a year later :)

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