You don’t have to be a modern monetarist to believe that the UK has a debt crisis but there are a number of well evidenced and widely believed economic theories that support the use of a Government deficit to induce growth which is the surest way to reduce national debt. Those that argue austerity is a choice are bang on the money.
Debt fetishists need to get this, but so do those who argue that we should fund some desirable programme, be it pensioner’s winter fuel allowances, doctor’s recruitment or student debt forgiveness because we can fund a defence budget. How we use and deploy our military is of course a matter of other priorities but arguing we need to accept austerity by applying the cuts elsewhere is ignorant.
Investment led growth requires expenditure in increasing the productive capacity of the techno-economy, although there is some recent writing and research that traditional industrial policy focused on startups and R&D doesn’t work and that looking at public service outcomes is a more effective growth measure. I’d add that investment in labour force skills is another investment which means that University [& FE] funding and student finance should be considered investment, although none of this seems important to this Government who are prioritising reducing the public debt before investment. Housing is not an investment in productivity; the reason for doing this is social, and not based on macroeconomic policy goals.
You can’t grow the economy while reducing the deficit! It works the other way round.
Originally published at https://davelevy.info on September 21, 2024.
