Tuesday, 22 June 2010

Spend Now, Cut Later - But Stop Wasting Money

Leading economist, Paul Krugman, continues to argue forcefully that Governments of economies in recession should spend now to support economic recovery and repair their giant budget deficits when the recovery has taken hold. If governments engage in "penny-pinching" now, he argues, economic recovery will take so long that the unemployed will become unemployable, and there won't be enough tax revenue generated to ever get the deficit under control.

This does seem wise, but also seems to assume that all government spending supports economic recovery. But surely idiotic schemes that employ few people and merely generate further cost are not going to aid recovery. Similarly, investing in ways to remove structural inefficiency would seem a better re-allocation of existing resources than simply waiting to fix the inefficiencies when the good times roll. Presumably this would mean re-assigning the management consultants who were tasked with dreaming up New Labour policy nonsense to improving public sector efficiency instead.

Or does Mr Krugman want us to keep wasting money at the same rate?

Image from Look Up Fellowship
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