As the Pre Budget report approaches, Gordon must come to understand that “there ain’t no such thing as a free lunch”. Whatever the possible catering policy in Number 10 and the Palace of Westminster, the world of economics unfortunately does not quite work like that. This is an unfortunate common sense principle of economics: somebody always has to foot the bill.
Gordon wishes to draw an election battle line, arguing Labour is the party of growth, whilst others are anti growth. He makes occasional gestures to our debt crisis, but the strategy is primarily tax and spend focused rather than spending cut driven (to maintain consistency and his core vote).
His argument is that government must keep investing, so we can grow our way to prosperity. GDP= C(onsumption)+G(overnment spending)+I(nvestmnent)+X(net exports). Therefore, the logic is that if we increase G, we will increase GDP.
Unfortunately there is no such thing as a free lunch. Where does government get its money? You and I, the taxpayers must foot the bill. As we pay the bill, we have less money to spend on our own consumption and investment. This policy of stimulus is a road to hell.
Government is worse at spending money than its people are. For every government multiplier, there will be a negative multiplier of an equal or greater size, so the policy at best will not do very much, and at worst will have a negative effect on growth. Of course, people may not immediately spend all their money as the government might, but private saving, private investment, paying off debts, and fixing balance sheets are essential to restructuring and economic recovery.
Rather than maintain and expand government spending and uncompetitive taxes (to fund this spending), a policy of growth should slash taxes , cut expenditure, whilst understanding we are severely restricted by the debt straight jacket imposed on us by Gordon’s historic spending binge.
To make one exception to the rule: Gordon, Darling and the rest of the Labour apparatchiks, if you disband your government now I would gladly host a celebratory lunch, this one’s on me.