BECAUSE tax revenues are coming in a little higher than predicted last year, and public spending a little lower, the Office for Budget Responsibility is forecasting that public borrowing in 2011/2012 will be "only" £120 billion and not £127 billion ("Chancellor's numbers game", The Herald, March 17).
Unreconstructed Labour and SNP Keynesians therefore argue for a "give-away" Budget this week, in order to boost the economy. They misunderstand the cause of the continuing crisis.
In a recent research report London wholesale brokers Tullett Prebon refer to a "deleveraging" recession, not a "destocking" recession. The latter is what Keynes analysed: in anticipation of lower consumer demand ahead, firms cut back on stocks, production and workers. Keynes said that government should then borrow idle household savings and spend them to stimulate demand, output and employment. However, in a deleveraging recession, consumers, many firms and government are desperately paying off debt and are neither saving nor spending. The result is that 70% of the UK economy – construction, real estate, finance, health, education, public administration and retailing – "has become incapable of growth'', because its "two erstwhile drivers (private borrowing and public spending) ... are now dead in the water''.
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