From the TUC

Who pays the costs of recession?

26 Mar 2009, by in Economics, International

Adam has already blogged on whether Mervyn King is right to oppose a fiscal stimulus. His intervention has certainly had a political impact, and I fear its repercussions will continue to reverberate.

The main argument used by the Conservatives – the Governor’s was naturally a bit more sophisticated – is that spending today loads tomorrow’s tax payers with debt.

Of course there is something of the truism in that, even if, as Adam says, it draws heavily on the Thatcher era idea of the nation’s finances as a household budget. Yet boosting the economy now so that it is more productive tomorrow is good economics if it makes it less of a burden to pay back later. Taking money out of a recession ravaged economy with a much reduced productive base will be painful even if the deficit doesn’t rise.

But while Conservative economics fails to take this into account, it does do us all a service by raising the question “who should pay for the recession?”

At the moment in the UK it is those who are losing their jobs and homes. On the global level the Overseas Development Institute warns that:

collapse of the global economy would cost 90 million lives, lead to an increase to nearly a billion in the number of people going hungry and cost developing countries $750bn in lost growth.”

Making every effort to help them is not cost free, but those costs can at least be fairly shared with those with the broadest backs – even some of those who have done so well out of two decades of deregulation.

As a majority of people in the UK won’t lose their jobs it may be that confining the costs of the recession to the unemployed and leaving them to rot might make good electoral politics. But I doubt it. Very many people fear losing their jobs and many others will have friends or family members on the dole or fearful of becoming so. This is no more than a modern version of ‘unemployment is a price well worth paying’.

I’m struck by the fact that those who didn’t see the recession coming seem to be the main opponents of a fiscal stimulus while those who did, pre-eminently David Blanchflower (see the full paper), are the ones calling for action against unemployment.

And if we are talking about what we bequeath to the next generation the impact of climate change will be far greater than an increase in the national deficit. Putting a fiscal stimulus into a green new deal that helps move us to a low carbon economy and adapt to the climate change that is already in the system will be a much better legacy.

How high is the Bank of England above sea level?

2 Responses to Who pays the costs of recession?

  1. Mark
    Mar 26th 2009, 4:27 pm

    Well, according to http://www.earthtools.org, it’s 33 metres or 108.3 feet above sea level. Flippancy aside, Norman Lamont’s comments of yesteryear were well worth resurrecting. His successors on the Conservative front bench may be a bit more cautious about what they say and how they say it while in opposition, but has the underlying thinking really changed?

  2. sm
    Mar 27th 2009, 1:46 pm

    Maybe its a question of where the stimulus is being applied?

    Whether this is under the gun or to keep a lid on the extent of the nod & wink links between the politicos,bankers etc with reserved places in the taxfunded lifeboats.
    Trickle up , cos trickle downs not working.

    With millions unemployed we are mad not to utilise this workforce in public projects (not those the private sector want to undertake), which can be scaled back as the economy picks up.
    The major flea, a lack of comptence in government to control spending. We could create an energy revolution but we may have to wait & hope for competent government at the next election.

    Mervyn King is entitled to his view, heaven knows we need plurality opinion.
    IF,I say If the money was spent wisely it would have beneficial returns visible into the future. The markets would then lend, they do like visibility on future earnings, especially now,they barely trust themselves.

    We dont have to be exactly right,roughly will do.Paying for idleness is not rationale, where alternative projects are available to be fulfilled, they should be engaged, funded by the asset created. Toll roads/bridges,windfarms,A severn barrage,new bridges, all with wind turbines etc built in Britain.

    And please no more PFI, its just smoke and mirrors,linked to offshore financial engineering.
    We can guess where that leads to.

    Get out of the EU its constraining our recovery and freedom to govern.