Who pays the costs of recession?
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?