A return to growth

Well it is official. The UK economy is growing again if only just. It has taken some time and it certainly answers the prayers of the Chancellor of the Exchequer. 

This means that, in all probability, the coalition government will go for more debt reduction. My argument has been though that the two go hand in hand. Debt reduction is best done in times of growth. Which is more along the lines of Keynesian thinking. Governments spend themselves out of recession but then haul themselves back in in the better times. 

I know this has been one of the worst recessions for almost 80 years but I believe that this is the way of government. In such troubled times there is no one else able to get hold of/print/ borrow the sums of cash needed to restart growth. This present growth is something of a "dead cat" bounce in my opinion. By that I mean we had hit such rock bottom the only way is up. 

So far the only tool the government has used is Quantitative Easing. Which is akin to just printing extra money. The total I believe stands at around the £400 billion mark. Now I may not understand QE as it often shortened to, but if the government was able to magic that from a hat for the benefit of the banks I believe it could have found a few billion here and there to promote some useful works - infrastructure. 

We could be 3 years into a high speed rail network construction for instance. if the government were spending £32 billion on that they would claw some of it back as tax as workers need paying but they would need to spend their money and that would mean extra VAT and then they would pay income tax and National Insurance. At the end we would have a railway worth the name and the business connections worth the name. 

They could have invested in some power generation while we are at it. Letting the market decide on energy is all very well but it seems 30 years of the free market has made investing in power generation too risky for most companies. The risk to this country as a result of a lack of investment in energy production is that we will reach a point in 5 years that may see blackouts a reality. 

One power station, Didcot, is rated at 2 GW. To replace that power with, say wind turbines, would require the construction of at least 1000 wind turbines. It closed in March of this year. Are we building that many wind turbines?

High speed internet UK wide? How about 4G? 

There are plenty of other projects that are not so high profile but with benefits, either industrial or social, that the Government could have invested in, instead of banking, with a direct impact on the lives of ordinary people. I know it is a Conservative mantra about the choice of the individual, which is laudable of course, however Governments have a duty of care.  Governments are bombarded by huge amounts of data but also have the administrative power to be able to deal with it and usefully process it. There comes a point where there is too much information to impart and Government must take a decision for us in our own interests. Letting the market decide goes so far but, in my opinion, it will shy away from major choices that confer greater risk of return. The consumer cares only about the unit cost so that, in a way, the consumer is getting the market it deserves.

Wandered a bit off topic!

Growth

On a recent BBC political magazine programme a former Government minister remarked that after his time at the Treasury it was remarkable how quickly a governments financial fortunes turned around once growth had set in. Which was my original point. Cutting debt is one thing but with no growth to back it all you are left with is recession.