Home Economics Why You're Doing It Doesn't Matter, It's Still Stimulus

Why You’re Doing It Doesn’t Matter, It’s Still Stimulus

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Most macroeconomics is somewhere between nonsense and blind men feeling their way through a blizzard. But there are a few bits of it that are in fact right, given the assumptions made to ake the statements in the first place.

One of those is that stimulus is still stimulus whatever the reason you’re doing it:

Should Sunak not be going further still, and like Joe Biden in the US, engage in outright additional fiscal stimulus to get things going again, particularly in light of the extra drag on the economy inflicted by our final departure from the EU’s single market? This in itself should arguably be countered with stimulus if we are to prevent the shock to trade from inflicting long lasting damage.

What on earth do you mean, many will ask? With the national debt up by over a quarter in the last year, haven’t we already had enough fiscal stimulus to last a lifetime? Well not exactly. Indeed, it is questionable whether the humongous size of pandemic-related spending can rightfully be classed as stimulus at all.

Rather it should be viewed as a form of disaster relief, a way of partially compensating for the collapse in economic activity and tax revenues that lockdown restrictions have inflicted. The objective is not so much to pump prime demand as to prevent permanent scarring by merely supporting it during a year of Government imposed constraint. So once again, should the Chancellor not be going further still, and giving the economy an additional fiscal shot in the arm in order to get things properly motoring again?

All of that could be true. We printed money, bought the gilts with it, government goes and blows the cash on handouts and we did it all to prevent scarring, to support in times of trouble.

OK.

It’s still stimulus.

Think back to the basic Keynesian idea. There’s a lack of demand in the economy. The solution is for government to stimulate demand. It does this by either borrowing and spending or by printing money and spending. This increases the budget deficit and this, in and of itself, is the stimulus. What it gets spent upon and how doesn’t, in the crude sense, matter. It’s the enlarged deficit which is itself the stimulus.

So, have we just had a large deficit? Yep – so we’ve had stimulus.

It’s entirely possible to argue that we should allow the politicians to piss yet more up against the wall – you might be able to grasp my opinion of that idea from the language used – but it isn’t possible to say that we’ve not had stimulus because we were running a vast deficit for some other reason. It’s still true – large deficit means stimulus.

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2 COMMENTS

  1. I can think of a really effective stimulus, dump the lockdowns and let people get back to doing what they want. If the panic merchants are right, this’ll also mean white haired old retirees like me’ll get the chop, and the young workers can spend their money on themselves.

    Perhaps everyone’ll get really lucky and the drongos who’re pushing this nonsense’ll kick the bucket as well.

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