In the long run, we are all dead, Keynes famously remarked. As a justification for pump-priming an economy out of recession, it still has considerable appeal.
Witness the strong signals sent out by Alistair Darling this week that his Pre-Budget Report – far from being fiscally conservative – will ‘reprioritise’ public spending in the direction of major infrastructure projects, housing and energy.
Future Spending Review money is likely to be fast-tracked into job-creating schemes. Extra funds will be front-loaded into building social housing. It’s all looking very 1930s New Deal.
‘At a time like this, it would be wrong to start taking money out of the economy,’ said the chancellor. ‘Much of what Keynes wrote still makes sense.’
No matter that borrowing reached a record level of £37.6bn in the first half of the 2008/09 financial year, inflation is at 5.2% and the fiscal rules are a busted flush. Nor that Mervyn King has admitted, for the first time, that we are now ‘entering a recession’.
The Bank of England governor’s bleak forecast of a ‘long march back to boredom and stability’ has, if anything, fuelled the neo-Keynesian revival. This is exactly the time, says Gordon Brown, to ‘spend more to get the economy moving’.
Critics claim, with some justification, that a spending splurge now simply delays the pain of tax rises and spending cuts. But the Conservatives’ alternative – modest tax breaks for employers – is hardly convincing, either for the short or longer term.
The Treasury’s difficulty – apart from its extraordinarily tight fiscal position – is how to raise the finance for its programme of public works, when the bankers are declining to lend.
PFI projects are already costing more and taking longer than in pre-credit crunch times, and the government’s affordable housing programme has been hit by the financial squeeze. The near-collapse of the debt markets has taken its toll on other public-private partnerships too.
But, as King reminded us this week, we are living through ‘extraordinary, almost unimaginable’ times – that perhaps require extraordinary solutions.
One thing it isn’t going to be is boring.
