Tuesday, January 06, 2009

Fiscal stimulus

A quick word on the subject of fiscal stimuli.  It has become part of the Brown central line that ‘the entire world is in favour of a fiscal stimulus’ and that therefore any move by the Tories to reduce any part of public spending will be going against the opinion of the globe at large.  It’s an argument made by Steve Richards here:

As Barack Obama prepares to make a massive fiscal stimulus and other countries follow suit, Cameron is virtually alone arguing for a spending cut without specifying where the axe would fall.

Now, Richards is rather missing the point here.  Cameron is not looking (yet at any rate) to cut spending in order to reduce borrowing.  He’s is aiming to cut spending in order to fund a tax cut.  Both tax cuts and public spending are a form of fiscal stimulus.  Transferring money from one to another is not acting against the principle of a stimulus.  In fact it’s entirely possible to argue, and I think right to do so, that to transfer money from public sector spending back to the pockets of the people will have a positive impact on the economy, and therefore increase the impact of the fiscal stimulus.

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