Friday, 9 September 2011

It’s the economy, stupid

There are many conflicting viewpoints about the causes and cures for the current economic malaise surrounding that region of the global economy formerly known as the “Developed World”.  Some argue that fiscal retrenchment is the only solution and that there can be no meaningful solution until governments begin to get their income and expenditures into some form of equilibrium.  Others would say that cutting expenditure now would have disastrous effects on global growth and risk tipping their economies back into recession.  History will, ultimately, determine which of these two viewpoints are correct, but it is surely not unreasonable to suggest that there is some truth in both statements.  

It is against this background that Barack Obama has announced overnight his desire to spend $450 billion on a job creation program for the United States.  He has the undoubtedly tricky task of trying to navigate this proposal through the US legislative process, but it will be a brave republican indeed who will stand in its way, particularly with elections appearing over the horizon.  Moreover, money spent on concrete proposals to create jobs which, in turn, produce salaries, expenditure, increase in demand and, whisper it quietly, taxation must be a better use of money (in the political if not just the economic sense) than simply buying back one’s own bonds.

In the end, in an environment in which the Greek economy shrank by 7.3% on an annualised basis in the last quarter, the prospect of this kind of economic hurricane sweeping through the global economic system seems to be focusing minds wonderfully.  “It’s the economy, stupid” was Bill Clinton’s campaign slogan in the 1992 presidential election race.  Perhaps today’s politicians are bearing this in mind.


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