03 December 2012

"Failure was Predictable"

In anticipation of the chancellor's Autumn statement, Lord Skidelsky goes on the attack:
The chancellor’s policy is based on the wrong theory of the economy; the BoE’s on the wrong theory of money. Failure was predictable.
 His argument is simply Keynesian. Keynes would have argued that:
 ...cuts would reduce the level of total spending in the economy and thus perpetuate the slump.
As for the bank:
The BoE’s mistake has been to believe it is the supply of money that is critical for economic recovery; Keynes said it was the demand for money.
His solution is to restore the programmes of capital investment, accelerate infrastructure projects, expand the programme of the Green Investment Bank and  replace the bank's inflation target with a nominal income target.

As Will Hutton once said - Keynes is best.

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