It is a dangerous misconception that a national economy is like a business or a household. For a start, we own our own bank and can print our own money.
The economy is not a ledger, but a machine, and it exists to serve us, not us to serve it. Responsible economic management is not about balancing the books on an annual basis, but ensuring that the parts of the machine are well-maintained and operate at the right speed and temperature. Profligate spending leads to waste and overheating, but insufficient maintenance leads to breakdown.
This is not a radical idea. The idea that economies need a stimulus of investment in a downturn, and a corresponding use of targeted taxation to moderate things when times are good is called ‘Keynesian economics’, after the ideas of British economist John Maynard Keynes. His ideas were put to work to help the world recover from WWII and were followed for decades after. The real radical idea was the determination to ‘balance the books’ through austerity, followed by the Conservatives after they were elected in 2010, and it has been a disaster. We cannot afford to make the same mistakes again as we recover from coronavirus.
Austerity throttled many essential parts of our society to the point that many things aren’t working properly. Despite all the pain, it has not led to us paying down any of our national debt. The Green Party supports investment to repair the machine of the economy and ensure that it functions for all of us.
A repair programme will be expensive, but it is considerably cheaper than the alternative of trying to limp onwards with a broken engine. It would undoubtedly have been better to conduct the necessary maintenance a decade ago, but here we are.
Our spending plans focus on investment for the future. If we spend on wise investment, that money doesn’t disappear into a black hole (cough… test & trace*), but turns into an asset that we can keep. If we must consider a national account ledger, then the value of that asset sits on the positive side of the ledger just as it would have if it was still cash.
This BBC article discusses how borrowing has increased to deal with coronavirus, and how that is justifiable.
*Let's put the £37 billion test & trace cost in perspective.
It is over 2/3 of the entire annual GDP of the Derbyshire and Nottingham area. That is a measure of the entire economic activity of all of us in the two counties over an entire year. Or if you prefer, it is approximately equal to the GDP of Uganda.
On another blog post I've imagined what could be done with an extra £5 million annually to support Derbyshire's bus services. £37 billion is 7,400 times £5 million.
Similar eye-watering comparisons are found when looking at the cost of expanding Trident, or of Brexit.
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