I've written a letter to tomorrow's Sunday Telegraph, criticizing the government's proposed public works programme and arguing that if there is to be fiscal stimulus it should be via tax cuts. I arranged to have a number of other leading economists co-sign it. Here is the Sunday Telegraph's story.
Here is the text:
SIR - Further to your interview with Alistair Darling (October 19), we would like to dissent from the attempt to use a public works programme to spend the country's way out of recession. It is misguided for the government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink "too rapidly" in a recession. Thus the government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources.
Furthermore, public expenditure has already risen very rapidly in recent years, and a further large rise would take the role of the State in many parts of the economy to such a dominant position that it would stunt the private sector's recovery once recession is past.
Occasional economic slowdowns are natural and necessary features of a market economy. Insofar as they are to be managed at all, the best tool is monetary and not fiscal policy. It is inevitable that government expenditure and debt naturally rise in a recession but planned rises in government spending are misguided and discredited as a tool of economic management.
If it is believed that this recession has features that demand more active fiscal policy, which is highly disputable, taxes should be cut. This would allow the market to determine which parts of the economy shrink and which flourish to replace them.
Here are the signatories:
Andrew Lilico; Philip Booth; Nigel Allington; Tim Congdon; Laurence Copeland; Kevin Dowd; John Greenwood; Richard Jeffrey; Ruth Lea; Kent Mattews; Alan Morrison; Sir Alan Peacock; Mark Pennington; David B Smith; Peter Spencer; Trevor Williams
Two interesting related stories:
- John McFall, Labour chairman of the House of Commons Treasury Select Committee, called yesterday for tax cuts.
- Independent on Sunday reports that government plans a "green New Deal".
