If you\’re going to be a Keynesian Mr. Brown then you really should be a Keynesian

The study from the independent Institute of Fiscal Studies blamed Mr Brown for over-spending before 2007 for the severity of the recession faced by Britons.

Mr Brown\’s policies as Chancellor meant that Britain is now suffering from “one of the weakest fiscal positions\” among developed countries, the IFS said.

This was because Mr Brown had refused to match spending rises with tax increases after 2001, forcing the UK to borrow heavily up to and through the recession.

Keynes didn\’t just say that in the bad times you should widen the gap between spending and taxes collected to produce fiscal expansion. He also said that in the good times you should narrow said gap, to the point of it being positive, running a budget surplus, during the good times.

For two very good reasons: to reduce the debt that you ran up during the last recession of course but also to take some of the boom out of the economy. Fiscal contraction was, in Keynes\’ view, just as important as fiscal expansion at the right point in the economic cycle.

Given this that would make Nigel Lawson a proper Keynesian….for he did indeed run budget surpluses in the boom time.

3 comments on “If you\’re going to be a Keynesian Mr. Brown then you really should be a Keynesian

  1. Well Duh! Politicians just cherry pick the bit of Keynesianism thats popular (the spending bit, which they interpret as spending in bad times AND good ones too) and forget the rest (the unpopular tax rises and budget surpluses in the good times). Keynesianism as proposed by Keynes makes great sense. What governments end up doing is utter profligacy, waste and intellectual dishonesty.

  2. It’s a staggeringly simple thing that I’ve yet to see the media make much effort to pick him up on – the ‘not fixing the roof while the sun is shining’ jibe was well deserved but deflected with a jerk of his lower jaw.

  3. I thought that the link would take us to some nice if slightly irrelevant writing by Keynes on balancing the budget over the length of the business cycle. Instead we get some appalling hyperbolic ramblings from the Telegraph. Oh well.

    If we look at the sectoral balances from the last decade, what do we see? We see that the government deficit (beginning approx. Q1 02) and the household deficit (beginning approx. Q4 99) were matched by the current account deficit and the corporate sector surplus. What—it’s almost as though these balances were related somehow…

    The govt could only have reduced its deficit in the following ways: increasing household deficit; reducing the current account deficit; reducing the corporate sector surplus. That is, the government can only reduce its net indebtedness by increasing the net indebtedness of another sector. Sound like a good idea? Note also that since the corporate sector has been in surplus since Q3 04, any arguments about “crowding out” are totally irrelevant.

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