We have experimented with bold monetary policy, but are constrained by
pre-Keynesian fiscal orthodoxy. Since the financial crisis, the UK economy has
been supported by extremely low interest rates and a major programme of
‘quantitative easing’ (unconventional money creation) by the Bank of England.
Fiscal austerity – public spending reductions and tax rises – has left the UK’s
recovery in this period slower than almost all of our major competitors. Growth is
now being fuelled again by consumer spending, based on rising debt and falling
savings. With monetary policy having little further scope to deal with a slowdown,
there is a strong case for increased public investment now to drive demand.
It was actually Keynes who described that paradox of thrift. When in a recessionary hole you want people to save less of their income, spend more of it, in order to climb back out of the hole. That’s actually Keynes’ own damn argument.