This is all upside down. As you know, Al has rediscovered Keynes and wants to do the opposite of what James Callaghan said you can’t do, and spend our way out of recession.
But, as you also know, the real problem earlier this decade was not really that spending was too high in certain countries, rather, it was that saving was also too high in other countries.
As America’s Joe, Spain’s Carlos and Britain’s Tommy spent, Fritz saved.
The solution to it all, then, is not really for the UK to open up the coffers at all; rather, it is for those countries that have been under-spending to open up.
If that analysis is right, then yesterday saw important news from Germany.
Imagine a German Alistair Darling, then that man is Peer Steinbruck. Well, he may not look like our Al, but he does have the German equivalent of his job.
But Peer is not, or so it appears, a fan of Keynes. “The government cannot subsidise the economic crisis away,” he said yesterday. Even more to the point, he said Keynesian economics in the 1970s did nothing good for Germany, but did create enormous debt. He reckons Germans are “wallowing in gloom,” and says the last thing he wants is to see a kind of “bidding war” in stimulus plans.
His comments go right to the nub of the matter.
Back in the bad old days, in the 1920s, Germany did follow a kind of Keynesian plan – although it wasn’t called Keynesian, for that branch of economics hadn’t been invented then. The result, of course, was hyperinflation, and the result of that was the Nazi party, and you know the rest.
In post-war Germany, the people said never again, and priority was placed on ensuring no repeat of runaway inflation and keeping government finances solid. Towards that, it created a central bank with one remit, to keep inflation down.
In the UK, the 1920s were characterized by mass unemployment. In post-war Britain, people said never again, and no effort was spared in keeping unemployment down, even if that meant inflation.
For decades, Germany had an inbuilt distrust of Keynesian economics.
It changed under Thatcher, for Mrs T didn’t like Keynesian economics either, and funnily enough, Mrs T dragged the UK away from that approach, just as Germany seemed to have a Road to Damascus swerve to Keynes.
But now it has well and truly gone back.
The real issue, though, is this. The UK has got massive personal debt, and has become used to consumer spending levels that are unsustainable, and yet it seems many politicians and economists believe the answer is to borrow more.
In Germany, where personal debt is far more modest, it seems the consensus is to batten down the hatches.
Now, surely, they can’t both be right.
© Investment & Business News 2013