ECONOMY: NO BOOM AND MORE BUST?

The BBC radio 4 debate between supporters of Keynes and Hayek at the London School of Economics the other day was well-timed, with Business Secretary Vince Cable amongst others now pressing for more quantitative easing. This may be inevitable at the UK and international levels, but is not something I support, despite having Keynesian leanings, for the reasons given below.

Measures to protect the international banking system from collapse in 2008, a fate which would have been particularly disastrous for London as a global financial centre and the wider British economy as a consequence, were nevertheless always going to have highly undesirable side effects. These include preventing necessary downward price adjustments, in the property market and public service provision, for instance, which would provide a much more sustainable economic stimulus than further quantitative easing. The continuing inefficiency of the UK financial sector, reflected for instance in the poor performance of pension investments compared to other countries, also remains an ongoing problem with, as yet, little prospect of cure.

Therefore, like the majority of those attending the LSE debate the other day, I found myself siding with supporters of Hayek, up to a point. I do, however, believe that there is a strong case for highly focused public expenditure, which some will regard as Keynesian, in areas such as basic infrastructure maintenance and improvement - as distinct from high profile mega projects like high speed rail - social rented housing provision, and employment programmes for young people linked to environmental technologies and conservation.

Unfortunately, because the UK economy remains particularly exposed to the continuing shortcomings of the international financial system, currently focused on the problems of the Eurozone, and the Coalition has a Schizoid - in the Osborne-Cable politically split personality -approach to economic policy and government spending, my concern is that a necessarily nuanced response to the present crisis will not emerge and we will have a more of the same situation in the immediate future. The question is whether this can stave off a further down-turn/recession, or whether another bust is inevitable because the international and UK response to the banking crisis of 2008 was both inappropriate and inadequate.