Knifonomics: part 4

What's the price of gold Gordon?

Andrew Alexander is a miserable old bugger, now at the Daily Mail. He has, however, a gift for phrasing things simply, and a deep knowledge of British politics and the economy. Quite  a few people have made similar comments, but as he puts it:

..Another all-too-evident problem is that the British Prime Minister is economically illiterate. Time and again he talks of the Tories ‘withdrawing £6 billion from the economy’ in their plan to cut the proposed rise in National Insurance.

This is economic nonsense which also defies logic.

Where does he think the ‘ withdrawn’ money would go  –  under the Chancellor’s bed? Into some enormous treasury safe? To spell it out so that even he can understand: The total spending power of the nation is divided between the private and the state sectors.

Some of that might go into savings rather than consumption  –  though you will not be surprised to learn that the Government has not saved a penny for donkeys’ years.

Even when the citizen puts money into savings, it does not ‘leave’ the economy. It can go into a bank or may be used to make an investment, such as buying shares.

Or it may be put into National Savings or Government bonds. In each case it is lending to others to spend.

Brown has apparently read the early works of the great economist Lord Keynes  –  and misunderstood him. In the thirties, U.S. banks and later European Banks were going down like ninepins.

Keynes argued for government spending to replace the money which citizens were genuinely withdrawing from the economy. They were hoarding cash because they would not trust it to the banks.

No such problem exists or can exist today, with bank deposits guaranteed. It is remarkable, however, that the Tories do not challenge Brown’s nonsense about ‘withdrawing money’.

Labour ministers repeat it because it sounds usefully alarming. The leaders’ debate would seem ideal for advancing Brown’s economic education, backward student as he is likely to prove.

I quite  like the image of Gordon hoarding our cash under Alistair Darling’s bed.


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