Knifonomics (part 20): money growing on trees

This is a straight lift from the unusual Alexander Boot, a man whose interesting CV and witty skepticism always makes him worth reading. Something of a riposte to the Balls/Brown/ pseudo-Keynes school:

As any serious economist will tell you, promiscuous government spending leads to huge debts, and huge debts lead to crises and stagnation –

Ed Balls’ garden

especially in countries that aren’t free to set their exchange rates as they see fit. In the fourth quarter of last year, France’s national debt was €1,700 billion, 83 percent of her GDP. By comparison, her debt in 1985 was a dangerously high but still manageable 37.9 percent of GDP. The cost of servicing such a huge debt today must be similar to the country’s total budget in 1985.

François’s remedy? Dramatically increasing government spending, thus providing for growth – and damn the austerity. We, and obviously the French, are so conditioned to saluting whenever growth is run up the pole that we don’t distinguish good from bad growth. But it’s useful to remember that the private sector is like a muscle, and the public sector is like a malignant tumour. Either can grow, but with very different results.

Allow me to clarify. Let’s say a government borrows £100,000 and uses the money to hire an optimiser of facilitation. Then it borrows another £100,000 and hires a facilitator of optimisation. The country’s GDP has just grown by £200,000, but her economy has suffered serious fiscal damage, to say nothing of the moral kind. The muscle hasn’t grown; the tumour has.

The Knife works alongside numerous NHS equivalents of “facilitators of optimisation”. Believe me, you’d be better putting their salary on a horse.

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