Chancellor Darling is not wrong to increase government debt in this recession in an attempt to increase the money supply and demand in the British economy because today unprecedented levels of private debt, secured against collapsing asset prices, threatens wide scale bankruptcy and destitution for working people interlinked with mass insolvency for companies.
However Darling also threatens to reboot the economy with the same virus which inflicted the recession in the first place, namely private debt for consumer spending. Would you advise a vulnerable, but still solvent, neighbour in the present climate to spend to the hilt or save for the stormy days ahead? Yet Darling’s VAT reduction prompts such people to spend.
Instead, Darling should consider two steps. One is to be far bolder in promoting immediate direct government investment in the economy for which we need a National Enterprise Board. Second, he must consider a huge devaluation in sterling (and yes some inflation) to lessen the amount of debt.