Douglas Carswell's Blog

Back to Keynes, corporatism and the 1970s

The government has just announced it is to underwrite �50 billion of infrastructure investment.

This will, we are told, get the economy moving. It won't, they assure us, cost the taxpayer.

Hmmm.... For two decades Japan's economy has been in a prolonged slump, following a credit-induced boom that left it with high debts and zombie banks. Sound familiar?

Just like today, Japan tried massive government-backed infrastructure investment to boost the economy. Trillions of Yen later, she remained in a rut.

I fear that the only thing that will grow following today's announcement is the share prices of those few corporations lucky enough to be able to spend money at your risk.

What about this �50 billion initiative being cost free?

Ministers are keen to point out that the taxpayer will only have to stump up if things go wrong. Given the history of infrastructure projects, what do you think are the chances of that happening?

Pretty high, I'd say. Especially when you take into account that the only reason the state is stepping forward with the credit guarantees is because no private investor is willing to do so risking their own money.

Perhaps the real danger of today's announcement is that it legitimises Ed Balls economics. Until now, the idea that fiscal stimulus could produce long term prosperity had not been taken seriously by anyone outside Labour circles for years. Indeed, Labour's Jim Callaghan specifically ruled it out in 1976.

Today's announcement helps legitimise pre-1976 Keynesian thinking again. It is a boost for corporatism, not for free market wealth creation.

We are moving in precisely the wrong direction. The failure of the government's monetary stimulus ought to mean we move towards a new, post-monetarist, properly free market approach. Instead we are lurching back to Keynes, corporatism and the 1970s.

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