Economics 101: if you consume more than you produce, your standard of living is unsustainable and, unless you fix the situation, it will eventually come tumbling down. As a country we import more than we export equivalent to 8% of our annual domestic production. The current account deficit is projected to widen to 9.4% of GDP next year.
Which is why the Herald’s editorial is so dangerous. It tells us that we have a social duty to spend, spend, spend. This, we are told by the writer, who clearly has no knowledge of economics, is the way to boost our economy out of recession.
OK. So, we don’t want everyone to shut their wallets because that will just amplify the recession, in one of those vicious spirals so familiar from sixth form economics. But we can not and ought not try to spend our way out of recession.
All that an orgy of spending would do is means that we import more. Most of our manufactured consumer goods are imported and it is from overseas that more goods would have to come to satisfy any attempt at a consumer-led recovery. We would just end up even more in debt to others and more vulnerable to international crises. And we would just put already over-indebted households further in debt.
To get out of this recession, we do not need to just spend more buying wealth produced by others. We need to increase our capacity to sustainably produce wealth ourselves.
The right approach is to use the spare capacity in the economy during a recession – unemployed workers, idle plant – and use it to increase the productivity capacity of the economy by building infrastructure. That puts more people in work, increasing their consumer demand, and also gives us the ability to satisfy more of that demand from domestic production, as well as producing more exports to pay for our imports.
We need production-led growth, not consumer-led growth. We will not grow our economy, we will not become richer by selling each other Chinese-made crap.