I’m really starting to wonder why it’s the worst academics who seem to get the most media, Maybe it’s because the good ones don’t make extreme statements.
Today, we have Keith Rankin from Unitec arguing that, as we are in recession, we should be increasing borrowing to inject cash and growth into the economy, as is National’s policy.
This is apparently classic Keynesian economics – the Government should run a ‘counter-cyclical fiscal policy’, borrowing to expand its spending, typically in infrastructure, during times of down-turn to provide jobs and stimulate domestic demand. That’s what the first Labour Government and many other governments did to help end the Great Depression. But you do it when there’s mass unemployment and spare capacity in the economy to be used by the new spending. If you borrow try to increase infrastructure capacity when there is very low unemployment and no spare capacity in the economy, as now in New Zealand, all you get is inflation.
Increasing borrowing when your economy is already at full bore and already experiencing higher inflation is like pawning your possessions to buy petrol to throw on the fire when you’re already too hot.
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