Austerity isn’t working – taking advantage of low interest rates could reflate the economy.
Borrowing at rates of interest currently well below the rate of inflation, in order to spend in areas that boost economic activity, and also act to reduce costs for people so that they can spend more of their own money – if it is done properly – actually makes economic sense. One of the most pressing social needs in this country is for new housing units, especially social housing.
Borrowing, at below inflation interest rates, to invest in a massive house and flat building program, would seriously boost economic activity, putting hundreds of thousands of builders to work paying more taxes and claiming less benefits, not to mention giving a massive boost, resulting in more prosperity and more jobs, to ancillary industries. And every person rehoused in a newly built social housing unit would be paying much less rent than they were privately, with much more spending power in their pockets to boost the economy still further. More housing being built generally, not just social housing, would also bring down house prices in a gradual way, again putting more spending power into people’s pockets as mortgage costs eat up a lower percentage of their incomes. There would inevitably be more downward presure on private rents in time as well.
And the increased economic activity, deriving from many more people working and paying taxes, many fewer claiming benefits, and from ever increasing high street spending by the public as housing costs use up a much smaller proportion of incomes for ever more people, would more than pay for itself. Increased tax revenues and reduced welfare payments resulting from such a wise policy of targeted investment would likely more than recoup the cost of the added borrowing necessary to kick-start it. And the deficit would actually come down MORE quickly – not less – in the medium term, with much less hardship all round along the way.
What the government is doing now is pretty much what governments did in response to the depression of the 1930s. It didn’t work then, and doesn’t work now. It seems they have truly learned nothing from history. You can’t cut your way out of a recession, and it is economic illiteracy to imagine that you can. What actually pulled us out of the depression back then was increased public expenditure – in that case on arms. I propose we do the same thing today, but with housing taking the place of arms, and in a measured and controlled way, and not in a way that gets ot of control. All increased spending must pass the test of whether – in the medium term – it will save more than it costs because of the extent to which it boosts economic activity.
This lot are thinking simplistically like frugal housewives, when what we need are visionary political leaders who actually know about economic history and the lessons it offers us, as well as a more thoughtful and visionary – and less simplistic – understanding of economics in the first place.