Hey, thanks for the comment. On Keynes (as I understand) there’s two types of government spending in play – one to boost demand in a recession, which is short-term and about getting money to people to spend (dig holes and fill them in, etc.); and the other is about public spending on investment to increase the potential size of the economy in the long-term.
To the wider point on cutting spending, it’s quite difficult to assign specific multipliers to different types of spending and I imagine there are lots of feedback loops, particularly on welfare i.e. you cut one benefit here, you increase another elsewhere.
Need to think about the growth of nominal GDP though as that's the basis of tax receipts and it's what used for the debt to GDP ratio. OBR forecast nominal GDP growth (so real GDP plus rise in prices) to average 3.8% from 2024-25. Labour obviously think they can get it higher with structural reforms. Borrowing costs in the short term definitely going up; but lots of short term debt issued during covid so if rates come down there is scope to take advantage of this. I do completely agree though that growth is ultimately the key (not just inflating away the debt) and the UK doesn't have lots of headroom so important to think about the efficacy and return on spending. Unfortunately that can often be more art than science when it comes to stuff like infrastructure and capital investment!
Hey, thanks for the comment. On Keynes (as I understand) there’s two types of government spending in play – one to boost demand in a recession, which is short-term and about getting money to people to spend (dig holes and fill them in, etc.); and the other is about public spending on investment to increase the potential size of the economy in the long-term.
In terms of whether this spending is sustainable, one of the key points is that so long as the nominal GDP growth rate exceeds the nominal cost of debt, then all else equal, the ratio of debt to nominal GDP falls. You don’t need to run a budget surplus to pay down debt if nominal growth is high enough (here’s a better explanation - https://www.cbpp.org/research/difference-between-economic-growth-rates-and-treasury-interest-rates-significantly-affects).
To the wider point on cutting spending, it’s quite difficult to assign specific multipliers to different types of spending and I imagine there are lots of feedback loops, particularly on welfare i.e. you cut one benefit here, you increase another elsewhere.
Need to think about the growth of nominal GDP though as that's the basis of tax receipts and it's what used for the debt to GDP ratio. OBR forecast nominal GDP growth (so real GDP plus rise in prices) to average 3.8% from 2024-25. Labour obviously think they can get it higher with structural reforms. Borrowing costs in the short term definitely going up; but lots of short term debt issued during covid so if rates come down there is scope to take advantage of this. I do completely agree though that growth is ultimately the key (not just inflating away the debt) and the UK doesn't have lots of headroom so important to think about the efficacy and return on spending. Unfortunately that can often be more art than science when it comes to stuff like infrastructure and capital investment!