How To Cut Public Spending: Is Fiscal Policy a Waste of Time? Politeia Lecture Series 2011

The Coalition has prioritized its policy of cutting the deficit. The cuts, say protagonists, are necessary to return  growth and confidence to the economy. Critics, however fear that cutting too far and too fast will damage hopes of recovery, and urge higher levels of spending to stimulate growth.

In the last lecture of Politeia’s current series, "How to Cut Public Spending", Professor Tim Congdon* suggested that the emphasis on fiscal policy is misplaced.

American and British experience over the last 30 years shows  that  reductions in the budget deficit have not prompted a withdrawal of demand from the economy. Indeed, cuts in the budget deficit have  been accompanied by above-trend growth in demand and output. He  will also suggest that the widely feared danger of 'a liquidity trap' once money market rates have been reduced to zero is illusory.

* Professor Tim Congdon is founder of International Monetary Research Ltd. He has was a member of the Treasury Panel of Independent Forecasters (the so-called “wise men”) between 1992 and 1997. Professor Congdon’s new book is Money in a Free Society, in which he takes issue with U.S. economists Larry Summers and Paul Krugman.