Thursday, October 25, 2007

A glass economy

What a fragile thing is ‘the economy’!

Under-stimulate it, and you get recession.

Over-stimulate it, and it overheats.

It requires a Goldilocks approach to make it just right. But a Goldilocks approach is somewhat parsimonious, particularly in an election year.

So, if a government wants to give us back some of our hard-earned dough by way of tax cuts, this threatens to overheat the economy, ultimately forcing us to plough some of said tax cuts into servicing a heavier mortgage burden.

If instead a government wants to plough the money into infrastructure and services, this still threatens to over-stimulate economic activity that will cause more overheating.

The solution would appear to be for the Treasury to stack all that surplus dough into the back of their filing cabinets and just forget it’s there.

Don’t mention the surplus!

The economy must be served that it may serve us.


Blogger Caz said...

Yes, but unfortunately the punters refuse to "understand" that boom times do entail interest rate hikes and oodles of spending, of both the consumer and govmint kind.

They get equally hysterical if there is high unemployment and low spending.

Well, pick your poison.

The public believe the "just right" myth, just like a child.

Sometimes I think macro and micro economics should be mandatory in high school.

27/10/07 12:16 PM  

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