James Osborn

One conclusion can be drawn from the current economic crisis… no one has a clue what to do. From Keynesian ‘Fiscal Stimulation’ (Plowing money into the economy to sustain jobs and ride the way through the recession until things pick up again. The famous quote is ‘putting money in bottles and burying them underground’ to create jobs for the unemployed) to printing money, there are so many so-called solutions to the current global economic downturn that even seasoned economists are struggling to keep on top of it all.

The problem seems to lie in the fact that our economy is now so global that there is no way to factor in every exogenous variable. And economists know this. President Harry S. Truman once said ‘For pity’s sake, will someone find me a one handed economist!’ and this pretty much sums up the current problem;  No one man can come up with any model to factor in every circumstance and outcome of any one action. Economists can only make recommendations based on what they have examined in the past. Unfortunately this situation is unprecedented… in short we’re flying blind!

Although many parallels can be drawn between the current recession and the great ‘Wall Street Crash’ and the ensuing depression (such as widespread bank failures which make it harder to obtain finance for investment) this time is completely different. In the 1920’s politicians raised taxes and cut spending in order to attempt to combat the fall in GDP. In the post-Keynesian era governments are doing as much as possible to spend money. In the march 2008 the British fiscal deficit was estimated to be £43 billion which works out as 3% of the total GDP. In January this year (2009) net debt was £703.4 billion, equivalent to 47.8 per cent of gross domestic product. This sort of public spending in order to combat the downturn in private investment has never been seen before on this scale.

Although personally I agree with the economic stimulus my point is this. Even the brightest economic minds in the world cannot possibly estimate the full impact (or lack of) that this excessive spending will have on the economy as a whole. And if  the old adage still applies ‘A little knowledge is a dangerous thing’ then it has never been more important to look at both sides of the argument and take an even handed approach when pushing forward into the unknown.