Brown morphs from Buffett to Betty Boop (Tunbridge Wells Liberal Democrats)

Tunbridge Wells Liberal Democrats <info@twlibdems.org.uk>

Brown morphs from Buffett to Betty Boop

November 2, 2008 12:24 PM

New economic initiatives must be applied intelligently, however they are dressed up

A few weeks ago, Gordon Brown copied legendary investor Warren Buffett's initiative when Buffett invested capital into US bank Goldman Sachs. Gordon Brown then suggested the same for some of Britain's well-known high street banks. Unfortunately, Brown took ordinary shares in return while Buffett received higher quality preference shares. Other countries subsequently followed Buffett's initiative.

This may have stabilised the financial crisis but there is an economic crisis emerging as countries face the prospect of recession.

The UK's proposed solution is to 'spend, spend, spend'. While Keynesian economics is respected it cannot be applied simplistically.

As the Economist has noted this week 'Government spending, say on infrastructure, might have lasting benefits, but it has a long lead time and is often wasted'. Additionally, public investment should not favour specific industries or companies.

Public spending should be applied in a smart way. And that is the problem for the UK government. Public spending is partly responsible for why we face a severe economic downturn with the prospect of many lost jobs in the first place.

As Chancellor, Gordon Brown tried to eliminate the economic cycle by boosting public spending by, for example, creating new jobs for civil servants. Observers only need to look at the numerous cases of lost sensitive government data to see how wise that was.

Consequently, because reserves were so run down instead of increased when times were good, Britain no longer has the money to follow the lead of the United States for example, and introduce much needed tax cuts.

Instead the UK Government is looking to borrow even more, something that will have to be repaid eventually. So the UK is now trying to position itself so it can throw good money we can little afford, after bad.

A group of 16 economists have recently written to the Telegraph stating that a public works programme to spend the country out of recession was 'misguided'.

Just increasing public spending in a deep and prolonged recession is not a magic bullet. If done, it must be done intelligently.

No matter how this is dressed up, given the Labour party's record it is an initiative we have little confidence in.