July 6, 2009
Gordon Brown, the U.K. Prime minister and Nicholas Sarkozy President of France according to the Financial Times have wisely issued a joint statement calling for a more aggressive approach to stimulus and refocusing of attention on the need to fight the recession and promote growth as opposed to remaining obsessed by fiscal conservatism and the problems of balancing the books in the future. They are quite correct to do so because as I have pointed out before there is a possibility that the downturn will continue to be severe and that the stimulus adopted , particularly in Europe is too small to do the job that is needed. Fortunately France has been well organized in getting its stimulus infrastructure money out the door and spent on a wide range of worthwhile projects including spiffying up its cutural heritage through investments in museums, historic chateaux, and other popular tourist attractions.
A good chunk of their money will be spent before other countries including the U.S. and Canada will have spent anywhere near as large a percentage of the monies they have approved. It is critical to understand that it is not enough to announce the spending. You actually have to spend the funds to ensure that the allocated monies circulate and do their job in sustaining aggregate demand.
Gordon Brown has been subject to foolish fiscally conservative criticism at home by opposition politicians. But he should simply get on with job of pumping out the spending and ensuring that the Bank of England continues to keep interest rates close to zero.
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