Spenders to the rescue

Could economic salvation come through a ‘helicopter drop’ of new money?

It sounds such a ridiculously simple path out of our problems that it can’t be true. Can it? The answer depends on the response of businesses. Knowing consumers have more cash they may decide to produce more – but then again they may just decide to increase prices. Which is much easier. The only thing likely to discourage companies from that action is if competition is so intense they don’t expect rivals to follow suit. And we’d need to be sure that a sudden cash gift would be spent not saved. Far from certain given all debt that’s around.

Alternatively, if we’re at all concerned to make sure the people doing the new consuming includes those at the bottom, then the best approach is fierce job protection and higher wages in the private sector. And that needn’t jeopardise the fiscal position at all.

Otherwise, we’re waiting for those in well-paid work to regain confidence and start spending again. Saved by the affluent middle classes, without mortgages. The old in other words. It could be a long wait.

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