As if Winston Churchill wasn’t a hard enough act to follow. Now Prime Minister Boris Johnson has started modelling himself after US President Franklin D. Roosevelt. In his latest political manifestation, an upbeat Mr Johnson addressed a somewhat underwhelmed nation on 30 June 2020. His immediate audience of 21 socially distanced listeners, including audiovisual personnel, had congregated for this momentous event in a small auditorium at Dudley College of Technology in the West Midlands.
With his attempt at lifting the flagging spirits of a coronavirus-fatigued nation, Mr Johnson triumphantly outlined the first steps of his post-pandemic economic recovery programme. He took the opportunity to introduce an interventionist programme of fiscal expansion, one of increased government spending, while promising not to return to the bad old days of financial austerity. In the process, he confirmed that he was “not a communist” as he looked to “build, build, build” the country out of recession.
Mr Johnson proudly compared his £5-billion package of infrastructure development (hospitals, schools and roads), along with several other costed measures, to Roosevelt’s New Deal. Almost immediately, this latest version of the New Deal was being compared unfavourably with the much more ambitious and more thoroughly planned original version, which between 1933 and 1939 helped lift America out of the Great Depression that followed the 1929 stock market crash. Unlike this latest version, the original New Deal was based on a comprehensive set of legislative (agricultural, banking, industrial relations, labour, relief, securities) and home financing measures. A massive increase in government spending, financed by increased borrowing, created demand and raised employment through the building of hospitals, schools, libraries, roads and highways, bridges, reservoirs, irrigation canals, markets, parks, theatres, recreation spaces, and public artworks. While some may disagree over the extent to which the New Deal benefited America’s economy, its many monuments continue to testify to its many successes, such as the nine dams and hydroelectricity generation plants of the Tennessee Valley Authority.
This takes us to the bigger question of whether one spends one’s way out of a financial crisis or whether one cuts back on spending. It is important to remember that you should not equate sovereign national debt with private household debt, as the rules of the game are quite different. Nations are allowed to accrue more debt in the interests of a wider public interest. This national debt is normally held by a variety of overseas governments and private investors, both British and overseas. The most significant part of this debt-net liability-is that portion of the national debt that is held by overseas governments and investors. National debt can be variously extended, renegotiated, resold or even written off in ways that are not normally available to ordinary households, as nations are generally too big to be allowed to fail because of unpaid debt. For example, Britain only finally paid off its post-World War Two debts on 31 December 2006 .
Austerity policies are not good for a nation’s health, economic or otherwise. They cause great financial hardship for citizens , prolonging and intensifying the pain without treating the underlying causes. Recent examples of ill-advised fiscal contractionary policies are to be found in the experiences of self-imposed British austerity and that which was forcibly imposed on Greece by the so-called “troika” (European Commission, European Central Bank, and International Monetary Fund).
A recent, and particularly impressive, example of infrastructure expansion took place in China. Government spending ballooned in response to the 2008 global financial crisis. Massive investment led to a construction boom, involving new housing, roads, motorways, high-speed trains, underground railways, water and power supplies, and telecommunication networks among others. These developments considerably speeded up China’s ongoing transition into a global economic superpower. If anything, the infrastructure expansion was at times a bit too energetic- leading to the emergence of many so-called “ghost cities”, full of empty high-rise apartments and shopping malls.
Fiscal expansionary policy has not been universally accepted as a panacea, especially by monetarist economists such as Milton Friedman. However, it seems possible to justify increased infrastructure spending in times of crisis. As a nation’s public utilities are either upgraded or expanded, new jobs are created. This in turn increases aggregate demand for products and services, encourages business investment, and boosts consumer spending. The result is continued economic growth. It is, however, important that new investment favours initiatives that can improve the well-being of the people as well as of the nation-state. Public social housing, cycling infrastructure, and renewable energy sources are among the initiatives that come to mind. When it comes to the United Kingdom, Mr Johnson’s vision appears to be the right one. What is lacking, for the present, is the scope of his ambition, along with important matters of detail.
Ashis Banerjee