Feb 19, 2009 Letters
There are some concerns about the size of deficit spending in the Government of Guyana’s Budget by the usual suspects.
Nobel Prize Winner in Economics, Paul Krugman argues that in tough economic conditions, Friedman’s Monetarist Policy does not work; and the way forward to address difficult economic circumstances, as unemployment, etc., is to apply Fiscal Policy which involves huge deficit spending by government.
And Krugman notes that Keynesian thinking drives President Obama’s stimulus plan in the U.S.
The Guyana Budget, using Keynesian philosophy, provides the wherewithal to revive the economy amid a creeping world recession and the U.S. credit crunch. Guyana may be a long way from the long arm of the depression-like conditions of the developed world.
John Maynard Keynes’ ‘The General Theory of Employment, Interest and Money’ (1936) has stunning relevance to the U.S. credit crunch. Reich (1999) explains Keynes’ theory as follows: “In order to sustain full employment, governments would have to operate deficits when the economy decelerates; this is so because the private sector may not have the proclivity to invest as much as necessary.”
And so, as the private sector markets reach saturation, investments decline, creating a treacherous cycle – declining investment, fewer jobs, less consumption; and if no government intervention happens, perhaps, there may still be some balance reached in the economy, but this would be at great cost – rising unemployment with mounting social and economic disadvantage.
The U.S. Employment Act of 1946 endorsed Keynesian economics thus: “The continuing policy and responsibility of the Federal Government…to promote maximum employment, production, and purchasing power.”
The frozen credit markets worldwide certainly require massive government interventions into the economy via not only a Keynesian injection, but also an inoculation with a Marxian base.
The Government of Guyana Budget of 2009 will provide, inter alia, huge infrastructure supports to promote industrial development, coupled with huge spending on roads and bridges, air transport, sea defences, and the Lethem-Georgetown panorama.
This huge proposed spending Guyana’s Budget 2009 is essential to the National Development Strategy’s vision for a better Guyana. And applying Keynesian thinking is a good.
But as Krugman puts it in the U.S. context, there will be the demand to rationalise the costs of this huge spending with the benefits; and the Guyana Budget Debate, currently underway, will articulate the evidence on the cost-benefit picture.
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