Tuesday, 1 June 2010

The "taking money out of the economy" fallacy

To Gordon Brown, Ken Livingstone, and other assorted lefties: government spending being cut does not "take money out of the economy". There is only £X in the economy, and it will remain that way unless the Bank of England decides to print more.

In fact, spending cuts represent money being returned to the economy. Either they result in tax cuts, in which case it's back in the real economy for obvious reasons, or a cut in borrowing, in which case investors are spending less on bonds and funding more capital investment, mortgages, etc.

The left never have been very good with economics.

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