Thus, he added: “Overpaying for an entirely unnecessary high speed railway makes a much bigger splash in the national accounts than spending a bit more on training teachers. The key point is that the type of fiscal spending that might enhance potential growth rates is not the type of spending that would enhance present growth rates.”
For Bond, the problem is that in the current context of depressed productivity growth, “it is entirely likely that excessive counter-cyclical policy – both fiscal and monetary – risks doing more damage to potential growth rates than it benefits immediate growth”.
To borrow a metaphor from Brian Horrigan, chief economist at Loomis Sayles: “Sometimes doctors identify a cluster of symptoms occurring in a large number of patients, and they give the cluster a name, even if they don’t understand the causes or aren’t sure of the treatment…Economists do the same.”
Horrigan was talking about secular stagnation, which he calls “the economic version of “chronic fatigue syndrome,” a mysterious malady with a name and endless controversy about where it comes from and what to do about it” but the description can be applied more broadly.
There are all manner of explanations for the current state of the global economy and all sorts of reasons for it to do one thing or the other and that is the context in which fiscal stimulus must always be viewed.
There is no doubt that fiscal spending can boost growth rates, both short term and long term, if it is done right, but that is a big if.
