The Credit Crunch is over

The Credit Crunch is over… Batman & Robin’s Fiscal Stimulation Package will save the day...
 

I’m sure I wasn’t alone in breathing a big sigh of relief when I read that, “The Treasury Minister has given the green light to a number of fiscal stimulus bids.  £500,000 has been allocated to Economic Development to provide extra support for businesses.”

 

Western economies had only a few weeks ago been teetering precariously on the brink of destruction.  The OECD warned that economies with reliance on finance could expect particular punishment.  So, £500k to Economic Development is definitely a step in the right direction.

 

Instinctively I’d like to see governments responding by spending less money, and by doing less. But that’s naive.  Even a hardened monetarist like me has to concede that rapid, co-ordinated international action has definitely mitigated the short-term pain of the crunch.  The fact that it’s created long-term structural weaknesses in Western economies is a fact that future politicians and economists will need to worry about.

 

Given that governments must be seen to do something, how can the States stimulate activity?  In this Brave New World, decades of stable monetarist policy have been jettisoned in exchange for deterministic Government intervention.  The very term, fiscal stimulus, is Keynesian in origin.  How does it work?  Wikipedia’s example serves us well:

 

“For example: a company spends $1 million to build a factory.  The money does not disappear, but rather becomes wages to builders, revenue to suppliers etc.  The builders will have higher disposable income as a result, consumption rises as well, and hence aggregate demand will also rise.  Suppose further that recipients of the new spending by the builder in turn spend their new income, this will raise consumption and demand further, and so on.” (Source:Wikipedia)

 

But even ardent Keynesians would concede that it’s not enough for a government simply to spend.  Spending must multiply - it must trigger more spending within the economy - and it mustn’t create inherent market inefficiencies.  Economic Development initiatives, include the following:

 

• Business incubator - a short term solution for fledgling businesses

• Business angels network

• Enterprise grants

• Expansion of networking activities and “business-to-business” events

• Extension of Hospitality sector training scheme

 

Well, the initiatives are not factories.  So, at the basic economic level it’s difficult to see whether they will necessarily increase aggregate demand in the local economy.  But the bit I think that really does look like it might increase aggregate demand are the last three initiatives.

 

In the context of 0/10, and indeed “think twice buy local”, businesses will best serve the Island by increasing exports.

 

Jersey occupies a unique position on the doorstep of Europe, but without the legislative burden of the EU.  Intellectual Property serves as an example of another market, where as a small economy we can be more agile and create more opportunities than the lumbering leviathan of European administration.

 

Economic Development can best serve the local economy by focussing all of its efforts on reducing administrative burdens for local businesses, and creating new market opportunities.  Governments build train tracks, businesses run trains.

 

Kerpow Batman!

 

Emerging Industries Committee