The man must be mad

Increase unemployment benefits! More student grants! Special social security payments! Tax rebates for low incomes! The man must be mad. Doesn’t he know that there are hungry bankers out there who need our money.

Luckily for us, the man is not Gordon Brown but Barack Obama who, unaccountably, does seem to have read the Keynes for Dummies book if not all of The General Theory of Money. The general stimulus package passed by the US legislature has to some degree been ignored here amidst the plethora of vast sums which are being handed out almost daily to ‘rescue’ the financial institutions. It does, however, reward a closer scrutiny.

The total cost of the package is $825 billion which amounts to about 2.8% of the US annual domestic product. The sheer size of this number makes it difficult to understand so let’s put it in UK terms. As the UK economy is, at current exchange rates, about 1/25 the size of the American, it helps to convert all the numbers to a British scale so in what follows everything has been divided by 25 and then converted to pounds. This means that in British terms, Obama proposes to disperse some £23 billion over two years.

A part of this is in the form of tax cuts for business which may not translate into spending but two-thirds of it goes to direct spending of various kinds. For example, a direct tax credit of £3.1 billion and an increase in unemployment benefits of almost £1 billion. Help to states to prevent education cuts comes in at £1.45 billion whilst money for highways and bridges amounts to £0.75 billion. £84 million will go to improving public parks, £37 million on rural water and waste facilities, on and on through dozens of items down to £1.4 million for research into alternative fuel pumps. (All this in UK equivalents remember).

There has been some criticism of this package on the grounds that it has too much ‘pork’, that is projects in the constituencies of influential politicians and there is probably some truth in this. It has also been criticised for being too little with some estimates for the level of stimulus required to return to full employment three times or more the proposed amount. But it is certainly a genuine effort to boost actual employment.

On 17 March, the New York Times reported on the ‘race’ to be first to actually implement a project financed by the stimulus package. (www.nytimes.com/2009/03/17/us/17shovel) In a very tight finish, the winner was deemed to be the California Conservation Corps who had 18 workers doing “trail work” in the San Bernardino National Forest. And, lo, there is a picture of them, stalwart chaps in hard hats with their shovels hitting the dirt. Close behind was the Missouri Department of Transportation which had started the approval process for work on a dilapidated bridge within minutes of Obama actually signing the bill. Presumably the grants to train health workers might engage a wider spectrum of workers but it is a start.

How different to our own neo-Keynesians whose direct stimulus package to date consists of…well, what does it consist of? Nothing? Almost nothing? Something so close to nothing that it resembles an economic neutrino? Certainly the blessed Lord Mandelson does seem to go to a number of lunches which must count for something towards keeping the catering industry going. We know that on 20 March he visited the North East “to meet with local businesses and see how they are taking advantage of the new global low carbon economy” and that he had a breakfast meeting before going to the Nissan factory. We also know that his Department wants have a “vision” for a low-carbon economy and is anxious to hear our views on this. But actual hard cash seems to flow one-way only, that is bankwards.

The question has to be asked: do these boys really want to get the economy out of recession? Is this some kind of Manchurian candidate scenario where the long-time sleepers set up by various Trotskyite sects finally get to work to doom British capitalism? Or are they just so deeply, painfully in hock to their banker advisers that they cannot get their heads round Keynesian economics, Level 1. In the 1930s, my unemployed grandfather was given a shovel and told to get working widening the A11 nears Enfield just like the healthy men of the CCC seem to be doing. It was demeaning work for a craftsman jeweller but it did bring money into the house. Today, there have to be many more constructive ways in which people’s skills can be used. Have the intellectual powers of Brown, Darling and Mandelson degenerated to the point where they cannot even understand this basic point, that to reduce unemployment you need to get people working?