I have been asked to post the lecture I gave at Oxford. I spoke without a text, but will post bullet points on Monday.
The main points I made were:
1. There is no positive correlation between fast growth and large amounts of state debt. China has fast growth and low debt. Japan has high debt and low growth. Greece has high debt and recession, the US and UK have quite high debts and slowish growth.
2. In past UK crises – 1974-5, 1981-2, 1992-4 the formula of cutting the deficit and easing money policy produced growth and recovery. Indeed, as the cuts came into effect, so the economy grew faster, reinforcing the drop in the deficit through the cyclical effect.
3. After the 2007-8 crisis, the Coalition government proposed the same forumula as in the previous three crises. However, they did not succeed in cutting the deficit as quickly or as far as in the three previous crises, because they decided to keep on increasing current public spending. They did raise taxes.
4. Whilst they tried to expand money, and printed far more than in responsse to previous crises, the broken state of parts of the banking system and the tough regulatory framework introduced at the wrong stage of the cycle prevented credit growth in the private sector to fuel the recovery
5. So the main difference between previous recoveries and this is the government has neither delivered as low a deficit as before, nor as much money and credit expansion as before. As a result growth has been very disappointing.
6. Overseas evidence reinforces the message that tighter fiscal policy and easier money policy produces expansions This has been shown in countries like Canada and Sweden which went through substantial programmes of spending reduciton and deficit cutting which produced growth from the better balance of the public finances.
It has been a traditional feature of IMF recovery plans that the deficit has to be cut as part of the package to generate private sector led growth and further cyclical falls in the deficit.