In the run up to the Budget there are three main families of proposals on offer to boost demand and stimulate growth.
There is the public sector led approach. People argue that the state can still borrow very cheaply, thanks to Quantitative Easing. The state should therefore borrow more to finance state investment projects. They argue that building new schools and railway lines would boost output. Capital budgets which were cut substantially by the outgoing Labour government, largely confirmed by the Coalition, should be temporarily restored.
There is the private sector led approach. People argue there needs to be tax cuts. The private sector has so far experienced a much tougher squeeze than the public sector overall. If people were allowed to keep more of their own money to spend, it would provide a welcome boost to demand. If companies could keep more of their profits,or could generate more profit in the first place thanks to lower tax bills, there could be an enterprise led revival.
There is the bank led approach. If the banks can be mended and the Central Bank can push money into the banking system from Quantitative Easing, then people argue there will be more credit extended. People will be able to afford new homes and new cars and other goods, there will be more demand. Businesses will be able to borrow to invest and expand.
I will provide a critique of each of these over the next few days. As readers of this site will know, I do think the priority is to fix the banks to allow them to finance a more normal recovery. Tax rates that are cutting the revenues should be reduced. Any other tax reductions to boost people’s spending power which would be welcome has to be matched by reducing wasteful public spending. More capital investment is needed, but should be undertaken mainly by the private sector.