Lord Flight is Chairman of Flight & Partners Recovery Fund and is a former Shadow Chief Secretary to the Treasury.
Western Governments continued “Keynesian” deficit spending in the 1950s/60s and 70s, long after western economies had recovered from the 1930s depression when they needed the economic stimulants. As a result, the unnecessary public spending caused inflation and damaged Keynes’ reputation.
We are, however, now back to a depression economy which needs the sort of deficit public spending Keynes advocated and implemented in the 1920s and 1930s depression. To give him credit, the Chancellor was quick to move to provide Keynesian stimulus to keep businesses and employees “alive”, as the pandemic hit.
The biggest area of deficit spending has been in the retail and related sectors: here are the largest number of jobs/employees and some 55 per cent of the economy.
I would hope the Treasury has researched which areas of expenditure have the largest spending multiplier effects. Logically, these should be the first areas in which to increase public spending.
In a different context, infrastructure spending is the second area in which to boost public spending. Such infrastructure spending has a good economic multiplier and also represents an investment for the future.
With an economic explosion of the size we have experienced this can also help provide the stimulus for major longer-term changes in capital and consumption spending.
Arguably the NHS could do with major changes of the management. There also needs to be a thorough review of our energy policies. Is it the right thing to do to for the future to accelerate the supply of offshore wind and solar power and to move to a majority of electric and hydrogen cars; or would such a major shift be risky in terms of being able to assure the supply of the new sources of needed energy?
We also need to investigate what changes in our economy are going to remain, versus where, in due course, we will broadly revert to previous patterns of behaviour. It does, however, look very probable that much more work will be done from home, reducing travel costs and travel times. This must have implications for the volume of road, rail and hotel facilities needed, which will likely reduce.
It should also mean pricewise that good quality/suburban residential properties will outperform city centres, pricewise; although it remains to be seen how much residential housing demand and prices will actually weaken in central London. Where people live will also affect where more or fewer schools are needed; the implication is less in city centres and more in country/suburban areas. Thorough and intelligent research is needed to expose such changes in behaviour consumption and habits, which are likely to stick, and the contrary.
We do not want to find ourselves building more schools where there is not an increase in pupil demand or increasing electricity power supplies where power demand is reducing.
I think it would be useful to draw up a “picture/inventory” forecasting how economies will look in the future versus how they were before the pandemic hit. As time passes the previous estimates of how economies will change can be compared with what happens.
Largely owing to the Chancellor’s timely Keynesian interventions the economy, and in particular, the state of individual’s economic affairs, have held up remarkably well. It will, however, only be time to turn down and then turn off the Keynesian spending taps when there is the evidence of major economic recovery actually occurring.
On the positive side there is the scope to implement changes to our economy and economic behaviour which support an increase in future economic growth rates.
A friend of mine produced an analysis a few years ago which showed that most of our economic output in terms of value depended on the work of some 18 per cent only of the population. Investigation of this sort of information need to be undertaken in earnest. The significant majority of the nation is under contributing to the economy’s performance. This needs to be addressed in earnest.