The Council: Part of the Problem or Part of the Solution?

As we head into straightened times, pressure goes on to the arms of government (central and local) to tighten their belts and spend less.

This seems logical: taxpayers and ratepayers have less money because businesses and farms are not doing as well, there is more unemployment and there is less overtime available.

There is, however, another way of looking at this.  If central and local government spend less, the businesses they deal with will be even worse off.  The result is that there is even less money in the community and the result is even more unemployment, business failure, etc.  In other words, by cutting back on spending, local and central government are part of the problem, not part of the solution.

In the 1930s, governments, including New Zealand’s, eventually came to the realisation that increased government spending was the way out of the great Depression.  Hitler, unfortunately, put much of Germany’s increased government spending into armaments.  In New Zealand, the spending went into, amongst other things, state housing and decent wages for relief workers.

If this sounds like Keynesian economics, my response is that Keynes seems to be back in fashion in Washington, London and Berlin.

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