Broken leg or heart attack? Cable and Koo on the state of the economy

Vince Cable has often used the analogy of an economic heart attack to describe the problems of the UK economy since 2008.

I’ve just got back into reading economist Richard Koo’s excellent book “The Holy Grail of Macroeconomics where he offers another analogy: the broken leg:

During a balance sheet recession, the problems resulting from too little fiscal stimulus are far more serious than those caused by too much. The latter are similar to walking with a cane even after a broken leg has healed; the former to walking, or even running, when the bone has yet to mend.

Richard Koo, The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession, Wiley Singapore, 2009, p. 67

Given the lousy state of our economy, the analogy seems all too apposite. The case is getting ever stronger for Vince’s Plan A+.

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1 Responses to Broken leg or heart attack? Cable and Koo on the state of the economy

  1. John Minard says:

    I just wonder what is considered the ‘tipping point’ whereby the expected growth from increased stimulus begins to outweigh the extra interest (inc any likely increased interest rate) repayable on that spending (inc tax cuts) from tax?

    I know obviously their is a human argument to but what would be required to create a net positive outcome? Has Labour any suggestions?

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