You can't spend your way out of a recession

No sir, that has been tried many times before.

I have been dismayed by the lack of criticism of Darling's plans from economists, at least until today. The Telegraph carried this short but welcome letter. It is from a group of leading economists who describe the Government's spending strategy as "misguided and discredited".

Read on.....

It is misguided for the Government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink "too rapidly" in a recession. Thus the Government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources.

Furthermore, public expenditure has already risen very rapidly in recent years, and a further large rise would take the role of the state in many parts of the economy to such a dominant position that it would stunt the private sector's recovery once recession is past. Occasional slowdowns are natural and necessary features of a market economy.

Insofar as they are to be managed at all, the best tools are monetary and not fiscal ones. It is inevitable that government expenditure and debt naturally rise in a recession but planned rises in government spending are misguided and discredited as a tool of economic management.

If this recession has features that demand more active fiscal policy, which is highly disputable, taxes should be cut. This would allow the market to determine which parts of the economy shrink and which flourish to replace them.

Personally, I would have liked to have seen more emphasis on monetary policy, which I believe is also misguided. Nevertheless, a robust attack on Darling's expenditure plans is a start.