On the Austerity vs. Growth Debate

It’s not very often that I write anything at all related to macro economics, but here goes.

Suppose you’re sitting in a boat in the middle of the Mediterranean Sea and, unfortunately, it’s sprung a leak. You could expend your energy by bailing out the boat using the bucket that (quite conveniently) you have on board. This will keep you afloat but will get you no closer to safe harbour. Alternatively you might expend your energy by rowing furiously for shore, which might just work… or you might sink before you make land.

I’ve had my ups and down in business and in spread betting, and I have often been faced with similar dilemmas.

In business: I might write articles for financial publications in order to merely “keep myself afloat” until the good times return, or I might “gun for growth” by writing a new book that will generate little or no income in the short term but which could turn out to be a good time-investment in a future best-seller.

In spread betting: With depleted trading funds, I could conserve cash at all costs and maybe even “go to cash” entirely to stop the rot. Or I could pick up potential bargains, perhaps even using additional cash, buoyed on by the memory that I have previously turned some very small sows’ ears spread betting portfolios into sizeable silk purses. Actually, I think I know the answer to this one rhetorical question, but you get my point.

All of these examples are analogies, of course. Analogies for the problem facing the UK Chancellor of the Exchequer, not to mention his European and international counterparts.

Is he right in postulating that borrowing yet more money is no way to get out of debt? Of is the more Keynesian opposition view that you need to “invest” in future growth the right one? Unlike my previous question, this question is not so rhetorical. I don’t really know the answer, except that I suspect the answer is to do a bit of both.

In business terms “I” should burn the candle at both ends by keeping up the journalistic hacking in order to pay today’s bills, while at the same time working on my future pension-securing best selling book. In spread betting terms I should back up a small truck to stock up on potential bargain stocks while at the same time making sure that I don’t drive a truck full of money off the edge of a financial cliff.

Returning to my original analogy, the stranded mariner should perhaps somehow row to shore with one hand while simultaneously bailing out the boat with the other. And the Chancellor should somehow pay down debt while simultaneously increasing spending on job-creating public projects. Good luck with that, Mr. Osborne!

Tony Loton is author of the books “Stop Orders” published by Harriman House and “Position Trading” (Second Edition) published by LOTONtech.