Please explain to me in simple terms the theory behind spending ourselves out of a recession?

[Countingthegreyhairs]

I know David Cameron has raised this subject today but I'm not trying to start a party political debate.

I just genuinely don't understand the theory behind the strategy. I can get my head around the fact that a country, which doesn't have a large national debt, can let some of those "spare" funds filter down to stimulate economic activity and bank lending.

But how is it supposed to work when the UK has a huge national debt?

I don't get it. Is it spending against future growth? Surely that cannot be a sound way to proceed?

I confess to having a very poor knowledge of economics - am I missing something here? Can someone please explain it to me in terms I will understand?

oopps. Obviously cant type or talk either! (blush)

And cant put faces on either!!!!!! Think I need to go to bed.

Frogwatcher - This is quite useful

Thanks Tinker. Good reading for tommorrow - am off to sleep to regain my powers of thought and spelling!!!! Having glanced through, perhaps things are not as bad as I think.

Just returned to this thread (have been working very late)

Thank you Claus, Fluffles and Tinkles and everyone else who has replied. I am finally getting to grips with all of this and beginning to understand it better; not sure that I am less or more worried however! Will go and study some Keynesian theories ....

Quattro - I naievely thought that the Treasury would be legally obliged to 'put aside' some money for a rainy day .. but I suppose, as you say, all of that has been used by the Ministry of Defence...

Have just found this which explains a bit further the Keynesian and Ricardian approaches

www.guardian.co.uk/commentisfree/2008/dec/09/david-cameron-higher-taxes-recession

G'night

the only reason this country is in so much hot water is because people have been spending money they just never had (borrowed money). If people resisted more, then we wouldn't be in this mess.
We don't buy unnecessary purchases. We would love a fancy flatscreen TV but the TV we have (which is a bit old fashioned compared to modern ones now) still works, so it's not that bad. We're not desperate.
I feel really bad for folk that are uncertain of their job future, esp with young families.

A few years ago they used to tell people NOT to spend so much and SAVE more!
I think next year is going to be much worse as once the Xmas figures are in and there is nothing to kick start the spending (the sales have started already). What do we do then? Can't even save as the interest rates are rubbish, might as well put it under the mattress!

I think Mr Brown can say what he likes but most people are either spending everything they've got anyway and those lucky ones with spare cash are putting it aside.
Why would you buy a new car/handbag/pair of curtains when you don't know if you'll have a job next year?
And I think the reason the state is in so much debt is quite simply because it spent so much.
100% increase in NHS.
150% increase on education.
Wars.

Just wanted to add something a taxi driver told me last night... he said that the town (Edinburgh) is dead. Christmas parties by the two big banks here RBS and HBOS are being cancelled or curtailed and it's seriously affecting cab drivers.

I hadn't thought of that - i kind of thought it might be sensible of the banks to cut back given that they've needed a government bailout but now i've realised the effect that's having on the city's pubs and resturaunts and cab drivers i'm not so sure

Really good article (though six pages long) from the bbc economics guy:www.bbc.co.uk/blogs/thereporters/robertpeston/newcapitalism.pdf

That's a really interesting article Fluffles - thanks for the link

I hadn't understood the Chinese perspective

I'm sure Robert Peston will get a pay rise next year (even if no one else does!)

Germany describes Britain's switch from financial prudence to heavy borrowing as crass and breathtaking-"all this will do is raise Britain's debt to a level that will take a whole generation to work off" here.

Just who does GB think he is trying to kid?

Thanks for the link Lady Worsley

I think the comment from the German finance minister " Are you really going to buy a DVD player because it now costs £39.10 instead of £39.90??" is very true.

And Germany, despite the recession has invested in education, training and has concentrated its efforts on creating a sound engineering base which is a model I wish we had replicated.

There were lots more articles about this in the Sunday papers. I am WORRIED.

I think it's a rubbish way to deal with the situation.

I'm actually a saver and I'm not impressed at how my interest rates have dropped. This is my reward for being prudent, I suppose.

I haven't read all of the thread, just the bit about Keynesian economic theory saving the US after the Great Depression in the 20s and 30s.

The trouble with trying to spend our way out of recession is that we do not manufacture as many goods now as we did in the 20s and 30s. So I am unsure as to whether spending is going to work. We had the Buy British campaign in the 60s and 70s encouraging us to spend money on British goods to bolster British manufacturers. However today most goods are made abroad and we import them.

With a weakening pound (desperately weakening pound at the moment against the Euro) surely this will increase the cost of imported goods, leading to high inflation.

I think Gordon is clutching at straws. I don't see how spending money on Chinese and German imports is going to help our economy out of this mess. What really narks me is that GB thinks he has saved the world!!!

"Hubris" is the word that immediately springs to mind whenever I see a picture Gordon Brown