Damned if you cut spending, damned if you don't

If we get a double-dip recession, and house and stock prices tumble again, how easy will it be for the government to stick with their spending cuts in the face of popular angst?

I met London's mayor, Boris Johnson, at a City lunch the other day. We had a brief chat about the darkening outlook for the economy. His big worry was that the mood in the country would turn very rapidly from people worrying about "Labour overspending" and its consequences, into everyone blaming any slump on "Tory cuts". He's right to be worried. The austerity brigade will be blamed for the next downturn, regardless.

Why's that? Because the 'spend now, cut later' mob are in an enviable position. You see, it doesn't matter how much you spend. If your stimulus or your money printing doesn't work, and the economy heads into recession, then it's because 'you didn't do enough'. So you just have to 'prime the pump' harder next time. Whereas if you cut spending, and the economy doesn't instantly recover, then clearly it's the spending cuts that have caused the problem.

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John Stepek

John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.

He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.

His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.