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After reading Anatole Kaletsky‘s piece in the Times newspaper today I felt I needed to pick up some of my old economics books and do some revision. I have to admit, even after a second reading I am not sure I fully grasp the mechanics of implementing what he was suggesting.

I will try to summarise his article. He believes there is every chance that the current package of government aid will not be enough to stimulate the economy. He therefore suggests that the government borrow more, but do so at zero cost from the Bank of England. Apparently, Britain’s proportion of cash circulating in the economy as a percentage of all deposits is the lowest in Europe, leaving the economy and banks dangerously exposed to a liquidity crisis. He therefore suggests that the banks are made to deposit 10% of their monetary liabilities with the Bank of England. The catch is that they will be paid zero interest on these deposits (an effective windfall tax) which would enable the Bank of England to lend the money to the government at zero cost increasing the government’s war chest to kick start the economy.

Sounds like a good idea. I think.

Anyway, it got me thinking about economics and our/the electorates understanding of government policy. Implementing economic policy and managing the economy is such a large part of how we evaluate the performance of political parties, yet our understanding of the subject matter is, on average, very limited. When it comes to election time will we be able to judge for ourselves how Gordon has steered us through the crunch? Is he the saviour of the Western world or has he squandered billions of tax payers money?

How can our democracy operate effectively when we can not evaluate the performance of our politicians? Should economics become a compulsory subject along with English and Maths?

Tags: Anatole Kaletsky, Bank of England, Economic policy, Gordon Brown

This entry was posted on Monday, December 15th, 2008 at 6:13 pm and is filed under Economy, Politics. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.