George, I'm interested in your take on the German position. They have described Darling's plan as "the crass implementation of Keynesianism" and have clearly turned their face against borrow-and-spend.

Are they wrong for Germany ? Are they wrong for us ?

I'm not HAPPY about the government borrowing money at all. But then I'm not HAPPY about the state of our economy either.

So on balance I support further government borrowing provided that it is spent in what I define as a "proper" manner.

That means not trying to shorten the recession (because I think that can't be done) but to specifically target and assist those who will otherwise suffer most the results of the recession. Those are the poorest 20% of the population, and those who will lose their jobs.

It would also be beneficial if the object of this expenditure not only provides short-term jobs, but also long-term social benefit, hence my suggestion for publicly owned housing development and training of public service workers.

On the issue of taxing the rich to pay for this, I also believe that this is a crucial source of funding. However I disagree that this needs to be deferred until "after the recession". I think that tax breaks for the rich, and a higher than 45% top tax rate, should be introduced immediately for anyone earning over £250,000 a year. The extent to which these people are affected by the recession is that their "net worth" has been slashed by half and their income has probably reduced to about 6 times the average wage and 12 times that of the bottom 20%. If the rich had any sense or any social conscience, they would be volunteering to provide additional assistance to the country at this time of crisis.

» » The real problem with a 6% fall in consumption is unemployment, is it not ? I can't think what else would be "terrifying". And surely public works and expansion of public services are a better way to ameliorate unemployment than artificially increasing consumption ? I'd rather see this government spending its borrowed money on building publicly owned housing and training and employing more social workers and teachers than have them pump money into retail outlets and car manufacturers.<<

I have no problem with increasing public consumption and investment (everything from better pensions to a greener investment) to offset the predicted fall in private consumption, as long as we can prevent employment collapsing and the poor getting much poorer. But you do realise this means either printing money or increasing public borrowing in the short term since tax reciepts are falling. (And yes, I want this to be paid for ultimately by higher taxes in the rich).

LOL

Martyn - stop being such a misery - get your credit cards out and get out to the shops and consume. It's your patriotic duty.

Christmas is an excellent time for buying complete rubbish which then gets thrown away or eaten by fat people or makes you drunk. Darling has given you a fiscal stimulus and you should stop resisting and be patriotic and go out and spend, spend spend spend and then everything will be lovely again. Gordon says so.

George, you say that the government needs to "restore people's faith in the value of their assets" but that avoids the question "What IS the value of their assets?".

Surely you don't want to RESTORE the value of houses as they were a year ago ? That was never a real value in any intrinsic terms, it was an artificially inflated "value" enabled by cheap money and excessive borrowing. More importantly, it denied to younger people the capability ever to own such an asset and created an unhealthy dependence of ordinary working people on unreliable and untrustworthy institutions such as banks.

I'm glad to see you hypothesising a 50% drop in house values, not least because that's exactly the figure I was predicting at the start of this year. A 50% drop is just about the right amount of correction for the gross inflation of the past 10 years, and will potentially bring house ownership within the grasp of hundreds of thousands of people who can benefit from it. It will also reduce mortgage payments to an acceptable proportion of income, and break the stranglehold of the financial sector on the lives of many people.

I predict that when house prices have bottomed out in early 2010, they will start to grow again by their historic established rate of 4% a year, which means that they will return to 2007 levels in about 2027. It seems to me that represents a fair valuation of the assets, and a reasonable and supportable growth in those assets. The absolute demand of "the system" to reach such a position of stability seems to me irresistible. I just cannot conceive how government can artificially increase the value of houses against this "natural" levelling process, nor how (if they somehow did that) any house owners could have any confidence in the permanence of their new "valuation".

So surely government's job is not to seek to shore up housing values, but to do something to the other side of your equation.

You say that "An econometric study carried out in the US reports that for every $100 fall in the housing stock, consumption falls by $6." Well this seems to me far more resistible than fiddling with housing values. Of course consumption has to fall - I recall that you have previously agreed with that - the question is by how much. I asked you in response to another of your interesting articles what you thought would be an "acceptable or "likely minimum" fall in the standard of living in the UK (for which read "consumption"). I'm still interested in your answer.

You say that a 50% fall in house values could lead to an 8% fall in consumption ? Maybe the government could reduce that to 6% ? I just can't see that they have the resources to impact consumption much more than that.

The real problem with a 6% fall in consumption is unemployment, is it not ? I can't think what else would be "terrifying". And surely public works and expansion of public services are a better way to ameliorate unemployment than artificially increasing consumption ? I'd rather see this government spending its borrowed money on building publicly owned housing and training and employing more social workers and teachers than have them pump money into retail outlets and car manufacturers.