If I Were Chancellor of the Exchequer...

I was avoiding answering this question as I thought it would involve an inordinate amount of research to put together a comprehensive, and hopefully irrefutable answer. I have a tendency to be a bit too literal and so in this instance I was standing much in my own way.

For upon reflection I concluded that it was actually a very basic question amounting to either cutting the budget and thereby introducing a new austerity to Britain, or or to employ deficit spending by the government as a means of stimulating the economy until such time that economic growth achieved the critical mass to continue to grow without government intervention.

To answer the question I will split the world of economics into Monetarists and Keynesian's. Of course there are other variations, but if we concern ourselves with questions of monetary versus fiscal policy solutions to economic questions it will facilitate my answer.

To narrow the discussion down to this level requires answering some fundamental questions pertaining to the role of government, and theories of economics.

At a minimum I would maintain that governments are there primarily for four basic reasons: 1.)To protect the state from outside aggression; 2.)to ensure civil peace/obedience i.e. police and a legal framework; and 3.) to provide public services such as transportation, infrastructure, etc.

This is where the notion of political economics comes into play. The basic purposes of government as I have defined them have to be paid for. This means taxation, the fourth purpose. Any money taken in the form of taxes means that the private sector has less. Hence the question of fiscal policy and how taxation, the most basic form of government intervention effects the economy.

But there is still one more question or perhaps purpose to be queried. Is the government also responsible to introduce fiscal policies to promote employment, and if so, what is the fiscal policy/employment/inflation relationship?

The Keynesian's in the room would maintain that a mixed economy, predominantly private sector, but with a large role for government and the public sector is the correct route and that the introduction of massive spending cuts is the wrong choice.

The Monetarists would counter this maintaining that government interference in economics, especially in the creation of a massive budget deficit is anti-business and that the "crowding-out" effect of government debt supply would counteract any positive effects of government spending.

They-the Monetarists would have to explain how they wanted to get us out of the current "liquidity-trap" in which the Central Banks provide cheap funds to the banks who don't lend it on thus counteracting any positive effects of monetarist policy.

They would find this extremely difficult.

The private sector doesn't invest because there is either no current demand, or they don't foresee (rising) demand in the future. Of course they don't invest. There is no confidence, and cutting government spending by 25% to balance the budget, primarily at the expense of the public sector is a huge gamble. There has to be a distinction between benefits and the Public Sector.

As Chancellor I would introduce a massive overhaul of the benefits sector. Only those who truly can't work would continue to receive benefits. Everyone else would be made to fulfil some sort of work, even if it were just community service. I would also make cuts to the wealthy. Free Bus Passes, child benefit and other benefits such as winter fuel payments would have cut offs at income levels above £90,000. Strange but true I believe that marriage is a benefit to society, regardless of sexual preferences, and so households would be viewed, not individual working adults, despite the difficulties of means testing.

The Public Sector can be trimmed-it can always be trimmed, but only in conjunction with a viable growth program which will stimulate the private sector. I would establish a National Endowment to fund research and development in energy-all energy, including nuclear-with the stated goal to develop and manufacture in the UK. I would focus on infrastructure projects and would not sell off public assets such as the rights to run the Channel Tunnel.

Simply stated, all of the purposes of government as I have defined them require a functioning economy, and by that I mean a full-employment economy. It might mean that some parts of it are less profitable, that some parts could be more efficient. But it does not mean that the cheapest route is the best. It is not. I would go so far as to say that the pursuit of the cheapest is the problem, not the solution