Economists warn government against spending its way out of recession

A group of leading economists have slammed Alistair Darling's plans to invest in infrastructure as a means of lessening the effects of the upcoming recession.

In a letter to The Sunday Telegraph, 16 economists, including John Greenwood, the chief economist of Invesco, and Trevor Williams, chief economist at Lloyds TSB Corporate Markets, warn that the government's Keynesian policy is "misguided".

"It is misguided of the government to know how much specific sectors of the economy need to shrink and which will shrink too rapidly," the letter said.

"Thus the government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources."
 
In addition, they argued that the increased role of the state in the economy would stunt the recovery of the private sector and that "occasional and necessary" slowdowns in an economy are best managed by monetary rather then fiscal intervention.

The letter follows Alistair Darling's plan to invest in infrastructure in a financial policy influenced by the economist John Maynard Keynes.

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