David McWilliams: The Government needs to cut spending now – but it will not
When things are going well and demand is strong, like now, the State should dampen it
When things are going well and prices are rising, we become giddy and optimistic. Such optimism is contagious. This is what economists call consumer confidence. Photograph: Alan Betson
One of the most essential, but least well-understood aspects of macroeconomics is that economics is counterintuitive. This is because macroeconomics, unlike accountancy, is more concerned with the collective than the individual.
The rule of thumb that dominates economics – again, as opposed to accountancy – is that what is good for the individual is not always good for the collective. When things are going really well and demand is very strong, like now, the Government should, counterintuitively, act to dampen it.