We do know for certain that this is not free money. Every extra £10bn we borrow in structural debt is a promise to take ~£500m out of the British economy every year for eternity – and by the end of this cycle we could be handing over £800m/year or more to the speculators in the bond market for every £10bn they choose to lend us. That loss of £500m/year reduces economic activity and takes jobs out of the economy, maybe 50,000 or so.

So whilst we are running a structural deficit, every £ of additional government spending will definitely cost us jobs in the long term. So you must make sure that each extra £ is working hard for the long-term good of the economy, it’s no good frittering it away on short term feel-goodness. If we still had headroom on the cyclical deficit then Keynsian make-work would be cost-effective, but we’re way past that stage now. In other words – even now we still need to stick to the golden rule, only investment spending should be considered beyond the cyclical budget.

Also, not all government spending is equal. By changing priorities towards economic growth, it would be possible to reduce total government spending yet increase government stimulation of the economy. It’s the latter that matters, not the level of spending per se.

In fact there’s some well-researched cases of cutting government spending in itself stimulating the economy as private capital flows in as the government’s credibility is enhanced. Look up “negative fiscal multipliers” – the government doesn’t have to be the one supplying the cash to stimulate the economy.

On the MCA – AIUI the Tories aren’t planning to introduce it whilst “cutting so soon”, they’re talking about a £600m version for those with kids under 3, some time within the next parliament. By 2015 the economy will be booming right? In fact the government figures are relying on the economy growing by >3%/year within 9 months. Which is just fantasy, and there’s no point in the other parties trying to run numbers to try and match them. Hopefully the Budget will see more more plausible updated numbers. I’ll remind you of Brown’s past attempts at forecasting deficits. His original number for 2007 was just over £20bn, nearly half the outcome – and you can’t blame any financial crisis for that!

And if that happens you do not cut the defecit.

What works better is to make sure the recovery is sustainable and then embark on a sensible program to cut the debt.