Sorry for replying so late… I have only just seen your reply.

I am surprised that you say the MPS goes up in a recession. Usually when incomes fall, savings fall further.

What is your evidence?

Hardly. If you listen to what Osborne said you will understand they he plans to INCREASE spending but just as a lower rate than GDP growth.

Public spending will in fact rise ABOVE inflation (the CPI target of 2%)

Austerity? We don’t know the meaning of the word.

I think that the government is trying to have it both ways; if we are in the situation most of my family and friends are in, the multiplier will be quite low because people cut consumption in a recession, or increase saving in the face of likely unemployment, so an injection of cash makes sense, especially towards low-income groups who tend to spend, and there won’t be a multiplier danger. But the coalition has then turned around and increased VAT, which is a regressive tax that precisely hurts those on low incomes.
The obvious inference is that this is a budget that makes some people feel they have more money, but then takes it away from them sneakily, whilst shakily propping up small businesses and doing very little to tackle the banks, or housing madness, or to help industry. Cutting Sheffield forgemasters, who were important for a safe nuclear future, and cutting access to justice whilst letting criminals out in much greater number confirms that this was a budget firstly for show and secondly, unconcerned with anything but Tory interests.

The name of the game at the minute is to get the press to pick off Liberal Democrats and Tory opponents of Cameron (watch out Boris Johnson) whilst giving them some trinkets to divert their attention.

Meanwhile, of course, the pfi and other off-balance sheet nonsense that Labour got seduced by is ticking away like a bomb…..

Can we now call Vince Cable an ideological Mr Bean ?

I believe that Keynesians would say that a cut in government expenditure would lead to a knock-on loss in GDP equivalent to the multiplier effect.

The multiplier effect effect relates to the marginal propensity to save(MPS) and can be very large if the MPS is low.

A loss in GDP will lead to a loss in tax revenues, so that a cut in spending will be counter-productive if the marginal tax revenues are greater than the marginal propensity to save(MPS).

To my mind you if you do not accept something like this, then you cannot be called a Keynesian.