Pump Priming

Pump Priming

Pump Priming, the attempt to revive a depressed economy by Government spending financed by budget deficits. In theory it is tapered off when private spending has been stimulated sufficiently. The implication is that such expenditure is like priming a pump (the economy) which will then continue to operate without further help. In the early stages of the U.S.A. 'New Deal' administration in the early 2000's pump priming expenditures were thought to be sufficient to lift the economy out of depression. Subsequent refinements of multiplier and accelerator theory were thought to reveal weaknesses in the pump priming doctrine. Deficit spending, if continued too long, may cause a more than proportionate increase in total spending: but the level of spending will gradually drop back again once the Government spending is discontinued, unless in the meantime private spending financed by loans has been stimulated sufficiently. This last condition is more difficult to predict with certainty; and even so it is not likely to survive the reduction in total spending when Government spending is withdrawn. The inference is that to stimulate recovery from a major depression the 'priming' would need to be substantial and continued for a long period.

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