"RBS to lend £1.7 bn!" Er, but we lent them £45bn

In what was being widely seen as a good thing this week, management at The Royal Bank of Scotland announced they were to make a massive £1.7 billion available for mortgage lending!

OK, so some of that lending, £500m to be precise, is actually directly government money through the guarantee scheme, but still, it's a massive boost to the economy right? Well, no and no.

Given that the whole rationale behind Darling's free money for the banks scheme was to get them lending again, and at the last count we'd graciously topped up the RBS's current account to the tune of £45 billion, then £1.7 bn expressed as a percentage of £45bn isn't actually very much. And given the role attributed to the banks in stimulating economic demand, (a point much made by the touchingly naive and speccy John Swinney yesterday), £1.7bn doesn't seem like a lot at all.

Simon Jenkins, writing in The Guardian, has been plugging away at the idea that money given to the banks negates the Keynesian principle that, in a recession, government spending should stimulate demand.

All the banks do with our money is use the bulk of it to repair fucked balance sheets. Jenkins argues that we'd all be better off if the government gave everyone a £500 gift voucher, time limited and not redeemable for cash. The rationale being that the vouchers would stimulate aggregate demand and thus pull This Sceptred Isle out of recession.

Would it work? I've no idea, but given the rate at which Oor Gordie is placing pinkish water between himself and his previous unwavering allegiance to free-market nostrums, I wouldn't bet against something similar being tried when this current bailing out of the banks is seen not to have achieved its stated objective.

If nothing else, just think of the stimulus to Kirkcaldy's economy when the local college hurriedly changes its name from "Adam Smith" to "JM Keynes", in advance of Gordie's speech to the students: "Why I've always been a Keynesian."