Sunday, 3 February 2013

Austerity Isn't Working

I'm not an Economist, i would be the first to put my hand up and admit i know nothing about how financial matters work but even i, with as much knowledge on the economy that would fit on a postage stamp can see that austerity isn't working.
All i have heard since the credit crunch as it was known in 2008 is that we need austerity to generate economic growth, but five years on we are heading for a triple dip recession so it has clearly failed.
Budgets have been cut, 750,000 public service jobs are for the chop, pay has been frozen, pensions have been shaken up and public services have been shut down but austerity has failed to create jobs or the anticipated economic growth and the AAA credit rating is in danger and we don't seem to have made a dent in the debt but still the government refuses to change course, they have even suggested that the austere measures have not been deep enough.
Albert Einstein's described insanity as doing the same thing over and over again and expecting different results so maybe our leaders are insane because they seem to be doing the same thing over and over again and wondering why the economy isn't budging.
It is hard to keep the inner cynic in me in thinking that this is exactly where the Conservative Party want us to be because while the economy is in the doldrums, they can bring in a whole raft of privatisations under the guise of lightening the burden on the economy.
Even Thatcher didn't dare tinker with the NHS and she was the privatiser in chief but Cameron and the rest of the Bullingdon toffs have already began dismantling it and selling it off to the highest bidder citing the economic benefits to the country.
As long as they put it down to economic reasons, it looks as if we will swallow it and we have another two years of these guys yet unless the Lib Dems do the decent thing and pull the plug on the coalition.
The Dems will be decimated at the next election, this could be their final brave act of falling on their sword and saving the country from more austerity that seems to be piling on the pain for absolutely no reward but our Government is not changing direction and I have to wonder why not. 


Anonymous said...

perhaps something different is in order. start spending a lot of money, more than the gov brings in via taxes, print money to pay for stuff (worry about the inflation and paying it back later on). that's is what we have done for 5 years now and look at how good we are doing. our GDP is 1%!!!

go Keynes!!


Cheezy said...

"this is exactly where the Conservative Party want us to be because while the economy is in the doldrums, they can bring in a whole raft of privatisations under the guise of lightening the burden on the economy"

Bingo. They’re serving the interests of the people most responsible for putting them in their current privileged situation, not society as a whole.

"go Keynes!!"

Keynes has been out of fashion with US and UK political leaders for about 30 or 40 years now. Team Bush may have spent like a drunken sailor on shore leave, and this may have partly contributed to the sh!t we're all currently knee-deep in, but there were massive differences in his economic policy (such as it was), and the overall ethos was quite different. And remember that the debt situation started to get serious in the USA under Reagan, whose policies were in direct reaction to Keynes.

"our GDP is 1%!!!"

Which is 1.1% better than ours. And your employment figures are on the improve. I'm picking that the US will be just starting to lead the world out of the economic mire by 2015... and this will actually be good news for our government too, because the demand will pull ours out too (although our lot scarcely deserve it).

The comparison that the 'slash & cut' advocates always like to make is with a household budget, and they argue that if your household is in debt, the dumbest thing you can do is keep on spending at the same rate. Quite right. Operating a household, this is indeed a dumb thing to do. But a national economy has one massive difference to a household....

Let's say I've gone crazy with my credit card over Xmas and have run up £500,000 worth of debt. How long would I take to pay this back in the normal scheme of things? Answer: Most of the rest of my working life, probably, if I ever could. This is because in a household budget, bearing in mind there are only 24 hours in every day, you have a very severe limitations in terms of inputs into the credit side of the ledger. You’ve got your job. OK, maybe you can get a little raise, and/or get an evening job too. Maybe you can do a bit of spread betting on the side, or play the Asian markets overnight, or you can send the wife and/or the kids out to work... OK, you can do a few little things here and there, but there’s not a great deal you can do to start paying off the debt. Probably not even enough to service the interest.

I can also stop going out to the pub and the movies, I can sell the car, I can give up Sky TV and sell my Playstation... but realistically, how much of a dent is such 'austerity' going to make?

But, wait a minute... I live in a house on a street with about 50 other residences. Let's say I can use their inputs to pay off my £500,000 debt. I’d be able to pay that down really quickly, couldn’t I? Sounds too good to be true, doesn't it? But that's what a national economy can do, that a household cannot. You can take (not just 40 or 50 people, but) thousands or even millions of people, and lift them out of a situation where they are a net drain on the economy, soaking up the funds of social welfare (not to mention more of the health service and the criminal justice system) and create net contributors to the economy, paying much more tax and (even more importantly) paying much more to others in the private economy, causing wealth to spread and grow exponentially. This is what economic growth can do, when the emphasis is on getting people back to work.

Mere cutbacks will not and cannot do the job. This is why Osborne has seen debt increase under his watch. And it’s why the real economists (you know, the Nobel Prize winning ones) are advocating a growth-led strategy, because they’re the ones who are most aware of the incredible, awesome power of an economy to generate and spread wealth once the tide has turned and people are getting out there spending more money.