We don't want to see growth plunge, we don't want to see people losing their jobs and we definitely DON'T EVER want to hear Little-Lord-Osborne utter the dreaded words "We need to do more. We just need more cuts."
Please, take a moment to read this from wiki on the last time we had huge debt and attempted to solve it with austerity and cuts. It led the world to broadly adopt a more Keynesian approach - whilst households should cut back in tough times, governments should not. They should spend where it stimulates growth, always doing the simple sum "If I spend this money, will it come back with interest?" If the answer is "Yes" then government should stimulate the economy and worry about its debt when times are more comfortable.
When a loan to Sheffield Forgemasters would have saved a thriving business and kept hundreds in jobs, then the tax ultimately taken would have far outweighed the original loan, never mind the interest they would also have earned.
When Labour had proposed to spend on repairing and building schools, the construction industry would have received a huge boost too. It's no coincidence that today's figures are so shocking because construction fell by 3.3%. In a quarter!
I'm hearing some fairly respectable commentators argue that these figures are not much to do with Osborne. Certainly they aren't all his measures, but there are factors that he and he alone is responsible for that have led to today's shocking blow to the economy.
1. Optimism. There has been little solid plan for how the coalition would create or support growth in the economy. Cuts were seen as enough and somehow, magically, the Private Sector would pick up the slack. The entire narrative has been of austerity, pain and blame. Business confidence fell sharply in autumn last year and although UK business is sitting on a surplus of over 600 Billion, they don't have enough faith in recovery to spend it. If we, the belt-tighteners can't spend, we really, really need business to.
2. "Efficiency Measures". They're really not. Most government spending was propping something up somewhere or saving more money from being spent elsewhere. The NHS alone is to find 25 Billion in "efficiency savings" and believe me (and the two months or so I just spent in and out of hospital) you don't save that kind of money from bandages and paper clips. Contracts are cut, service providers make redundancies or go bust and staff are cut. That's a lot of people not buying new cars or houses any time soon.
3. Stimulus. Whilst lots of cuts haven't taken place or effect yet, stimulus has often been withdrawn, and if businesses go bust or houses are repossessed or jobs are lost, that's all extra unemployment benefit and housing benefit to pay. What's more, you get less tax coming in, so there's even less money in the "plus" column.
Now, no-one seems to be saying much about the deficit do they? Remember when it was all a politician could talk about? Osborne predicted he would inherit a deficit of 200 Billion. At it's worse it was well above 170 Billion, but due to the stimulus measures Labour put in place, growth was strong and the UK was predicted to grow out of recession faster than any other Euro nation. By the time Osborne took over, it had fallen to just over 150 Billion - nearly 25 Billion in less than a year.
Since Osborne took over, anyone know what the figure is? How much have we saved from all this pain? All these jobs lost or soon to be? As I quoted earlier,
"With three months of the fiscal year remaining, the government may struggle to keep the deficit to the 148.5 billion pounds forecast by the Treasury’s fiscal watchdog in November."Haven't seen that reported anywhere today, though. Funny.
Talking of reporting, I care about this stuff and had just written about it when the figures came out, but even I was a little mislead by the headlines. "UK growth shrank by 0.5%" Everyone reported.
I took it to mean "Wow, 0.7% last month, less 0.5% today, must mean 0.2% positive growth."
No! take the +0.7% of last quarter and reduce it to -0.5% overall. A contraction of 1.2%!!! That's 4.8% and it's enormous, shocking, frightening.
All those people who were so scared about the debt, the 36.1% who voted Conservative, all 10,726,614 voters (Oh yes, I am being specific) who chose the only party openly saying they would clear the entire deficit - really should have been much, much more frightened of the wrong plan to reduce it. Debt was never the issue. Whether the wrong plan could lead us into depression most certainly was.
I think it was more to do with the bank,, Labour had a choice, blow the bank (pun) in saving the banks or allow the banks to collapse. Now if they'd allowed the banks to collapse we'd still have a healthy government spending balance however..., the economy would be truly stuffed and millions of people would have lost everything. I honestly think the coalition is exasperating just how bad things are. They all had access to the books before the election, Nick Clegg especially is playing a dirty game. The Tories, well we know what Tories do, if anyone thought that Cameron would go on a cutting spree after the election they were deluding themselves, thats what Tories do, even if the finances were rosy they cut. Nick Clegg though, he knew before the election what the public purse was like and yet he was beating Labour for not spending enough. He made many promises about spending, one of them was to us. freinds of mine voted Lib Dem because of the promise Nick Clegg made to disabled people. So I don't think things are quite as bad as the coalition make out. I'm not saying they are good but the country has had bigger debt in the past. They had bigger debt after the war and through the 50's and yet didn't cut in the same way as the coalition are. The other myth is the one put about Labour in the 70's. The theory is Labour caused the financial crisis then, that Labour kept spending. In fact the truth of the matter is the only government in the 20th century who actually cut public spending, the only government who left office with public spending lower than when they took office was the Wilson/Callaghan government of the 70's. Public spending went up under Thatcher quite significantly and ironically it was social security which caused the increase. The NHS, Industry and local government all saw decreases but due to the massive increase in unemployment Social security spending rose. Of course with the revenues which started to flow in from North Sea Oil that actual spending compared to GDP fell which allowed Thatcher to have a veneer of fiscal competence. Take away North Sea Oil and The Thatcher regime would have collapsed. In the 1030's the Tories decided massive cuts were the way forward but that instead led to the great depression, it looks like the Libs and Tories just haven't learnt
ReplyDeleteHere is my take : http://redrag1.blogspot.com/2011/01/red-rag-get-osborne.html
ReplyDeletePS Keep up the good work.
The only way the UK can get out of this recession is by bringing manufacturing back to this country. The service industry is going to collapse, if there is nothing to service. I have no idea how they can do that, maybe starting companies themselves? Who cares if they are government owned, if they can be run properly. Germany is having a major growth, factories over there are unable to keep up with demand, which in turn is fuelling the rest of the recovery. It needs to be fixed from the bottom, not the top. If there is no foundation, it will just collapse again, like a house of cards. The one thing the government needs to do (other than that bank levy I heard people speak about) is bring mining and manufacturing back under british ownership.
ReplyDeleteThe FIRE sector should be losing employment as it is no longer useful. Full of rentiers it is safe from government attack at the moment. Malinvestments have to be reversed.
ReplyDeleteGreat comment Peter.
ReplyDeleteRed Rag! You're not Andy Coulson! how confusing.
Still, pleased to see you as yourself, lol.
I love the bit about "It shows you how much of an economic dunce this plank is when he blames the snow." You write what I think in my head, lol
If the Tories are going to use heavy snow as the main excuse for the economy starting to contract they should explain how things will be any different next year given that most councils responsible for clearing snow from roads are having to drastically cut their spending.
ReplyDelete" "It shows you how much of an economic dunce this plank is when he blames the snow."
ReplyDeleteWould that be an economic dunce like Gordon Brown?
http://www.politics.co.uk/news/economy-and-finance/brown-blames-weather-for-growth-slowdown-$1373558.htm
Of course the awful weather would not have caused the entire drop in growth. The Stats people said growth would have flatlined without it. Osbourne certainly can't solely rely on this excuse. But its equally dumb to claim that it would have had no impact.
Stephen - He did blame it 17 TIMES though, lol.
ReplyDeleteOf course it did have an effect. Just funny when rail companies blame "wrong kind of snow" etc.
True, true.
ReplyDelete