Saturday 12 March 2011

Economics for Sickies 5

At his Spring Conference, Nick Clegg tells all 7 remaining members that Labour left behind

"A country on the brink of bankruptcy; banks running amok;"

Now, you see, this is the bit that makes me trust him the least. In fact, Labour left behind an economy much the same as every other country affected by the credit crunch. It left behind an economy that didn't fall totally off a cliff into depression. It left behind banks that were still on their feet, though only just. It left behind unemployment figures, growth figures and house repossession rates that were none too shabby given the fact we'd just suffered the worst financial crisis in living memory.

Today, Portugal are desperately re-doing their sums on the back of an envelope before Europe insist they take a bailout. Austerity measures haven't worked. The debt and disaster have only grown and Portugal have had to cut again and again and again.

Coincidence perhaps? Bad luck? Not really. It's the same in Greece. And Ireland. And Spain. You see "the cuts don't work, they just make things worse" as the song goes.

But why? If times are tough we must tighten our belts right? Well, yes and no. If too many people lose their jobs, the state has to pay them unemployment benefits and housing benefit and loses the tax they paid when they were working.

If too many businesses go bust, they won't pay tax any more either and nor will the people they used to employ.

If the public are squeezed so hard with pay freezes and cuts and VAT rises and NI rises and inflation, then they just won't be able to buy much. They cut down on luxuries, buy fewer groceries, take fewer holidays etc etc. All THAT tax won't come rolling in either and businesses and shops suffer even more.

Like a great, big, out-of-control snowball the debt actually get's BIGGER, and things get worse, not better.

Not looking terribly rosy here either is it? If we drop the smoke and mirrors and the "wrong kind of snow" spin, a drop to -0.6% of GDP shocked the hell out of everyone. Old Mervyn King's sounding a bit jumpy too isn't he? Odd comments coming from his quarter, possibly a whiff of frustration?

You don't even need to believe me or not believe me. We have the 1930s as an almost carbon copy of today to learn from. There was a terrible financial crisis then too and governments attempted to solve it with austerity measures (Google austerity measures of the 1930s - you'll get all the evidence you need that austerity is a terrible mistake)

We have Ireland and Spain and Greece and Portugal to prove that massive cuts only lead to more cuts and then more cuts. Far from recovering, their economies are only getting worse. Unemployment is raging, debt is ballooning and growth is shrinking.

On the subject of massive cuts, it's worth pointing out again that George Osborne's £83 billion worth of cuts have never been attempted before. Anywhere. It is more than Maggie ever dared to dream of. Frankly, it's not possible. The destruction it will bring is eye-watering and there is no guarantee at all that it will work. We can attempt to make these cuts and simply find it cost us as much if not more elsewhere. We still lose all the police officers and hospitals and teachers AND the deficit doesn't shrink.

George might argue that the economies of Greece and Portugal and Ireland and Spain are very different economies to ours, yet he conveniently forgot that when he was trying to imply we were on the same brink as them last year. It was the very argument he made when telling us we must cut. There was, apparently "No Alternative"

In the 30s, it was Germany leading the way on austerity and today guess what? Yep, it's Germany leading the way on austerity. As the EU country holding all the growth and recovery cards (not to mention most of the bailout cash), Merkel is insisting on austerity from her less fortunate member states and throwing a few conditions in that suit her own goals - Portugal must privatise, Ireland must give up their low corporation tax rate.

I am astonished daily by the path we're taking and how little dissent governments are facing, right across Europe, as their austerity measures conclusively fall apart. It just remains to be seen how long it will take this time before we realise that austerity measures this vast will fail. Just as they did in the 30s.


  1. In years to come, the disabled will thank the Lib Dems for abolishing Housing Benefit and Disability Living Allowance.

  2. Sue, I agree entirely with your view here!

    @Anonymous: Is that supposed to be ironic? Because if it isn't then please explain just how and why we'll come to thank the Lib Dems...


  3. RockHorse - Yes, I think my anonymous IS ironic, Seems to be a series taking the mick out of how one Lib policy will cause horror elsewhere.

    Live and let ignore, I say.

  4. A couple more facts:

    The following countries have a higher national debt than us:


    After WW2 our debt reached almost 250% of GDP, after which growth ensured its speedy decline.

    The structural deficit is also somewhat of a farce; the deficit will not stop shrinking when (if) we return to full capacity. It is also far below half of the current borrowing figure, implying that growth is more important to lower borrowing in the short as well as long term.