Tuesday, September 21, 2010

Timing of cuts merely a technical issue

This is a central claim of Nick Clegg as he tours the media studios, trying to deflect attention from his party's vocal support for delaying cuts before the election. The story about being convinced by a phone call from Mervyn King has slipped into history, perhaps because King has denied that the call contained anything new. As Left Foot Forward reminds us, just five days before polling day, with the Greek sovereign debt crisis raging, Clegg said

"It's siding with common sense. My eight year old ought to be able to work this out - you shouldn't start slamming on the brakes when the economy is barely growing."
The timing of cuts isn't a technical question at all - it is central to the whole debate. Cutting before the private sector is able to pick up the slack is lunacy, it is not an issue of minor technical importance.

If Nick's child can work that out, you have to wonder what has changed his father's mind, with growth for the last quarter at 1.1% - a good result and one not bettered since 1999 - but hardly evidence that the economy has lifted off again, given that growth in the first quarter was 0.3%. The IoD don't think that this level can be maintained and I do have to point out that this growth was achieved under the policies set out by the last government, not the current incumbents. The third quarter figures will be most revealing.

But don't rely on my dubious grasp of economics, let's take the views of a Nobel prize winning economist, Joseph Stiglitz
"If Europe goes down the route it’s going, which is austerity measures, the result will be a growth slowdown, which will mean tax revenues will go down... When that happens, markets will react. This austerity approach poses a great deal of risk."

Here he is again
"If we spend the money on investment, infrastructure, the long-term national debt will actually be lower. The focus on the deficit is in my mind extraordinarily short-sighted.”
And the key point is that deficit cuts in the UK will have effects well beyond our borders.
Mr Stiglitz said historical evidence showed that increased state spending helped economies emerge from recession. He added that the example of Ireland showed
that austerity leads to declining output, rising unemployment and high bond spreads, instead of renewed investment. "I feel sorry for the Irish people who have to suffer from this policy... but it doesn't have global or European consequences. If the UK, Germany or other countries do it, then it is going to have systemic consequences for Europe and the whole world."

And then there is Clegg's glib statement about not letting your children pay your debts, building on his inane comparison of the British economy with the household budget. Neither comparison works. Did Churchill and Attlee consider at the start of World War Two that Britain would be paying the debt down until 2006? As Ed Miliband pointed out, in 1945, Attlee didn't think to hold back for better financial weather, he got on with building the welfare state that this current government seeks to dismantle.

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