We all know how unfair George Osborne’s budget is: decreasing top-rate income tax; decreasing corporation tax; putting a limit on untaxed philanthropy; trying to close loopholes in an obviously unfair way (as one MP pointed out VAT is not applied to caviar yet is now to all pasties – hot or cold); and lastly but not least controversially restricting pensioners’ tax allowance. However, the Tories and he adamantly argue that ignoring equality (and other similarly unimportant ideals) it is at least fiscally neutral – all money given out will be reclaimed in taxes.
So basically the austerity and cuts will go on – unemployment will remain high, inflation will remain high, and the economy will slowly suffer. But in the long run, they argue, in the long run we will emerge with decent growth and hopefully a far lower deficit! This is why George Osborne went gloating to the International Monetary Fund earlier last week. “I don’t see any loss of public support for the basic argument that Britain has a debt problem and we have to take difficult decisions to deal with it.” An interesting argument which ignores all evidence, the Tory lead on the economy compared to Labour has shrunk by 21% over two months.
But anyway in the long run it will be fine. There is very little to say to this argument as it is always true with an economy. John Maynard Keynes (not an important figure – just one of the most important economists ever) succinctly put it: “In the long run we’re all dead.”
Continued austerity and privatisation will always stifle growth and that is why Keynesianism states that if anything we should increase government spending during bad economic periods. This will force growth through the public sector rather than ending over-reliant on the private sector. There is a reason why the government waits anxiously for the first quarter growth rates as we may end up back in a recession: one that cannot be blamed on Labour or Europe or the world’s oil prices (I await almost eagerly for Cameron’s usually fantastic excuses for lack of growth). There is an easy way to test this of course and that is to compare countries who have tried to cut their way out of the crisis and those who have not…
The UK shrank by 0.5% compared to the US (with Barack Obama’s fiscal stimulus pact which pushed their spending by 10 trillion dollars over three years) which grew by 1.6%. Estonia grew by a whopping 4.5% with very leftie budgets commanded by a previously communist PM – compared to Slovenia which managed to drop -2.8% under a right leaning government trying to cut the spending and deficit as quickly as possible. Finally the most obvious are countries forced into huge austerity measures by other EU members: Italy at -0.4%, Spain 0.3% and poor old Greece at -7.5%. Then a glance at the lefties who ignored Sarkozy and Merkel’s threats: Slovakia 3.3%, Austria 1.2% and Belgium 1%.
Now I’m not going to say that this correlation has only one cause as Greece’s huge deficit before the global crisis clearly played a large role. As did Berlusconi’s absolutely terrible leadership for Italy which neared them to the brink. Neither will I pretend that Labour is faultless because obviously they did spend too much during a boom (during which Keynes advised savings to spend during the inevitable bust). What I am saying is that Ed Balls needs to be clearer about his message that the government are going too hard and fast, and that the reasons and evidence for this are clear.
After mentioning him so much I feel a Keynes quote ought to be the one to end this article. After giving all this evidence I ask Conservative supporters this question: “When the facts change, I change my mind. What do you do, sir?”