I’ve argued, often, that to get out of recession we need a plan. Compass has published one, written by my writing colleagues Howard reed and George Irvin with Zoe Gannon of Compass. Entitled the £100 Billion Gamble the report reveals the extent of the ConDem’s reckless gamble. It is calculated in this new report that the government is making a £100 billion gamble on growing while the public sector is cuts which is supported by "no reputable economic theory".
The report argues that: "Everyone is agreed that growth is the only way out of this economic situation, but the government’s hope is that this will come about by simply creating ‚Äòspace’ for private initiative. It has an agenda for cuts but not for growth."
Chancellor George Osborne argues that the state is the problem, that we must deal with the deficit immediately, that if the state is cut back the private sector will flourish and that cuts can be progressive. On all of these fronts, the report shows that Osborne is fundamentally wrong.
The report contests each of these with economic facts and evidence showing that opposition to the cuts is essential and that there is an alternative involving a renewed fiscal stimulus to encourage growth and a long term fiscal policy designed to reduce the deficit through a fairer tax regime.
Recommended.
12 Responses to “Finding a Compass”
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“Everyone is agreed that growth is the only way out of this economic situation”
This is where I fear everyone is going wrong. We have an economic “situation”, that is true. But we also have an environmental situation, which we cannot just ignore. We should be thinking of moving to a zero growth economy. Previous growth has been based upon such madness as people upgrading their mobile phones and MP3 players each time a new model came out and everyone having half a dozen short haul breaks each year and buying Chilean blueberries and Brazilin Acai fruits because the newspaper said they’ll stop you looking old. Going back to that is no solution.
This is why Richard’s work on the New Green Deal is valuable, because it shows a way of spending government money that is not back to the old, unsustainable “growth model”. But what is dissapoining is how few people are seeing that we are at a moment in time when we could be seeking something better than a crudely materialist, consumption based model for the economy. Because it seems to me that any economy based upon media-led consumer desires is, by definition, going to overreach itself and be prone to periodic booms and busts.
A more contemplative society based upon appreciating what we have and concentrating on providing what we need, rather than pursuing what is new. That is what we should be chasing. Not “growth”.
Look outside. Many of you could go out this afternoon, pick elderberries and make some elderberry wine. You would get pleasure in being in the countryside, feel the joys of making something (ad learning to make something), being sustainable and be part of the heritage of the nation. It would be a wholly beneficial exercise. And you’d save money on buying imported wine: it is the very opposite of “growth”.
It is a sad fact that the world economy is caught in the deathtrap of growth model economics and like lemmings we are all walking towards the cliff with a smile on our faces.
The problem is that economic growth requires either the consumption of more resources (natural or otherwise) OR technological advances which mitigate the need to consume more resources. Unfortunately technological advances have not been winning this race of late.
Whilst the present system has provided us with the lifestyle and security that the vast majority of people in the UK currently enjoy we need to return to basics and concentrate on sustainability to make sure that we leave a legacy (financial and environmental) that we will not be ashamed of in years to come. Borrowing money that we don’t have in the first place so that we can spend it with gay abandon is just as poor a solution for the country as it is for individuals with credit cards or mortgages that they cannot afford but take out anyway. UK economic growth has been driven by debt. We are currently at the limit of the level of debt we can afford to service both national debt and consumer debt.
If you were the head of a family should you borrow more money than you could afford to repay? Of course not – you may end up losing everything. So why should the nation?
If we have not learned the lesson that irresponsible borrowing to finance spending growth does not work, then all hope is gone and I should just smile with the rest of the lemmings and enjoy the rest of the walk towards the very attractive cliff face.
@Finance guy
For a finance guy you’re remarkably – catastrophically – misinformed about money
Richard, the analogy of household income and borrowing is often used to try to put country macroeconomics in a context that people can understand – and is how the current Government seem to be getting away with the current cost cutting program with the electorate. Are there any equally powerful analogies that can be used to explain to people why countries are different from businesses and households?
We’re all allowed an opinion… My PhD in Economics the MBA and 13 years in corporate finance has led me to better understand how our economic system works and what fundamental principles it is built on. Sadly most people close their eyes to the reality of what future generations are heading towrads.
Debate is always healthy though is it not?
@Finance guy
Then debate and learn then
Your wholly micro economic view is wrong is the thing you need to learn
That and the fact that somewhere along the way your education was wholly inadequate for not teaching you there is no comparison to be made at all between an economy and a household
@Deeply Depressed
I wish there was
I’d better do it…
@Richard Murphy
I found this on AmosWEB, which is quote useful but doesn’t expand out the analogy enough:
i always think of the mortgage analogy. People always willing to take out a loan 3 or more times their annual income to provide themselves with a house. Or am i being simplistic ?
My suggestion for all those who believe that mindless government spending is sound economic policy take a little field trip to Greece to see the eventual outcome.
Yes they have other issues in Greece but the firestorm raging there today is fundamentally because the country’s debt burden was unservicable (or considered potentially unservicable by the markets). The UK needs to put as much distance between ourselves and the Greek situation as possible.
There are however some very uncomfortable parallels between the situation in UK and Greece. I acknowldge that at 113% of GDP the Greek debt burden was much higher than our own at 70% but if we do nothing numbers will rise and at the 2012 prediction of 80% we are perilously close to the point at which investors will start looking for a premium on UK debt (the start of the end).
More worrying though is the similarity with Greece in the scale of our structural debt (i.e. nothing to do with the recession). We should not think for a second that the market will hold the UK’s ability to repay debts in the same esteem as R.M.
Are we at immediate risk – no. But if we do nothing to reduce our overall borrowing and our structural deficit VERY QUICKLY then the suffering will be far more severe and very, very real. Go and talk to a Greek to see how real it can get.
@Finance guy
This is pure bunkum
Just go read Nobel Laureate Paul Krugman http://www.nytimes.com/2010/08/20/opinion/20krugman.html?_r=2
The tell me why bond rates are so low, why bonds are so in demand and the only things worrying bondholders are cuts?
Also explain why having our own currency does not make us utterly different from Greece
As for our structural debt – I’ll be explaining half of that at the weekend
@Finance guy
This is pure bunkum
Just go read Nobel Laureate Paul Krugman http://www.nytimes.com/2010/08/20/opinion/20krugman.html?_r=2
The tell me why bond rates are so low, why bonds are so in demand and the only things worrying bondholders are cuts?
Also explain why having our own currency does not make us utterly different from Greece
And why if our borrowing rate next year -wholly forecast – is not being priced by rational markets now?
As for our structural debt – I’ll be explaining half of that at the weekend