Breaking the grip of budget hysteria

Public debate about economic policy in the UK is mesmerised by the budget deficit, with the three main political parties, the media and most commentators competing over the timing and severity of measures to reduce it. The dominant view is that the deficit must be cut quickly and that this will involve swingeing cuts in public expenditure and some increase in taxation. Yet output has fallen 6 per cent below its pre-recession peak and unemployment has risen from 5 to 8 per cent of the workforce.

The lessons of the Great Depression and John Maynard Keynes seem to have been forgotten: when private sector spending on consumption and investment falls, public sector spending must be increased to maintain effective demand and prevent unemployment. Current policy proposals increase the danger of a double-dip recession and a new prolonged era of high unemployment, unused resources and human misery.

The key economic problems are not the size and sustainability of the budget deficit: they are our unsustainable way of life and the shortage of jobs, especially for young people. Most of the increase in the deficit stems from falling tax revenues and rising social security bills caused by the recession itself and will be reversed when the economy recovers. The government must, of course, maintain control over its finances, but it should use them to inspire public confidence in our future economic prospects. On all these counts, our best hope lies in a Green New Deal designed to promote social justice and environmental sustainability.

Sponsor

Pat Devine Geoff Hodgson David Purdy Malcolm Sawyer

Links

www.hegemonics.co.uk

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    Pascal Petit, France

    5 years ago Comments: -
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    Robin Simpson, United Kingdom

    5 years ago Comments: I am an independent consultant in which capacity I work for Consumers International which is a global NGO of consumer organisations based in London. Our British members are Which? and Consumer Focus (previously Energywatch/National Consumer Council where I used to work). I also work with the World Bank and OECD. I agree with everything you have said and I am currently trying to get the European consumer organisations to view the probable deficit reductions as a breach of faith vis a vis those who depend on the state for financial services. Vast sums of money have been spent on rescuing the banks and other Financial Services and the major beneficiaries of that have been the banks themselves and their (relatively) well off customers. The resultant deficit is now about to be paid for by the poor as they are disproportionately dependant on the state for their income as beneficiaries. Yet the guarantees for the banks as provided by the state for the last two years are exactly analogous to the guarantees provided to social security funds in France or Germany for example, which operate semi-autonomously but underwritten by the state. There is a terrible double standard at work here, reinforced by the new British government explicitly targetting the social security budget as a means of reducing the deficit. I am also working on the merits of the social security system as an automatic economic stabliser. I wish you good luck best wishes Robin Simpson
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    alexandros papadopoulos, United Kingdom

    5 years ago Comments: -
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