Austerity Has Failed Britain
Hilariously, in Britain’s autumn budget statement given last week the chancellor of the exchequer revealed that over the course of this parliament, his “austerity” program will require the Brtish government to borrow more money than originally planned. How much more? Over $247 billion will be added to Britain’s national debt in order to finance George Osborne’s program of austerity. This exceeds the expenditure advocated by the Labour party to stimulate the economy by $29.7 billion.
The austerity budget, the plan to reduce the UK’s fiscal deficit through the most severe cuts in public spending since the end of the World War II, leading to 710,000 jobs being lost in the public sector; is going to cost $29.7 billion more than a program of government led economic investment. Clearly, cutting public spending is not producing economic growth. If the Coalition Government doesn’t change course soon the economic situation in the UK will continue to deteriorate. It almost seems impossible that cutting public spending will require more borrowing but this is the Conservative party we’re talking about and if there’s one thing they’ve demonstrated consistently it’s that when it comes to economics, no failure is beyond their reach. Borrowing has to increase to fund the increase in unemployment and the declining tax revenues which will result from the impending recession. In opposition to Labour’s strategy of spending to create jobs, the Conservatives would rather be funding unemployment benefits while firing civil servants.
The response of the Conservatives is, of course, to blame the Europeans. The Government argues that because of the instability in the euro zone and the expected recession on the continent, the UK will be dragged down as well. There are of course two important points to note here: Firstly, Britain is not a member of the euro and secondly, Britain’s exports to its largest European trading partners have increased since this time last year. This would seem to indicate that Britain is in an advantageous position when it comes to the crisis in the euro zone; it has sole control of its currency and its exports to the rest of Europe are continuing to rise. Yet somehow the UK is heading into the same recession as the rest of the continent.
Could Britain’s impending economic woes have anything to do with Osborne’s almost religious belief in the idea of an expansionary fiscal contraction? The International Monetary Fund certainly seems to think so. In August of this year, the IMF advised that maintaining monetary stimulus measures would produce sustainable growth led by investment and external demand. Naturally, the British government took no notice of this and continued to cut spending as planned. When even the IMF thinks you’re placing too much faith in the private sector, it might be time to reassess your approach.
The risk to Britain comes from the exposure of UK banks to Southern European debt and the resulting massive bail-outs or economic collapse. Had the UK either contributed to the re-financing of the beleaguered Southern European countries or enacted any kind of serious reform in the financial sector, this problem could have been avoided but that would have been the sensible course of action and consequently stands in opposition to anything advocated by the Conservative party.
Photo Credit: MattieTK