AUSTERITY cuts planned by the Tories and Labour after the election will seriously damage the economy, according to one of the world’s leading economists.
US academic Paul Krugman yesterday poured scorn on the UK for sticking to austerity when the rest of the western world has abandoned it as a “failed” policy. As economic research supporting the cuts is now discredited, he said the only reason the UK could still be sticking to the policy was for ideological reasons.
“Conservatives like to use the alleged dangers of debt and deficits as clubs with which to beat the welfare state and justify cuts in benefits; suggestions that higher spending might actually be beneficial are definitely not welcome,” he said.
“Scare talk about debt and deficits is often used as a cover for a very different agenda, namely an attempt to reduce the overall size of government and especially spending on social insurance.
“The ‘primary purpose’ of austerity, the Telegraph admitted in 2013, ‘is to shrink the size of government spending’ – or, as Cameron put it in a speech later that year, to make the state ‘leaner ... not just now, but permanently’.”
However while Cameron and crew could be expected to curtail state spending on ideological grounds, Krugman professed astonishment that Labour is prepared to carry on the agenda.
“Why are the US’s austerians on the run, while Britain’s still rule the debate?” he asked. “It has been astonishing, from a US perspective, to witness the limpness of Labour’s response to the austerity push.
“Britain’s opposition has been amazingly willing to accept claims that budget deficits are the biggest economic issue facing the nation, and has made hardly any effort to challenge the extremely dubious proposition that fiscal policy under Blair and Brown was deeply irresponsible – or even the nonsensical proposition that this supposed fiscal irresponsibility caused the crisis of 2008-2009.
“Why this weakness? In part it may reflect the fact that the crisis occurred on Labour’s watch; American liberals should count themselves fortunate that Lehman Brothers didn’t fall a year later, with Democrats holding the White House.”
To back his views that it doesn’t work, Krugman pointed out that since the global turn to austerity in 2010 every country that introduced the policy has seen its economy suffer, with the depth of the suffering aligned to the severity of the austerity.
He added: “In late 2012, the IMF’s chief economist, Olivier
Blanchard, went so far as to issue what amounted to a mea culpa: although his organisation never bought into the notion that austerity would actually boost economic growth, the IMF now believes that it massively understated the damage that spending cuts inflict on a weak economy.”
Few people now believe that austerity works, according toKrugman.
“Hardly anyone, that is, except the coalition that still rules Britain – and most of the British media.
“I don’t know how many Britons realise the extent to which their economic debate has diverged from the rest of the western world – the extent to which the UK seems stuck on obsessions that have been mainly laughed out of the discourse elsewhere.
“George Osborne and David Cameron boast that their policies saved Britain from a Greek-style crisis of soaring interest rates, apparently oblivious to the fact that interest rates are at historic lows all across the western world.”
Greece is now seen as it should have been in the beginning, according to Krugman, which is “as a unique case with few lessons for the rest of us”.
Instead of cuts after the financial crisis of 2008, there should have been stimulus which should have continued until the economy recovered.
“All of this is standard macroeconomics. The truth is that mainstream, textbook economics not only justified the initial round of post-crisis stimulus, but said that this stimulus should continue until economies had recovered.
“What we got instead, however, was a hard right turn in elite opinion, away from concerns about unemployment and toward a focus on slashing deficits, mainly with spending cuts.”
Krugman pointed out that the small “recovery” that the UK has experienced recently is because fiscal tightening was quietly loosened halfway through the present government’s term. The problem is that this is now in jeopardy by the promise of further cuts after the election.
“Cameron is campaigning largely on a spurious claim to have ‘rescued’ the British economy – and promising, if he stays in power, to continue making substantial cuts in the years ahead. Labour, sad to say, are echoing that position. So both major parties are in effect promising a new round of austerity that might well hold back a recovery that has, so far, come nowhere near to making up the ground lost during the recession and the initial phase of austerity.
“For whatever the politics, the economics of austerity are no different in Britain from what they are in the rest of the advanced world.
Harsh austerity in depressed economies isn’t necessary, and does major damage when it is imposed. That was true of Britain five years ago – and it’s still true today,” said Krugman.
To read the whole article go to http://www.theguardian.com/business/ng-interactive/2015/apr/29/the-austerity-delusion
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