Thursday, April 26, 2012

Another Nail in the Proverbial Coffin in Britain’s Economic Policy is Another Nail in the Coffin of the British Economy

Conservative Policy Causes Britain’s Economy to Officially Fall Into Recession

The objective, professional world of real economists, unlike those who are dominated by ideological forces has long recognized that economic policy to contract the economy would, in all likelihood contract the economy.  In Britain the Conservative party took over in a coalition government and immediately said that their policy goal was to reduce the deficit, never mind growth and employment.

To meet that goal they embarked upon a policy of massive government spending cuts, massive layoffs of government employees and a small tax increase, a tax increase made even smaller by rescinding a tax increase on very high incomes.  They left in place an increase in the VAT, which acts much like a sales tax in its impact and effect, particularly on low and middle income groups.  The Conservative position was that this policy would produce a “confidence” boost and that boost would influence consumers to spend more and business to invest more.

The latest results published on Britain’s economy show things did not work out as Conservatives felt they would, but they did work out as economists thought they would.

Britain slipped back into recession at the start of this year, with economists concluding that even the most generous interpretation of official data released on Wednesday suggested the economy had flatlined for over a year.

The Office for National Statistics said that output for the first three months of the year contracted by 0.2 per cent, following a 0.3 per cent decline at the end of 2011.

Okay, the negative numbers are small, so maybe it is fair to say that the economy is just dead in the water instead of sinking to the bottom.  But even with a generous interpretation there is this.

Michael Saunders, economist at Citi, said Britain was experiencing “the deepest recession and weakest recovery for 100 years.”

“It is now four years since real GDP peaked in the first quarter of 2008,” he said, noting that the level of GDP at the end of the first quarter of 2012 stood 4.3 per cent below its pre-recession peak.

And yes, some are in denial

While a spokesman for the British Retail Consortium said the data was an accurate reflection of what businesses were seeing, the EEF, a group of manufacturers, disagreed.

“The anecdotal evidence is much more positive than the numbers today,” an EEF spokesman said.

But to take that position one has to believe ‘anecdotal evidence’ rather than hard numbers, which is some ideologues do but professional policy makers and advisers and commentators do not.

George Osborne
Why is this man smiling?
Because he has a job as Chancellor of the
Exchequer and you don't

But mostly in denial was the Conservative government, where Chancellor George Osborne is in charge of fiscal policy.

George Osborne said he had no intention of easing the government’s deficit reduction plan on Wednesday after the economy plunged into a double-dip recession and the longest downturn for more than a century.

With economic woes adding to the long list of troubles for the coalition, the chancellor blamed the eurozone for Britain’s economic plight, which has left output 4.3 per cent below the 2008 peak and rejected Labour’s claim that the new recession was “made in Downing Street”.

“The one thing that would make the situation even worse would be to abandon our credible plan and deliberately add more borrowing and even more debt,” Mr Osborne said.

Yes, everyone would be laughing at this stupidity were the consequences no so devastating for so many people.

It will be interesting to see how all of this plays politically in Britain.  Major local elections will be held soon, the grim economic news along with news about how the Conservative government held secret talks with Rupert Murdoch (controlling owner of Fox News) to facilitate his takeover of a satellite TV system while denying that such talks ever took place will test just how much patience the British voting public has with Conservatives and their policies.

Of course, it would be wrong to mention that much of Britain’s policies with respect to government spending that have led to the economic train wreck are also the policies of Mitt Romney and the Republicans, so we won’t do so.

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