Monday, May 28, 2012

Britain’s Conservative Government Surrenders on Economic Policy; Admits They Were Wrong and Moves to Change Course

Reality Finally Overtakes Ideology

For two years now Britain has pursued an economic policy, that, to put it as politely as possible is just plain wrong.  The Conservatives who took over Britain in 2010 decided that cutting spending and firing hundreds of thousands of government employees would somehow give business the confidence to invest and hire.  They were dead wrong.

Now the government has announced that it will change course and use its low cost of borrowing tofinance major projects.

The ruling UK coalition is preparing a “massive” increase in state-backed investment in housing and infrastructure, as Nick Clegg signalled a shift from lurid warnings by ministers about the debt crisis to a fresh emphasis on growth.

In an interview with the Financial Times, the deputy prime minister sounded a new tone on economic policy, when he said the government’s “absolute priority” was to use the government’s strong balance sheet to inject credit into the economy.

What Happened?

The IMF, a very conservative organization recognized what everyone else except the denial group of Conservatives in Britain had recognized, that British policy had been abject failure.  The IMF urged Britain to change course.

Lagarde: 'Economic recovery in the UK has not yet taken hold'
Ms. Lagarde -
Telling Britain The Way
It is - Finally Somebody
George Osborne must adopt an economic "Plan B" and slow the pace of public spending cuts if the British economy remains weak, the International Monetary Fund warned the Chancellor yesterday. The managing director of the IMF, Christine Lagarde, came to the Treasury to deliver the sobering news: that the Government should consider slowing spending cuts if recovery stalls.

She also called on the Bank of England to do more to support the economy – presently in the grip of a double-dip recession – by printing more money.

This statement by the head of the IMF swept away the last vestige of credibility from British policy.  And so the government sent its junior coalition partner, Mr. Clegg out to announce the change.  Mr. Clegg was chosen so as to avoid further embarrassment for the Conservative leaders Prime Minister David Cameron and Chancellor George Osborne, both of whom would say up until the last minute that their austerity policy was working and that there would be no changes.

Mr. Clegg dutifully undertook this role, and also made a sincere but failing effort to put the best face forward on things from a political point of view.

The deputy prime minister said the coalition initially had no choice but to set out “in very lurid terms the state of the emergency we were facing”. But he added: “That kind of language over a prolonged period of time can have a dampening effect on mood, which is very important in an economy.”

He denied the new focus on demand was a Plan B, insisting the coalition’s deficit reduction plan had earned Britain market credibility. However, the Treasury could now use its balance sheet to underwrite housing and infrastructure schemes and to tackle youth unemployment.

One important thing in all of this is what we have is a preview should the Republicans take the Presidency and control of the U. S. government in January.  If they do they will embark on a British style program, and they will get the British results.  Of course, being much stronger on ideology than public policy, it will take far more than two years for them to admit they were wrong.  


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