Monday, July 23, 2012

Britain’s Conservative Economic Policy (Read U. S. Republican) Goal to Produce Higher Growth and Lower Deficits –

Actually Produces Higher Deficits and Lower Growth

If one listens to Conservatives, the true enemy of  economic growth is not lack of consumer spending, is not problems in the housing sector and is not a lack of business investment.  It is government spending and the fact that the government is running a huge deficit.  Under this theory economic policy which has massive cuts in government spending to reduce the deficit will produce higher growth, higher employment and lower deficits.

Of course things haven’t worked out when countries like Greece have adopted this policy.  And the latest example is Spain, which is facing near bankruptcy and would be bankrupt without European subsidies.  So there is some fair amount of interest in what is happening in Britain, whose Conservative treasury minister, George Osborne has been an adamant champion of austerity policy. 

The results, needless to say are exactly what basic economic theory says the results would be.  First of all the deficit reduction thingee, hasn’t happened.

Net debt excluding financial interventions now stands at £1.04 trillion, compared with £944.6 billion last June.

Debt as a percentage of gross domestic product (GDP) - a broad measure for the total economy - hit 66.1% in June, up from 62.3% last year.
April's borrowing figures were flattered by a £28 billion lift from the value of assets transferred from the Royal Mail pension plan.

But excluding this one-off impact, total borrowing for the current financial year stands at £42.9 billion, compared with £38.4 billion at the same stage last year.

As for the economy thingee, well things don’t look so good there either. 

The IMF, led by former French finance minister Christine Lagarde, said last night that the Government should ease its fiscal tightening if the recovery continues to stall.

The organisation said Mr Osborne should consider introducing increased infrastructure spending in his next Budget to boost growth, which could be funded by further tax reforms.

The organisation significantly lowered its UK growth forecast for 2012 to 0.2% from 0.8% just three months ago, reflecting the UK's slide into double-dip recession.

The IMF, of course, is one of the great austerity champions of all times.  When the IMF says  you should start thinking about easing fiscal policy, it is tantamount to a declaration that the current policy is a total and complete failure.  Which of course, it is.

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