Thursday, August 23, 2012

Britain Shows Once Again That Economic Policy to Contract an Economy Contracts an Economy

How Many Times Do They Need to Learn the Same Lesson

Apparently A Lot

The one goal, indeed the only goal of Britain’s Conservative coalition government is to reduce the deficit.  Never mind how much harm meeting that goal does, the policy makers of the Conservative party are bound and determined to implement policies to reduce the deficit and balance the budget.  The problem, they don’t understand how a budget is balanced.  The result, higher not lower deficits.

Britain posted an unexpected budget deficit in July as corporation tax receipts dropped sharply, pushing the government’s plans to balance the books further off track.

The government borrowed about £600m in July to bridge the gap between spending and revenue, even though there is usually a budget surplus in July because it is a strong month for quarterly corporate tax receipts. Economists had predicted a £2.2bn surplus for the month.

Why exactly is that happening? Well it seems that despite the fact that the British economic policy is not working, those in charge continue to pursue it.

A spokesman for the Treasury said: “The government’s fiscal mandate deliberately allows the automatic stabilisers to operate in response to weakness in the global economy, but it is still too early in the financial year to draw firm conclusions about the year as a whole.”

In a rebuff to those calling for a plan B to try to stimulate the economy through additional borrowing, he added: “The government remains committed to the credible plan we have set out to deal with Britain’s debts, and today’s numbers emphasise how risky it would be to deliberately increase borrowing.”

As for those economists who expected a 2.2 billion surplus, well, those were the charter members of the Martian Society of Economics.  Here on Earth we have more rational economicsts.

Vicky Redwood, an economist at Capital Economics, said: “At this rate, borrowing for 2012-13 overall will massively overshoot the OBR’s forecast of £120bn by over £35bn. And with the recovery falling well short of the OBR’s expectations, we think that the government will struggle to cut borrowing at all next year either.”

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