Sunday, November 25, 2012

Britain’s Austerity Programs to Reduce the Budget Deficit Are Not Working – Surprised Anyone?

No Conservatives in Britain, No One is Surprised

The economic policy of the Conservative dominated British government is built around the goal of reducing the budget deficit in order to stimulate growth by a visit of what Paul Krugman calls the “confidence fairy’.  The confidence fairy is what bestows economic prosperity on countries that cut spending and raise taxes in an attempt to stimulate economic growth.  The confidence fairy is just as real as the tooth fairy.

The latest news out of Britain is that revenues are down and the budget deficit is up.

The bad October figures put borrowing £5bn higher in the seven months of the 2012-13 financial year to date compared with last year.

All is not bad in Britain, as consumer spending has kept employment at relatively stable levels, and despite words to the contrary the government has not really cut spending very much.  But lack of a complete disaster is only because of the natural economic recovery that takes place, and in Britain’s case public pressure has prevented government spending from declining as much as Conservatives wanted it to. 

As for the future of that policy,

While the rapid spending growth in October compared with the previous year might reflect a different pattern of timing of payments due to the government introducing a new system of budgeting for expenditure, the shortfall in important tax revenues is likely to be another blow to the chancellor’s preparations for the December 5 statement.

He is likely to have to admit that it will take take three years’ more austerity than originally planned to bring public borrowing under control and that his fixed rule to see public sector net debt falling as a share of national income by 2015-16 will be broken.

So here’s a surefire prediction, the Conservatives will in Britain declare their programs a complete success.  Which it is as long as facts and figures are ignored.

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