Economic Salvation, Only a cut away

One and a half years into the most devastating recession since the 1930s the British elected a government bent on a radical right wing agenda to slash expenditure. This is an agenda that runs counter to  the basics of Keynesian economics and raises the question of how the economy will be provided with a stimulus. 


At the beginning of the month the IMF sent a five person mission to sit in judgement over the British Government's approach to economic salvation. In a 30 minute briefing to the press the mission gave its seal of approval to the radical measures that have been introduced to purge the British economy of the sin of deficit. 

The Government has forged ahead with its post Keynesian programme of severe public spending cuts. This approach has not been copied by any of the other large economies so the blessing of the IMF was one that was very welcome. The British government presented this as vindication for their policy of cutting expenditure and was warmly praised by the majority of the British press. One could be forgiven for believing that George Osborne was creating an economic miracle, and in so doing destroying the fundamental tenets of Keynesian economics.

However there has been plenty of adverse foreign press comment on the British approach. There is a great deal of concern that the cuts are economically counter intuitive. The question that is repeatedly raised is one of how growth can be encouraged whilst so drastically cutting government expenditure. The New York Times even qouting one researcher in a brokerage firm as saying; 

"Mathematically, I just do not see where growth is going to come from,” 

http://www.nytimes.com/2011/06/16/business/global/16pound.html?_r=1&scp=2&sq=george%20osborne&st=cse


This devastating critique is echoed in numerous publications across the globe.


In The New Yorker magazine former BBC economic commentator John Cassidy flayed Osborne's approach in an article entitled 'U.K. economy returns to 1930s; IMF applauds' 

Cassidy points out that the public spending cuts have throttled any economic recovery 

"In the four months from October to January, the U.K.’s G.D.P. actually fell. Since then, it has edged up slightly. According to a new report from the non-partisan National Institute for Economic Research, in London, in the three months to May the economy expanded, but by just 0.4 per cent—a miserly rate of growth."

He goes onto to say;

"The N.I.E.S.R. is not expecting output to pass its previous peak until 2013 at the earliest, and even this may well prove optimistic. The independent Office of Budget Responsibility, which the government set up last year to stop the Treasury from cooking the books, is forecasting growth of 1.7 per cent this year and 2.5 per cent in 2012. These figures might sound pretty modest, but with the government busy retrenching and consumers still digging themselves out of debt, they hinge on an upturn in exports and business investment that seems unlikely to materialize. Realistically, G.D.P. growth of one per cent this year and two per cent next year seems about the best that can be hoped for, and, absent a policy change, an even worse outcome can’t be ruled out."

http://www.newyorker.com/online/blogs/johncassidy/2011/06/uk-economy-returns-to-1930s-imf-applauds.html


The French equivalent of The Financial Times, Les Echos commented:

"Ce débat existait déjà il ya un an, pendant la campagne électorale, mais il se ravive alors que George Osborne, le chancelier de l'Echiquier, applique sans trembler son plan drastique de baisse des dépenses. « Il n'y a pas d'alternative », disait jadis Margaret Thatcher. « Il n'y a pas de plan B », martèle Osborne en réponse à 52 économistes pour qui le Royaume-Uni risque la rechute."

http://www.lesechos.fr/opinions/edito/0201421303209-la-beaute-du-plan-b-172948.php

Despite the chorus of approval from the British press it is obvious that serious questions remain about government economic policy. British society urgently needs a serious debate what exactly will provide the stimulus that the economy so badly needs.