More Woe for Mr. Osborne

Lesley Brennan

10 May 2013

Mr Osborne has backed the policy of the IMF on cuts up to the hilt.

The analogy of paying off a 25-year mortgage is a good illustration of how its austerity measures were to proceed.

Suppose that paying off the mortgage was to be rescheduled so that it was to be paid off far quicker, in 10 years, for example.

That is fine, except that it leaves the household with less money to spend on essentials such as food, clothes, electricity and gas, and transport to take general examples.

This results in less money circulating in the economy to pay for goods and services.

That results in fewer hours of work, job losses, and reductions in some households’ income, making the 10 year mortgage that much harder to pay.

Unfortunately for Mr. Osborne ,the IMF has realised too late in the day that these austerity policies are not working, and that they are , in Mr.Osborne’s case, “playing with fire” if he continues to forge ahead with them in the UK.

Mr Osborne is determined to stand up to the IMF and to stand up for his austerity policies despite a TUC analysis of IMF figures showing that the UK economy ranks 24th. for growth in the 33 Western economies studied by the IMF.

The IMF are carrying out their annual "health check" of the UK economy in the wake of more bad news for Mr. Osborne.

Last month , a post doctoral student demonstrated that the mathematical data that supposedly supported the theory contained elementary errors in a spreadsheet.

 Mr. Osborne’s economic gurus, the Right-wing economists Rogoff and Reinhart, had said that governments had to slash public spending to nurture economic growth .

 The reason was that above a certain debt to Gross Domestic Product ratio (of 90 per cent) their economies would grow less than those with lower debt.  

That theory having been discredited by international data, it was now the turn of UK figures to do likewise.

Analysis of the data for the period 1949-2011 in the UK disclosed a directly opposite conclusion from that pronounced by Mr. Osborne’s economic mentors – a higher debt to GDP ratio was associated with a higher rate of growth.

Mr. Osborne must now abandon his austerity policy as the solution for the UK economy, and choose instead the alternative of sustained growth  that will allow us to reverse falling living standards and create more jobs.

This will involve more borrowing in the short term but this will produce growth that will in turn reduce levels of borrowing in the medium term .

The low interest rates of borrowing at the present time make it particularly advantageous to do so .

And it will be invested in works and projects that will revive the economy and the country’s infrastructure , creating employment as it does so. 

Nobel-Prize winning economist Paul Krugman, a regular and incisive critic of the Osborne regime of cuts  is emphatic.

In an interview with the “Guardian” he responded,

"Should we be having more spending?

“The answer must be yes.

“Why?

“ Because there is plenty of slack in the labour market and investment needs to increase.

“To me it is clear that there is plenty of room to increase spending without increasing inflation.”

We must see these cuts as more than just the mis-management of the economy.

Ideology is behind them .

Creating tax cuts for millionaires which create a hole in the public finances that then require cuts in public expenditure is one example .

Shrinking the public sector through job cuts is another.

More part-time jobs, more underemployment through deregulation is yet another.

These are the signature statements of any Tory Government

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