| Economic pain ahead but will it work? |
|
George Osborne’s budget cuts are the biggest in living memory, even greater than those imposed by Margaret Thatcher in the 1980's cuts that changed the face of Britain's economy and its society for ever.
On the left they say it is the biggest macro economic gamble any government has taken since the Great Depression. Their theory goes something like this. By taking too much money out of the economy and laying off thousands of public sector workers will simply drag the country into a double dip recession. There will be no demand for goods and services people will stop buying either because they are too wary or simply have no money. Unemployment will go up tax, revenue will go down while the cost of paying for unemployment will negate efforts to pay off the deficit.
The result Britain will sink deeper into the mire having to borrow more and more. This borrowing will be taken on at ever less favourable rates as the country's creditors have less and less confidence, until finally the country becomes essentially bankrupt. No need to cut so deep so quickly is the call from Labour, this is just a smokescreen to cover what is essential an attempt to reshape the British state particularly around what welfare benefits mean. A more managed softer approach is what is required if Britain is to recover.
Not so say the Tories and their coalition partners. The scalpel needs to be wielded quickly and deeply. Gordon Brown put off the rock and a hard place decision for nine years. Higher taxes or lower spending. He did neither meaning debt spiralled year on year until the international community said enough was enough. The security of the loans doled out to Britain were not looking so secure any more.
So it is left to the new government to fix the mess, they say. And brutal will the medicine be, 500,000 public sector job cuts and swinging 25% cuts to government budgets is just the start. And the point? By reducing the country's debt the international community has renewed confidence in the economy again it starts investing and lending money, the private sector can again borrow money more easily, new businesses start, more jobs are created and the economy grows. Simple. The government points out that 500,000 job losses may seem a lot but it will be over a four year period. In the same timframe the private sector is expected to create more than one million new jobs.
Early evidence suggests the government's approach may be working. GDP growth was 0.8% in the last quarter the highest it's been for eight years and the international lenders have just reconfirmed Britain's AAA credit status, a crucial point if the markets are to have the confidence to back the UK economy without fear for their investments.
So will it really work? Unfortunately only time will tell, as economist John Galbraith said 'the only function of economic farecasting is to make astrology look respectable. Economists are nothing but soothsayers with numbers.' Let's hop the numerical heavens a-line favourably. <!--Start BlogRankings.com Code--> <!--End BlogRankings.com Code--> |
