Welsh Assembly

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Monday, 12 July 2010

On yer bike..

Seldom has macro-economic and monetary policy been more divisive or interesting. From 1997 to 2007 New Labour adhered to the basic orthodoxies of Thatcherism. Keeping inflation low is paramount. The need to cut was not there because of a seemingly ever-growing economy, so the cruelest excessives of Thatcherism were largely avoided.

But economics ‘got interesting’ with the collapse of AIG and Lehman Brothers. Every one from Carol Vordeman to Barry Chuckle had an opinion on the Sub-prime mortgage crisis Fiscal and Monetary Stimulus were the new economic school of thought. John Maynard Keynes was the new Friedrich Hayek, von Mises and Milton Friedman rolled into into one (okay I promise I will stop soon). Even America accepted the need for a more keynesian approach encorporating the largest stimulus package of all developed countries. The irony is that since then, the USA, the country which prides itself on economic liberalism and fiscal conservatism, now appears isolated in the world in its support for an interventionist economic policy whilst the so called progressives here in Europe are beginning to wage slash and burn austerity policies that will make Russell Brand’s latest summer film appear to be a valhalla of escapism .

‘Public Service Announcement’ does not pretend to possess the powers of economic foresight that Vince Cable has recently been dispossesed of (though we certainly are pretentious enough to refer ourselves in the third person). But when Nobel Prize winning economist Paul Krugman warns that austerity measures in Europe will lead to a ‘third depression’ and former Bank of England policy maker Danny Blanchflower says ‘draconian cuts’ will plunge Britain into a ‘double dip recession’, I listen (and change what person i’m referring to this blog in).

Just this week ‘The Guardian’ revelaed leaked government statistics that project the coalition government’s budget will cost 1.3 million jobs (200,000 a year) over the Parliament and an amazing 700,000 of these in the private sector! The much promised private sector recovery still waiting in the wings longer than young adults of my age have waited for Toy Story 3 to succeed Toy Story 2 ( it took 11 years!!). This promise of a magical private sector recovery (aided by Professor Dumbledore’s School of Witchcraft and Monetary policy) does not add up. Unlike the thinkings or Richard Littlejohn and Melanie Phillips, the private and public sectors are not two simplistic divergent universes, where one is productive and efficient and the other is full of bureaucrats, occuping non-jobs and organizing post it notes and paper clips. The private sector needs a strong public sector to safeguard the recovery of the economy as a whole, to gain contracts from the state and to ensure that those who jobs in the public sector survive the bloodbath of ‘efficiency savings’ have enough capital and purchasing power to keep growth in the private sector and put money back into the economy.

The humblest student of economics knows, without having to delve into the nuances of theory, that rising unemployment will lower our productivity, lower our output and at the same time increase the welfare bill and thus increase the swelling deficit (which is the non-sensical reason for these swingeing cuts). It is not merely because of a social conscience we must oppose so much potential being thrown onto the scrap-heap of society, but also from a economic sense, that unemployment is not ‘a price worth paying.’

By Dominic Turner

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