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Economic howlers of our time part 2

As the chancellor’s success criteria – triple A ratings, IMF blessing and Ken Rogoff’s figures (‘Stonewall Osborne falls victim to friendly fire, 22 April) – have fallen like dominoes, the ideological nature of his austerity strategy is confirmed.

At the time of the 2008 crisis the problem with the UK economy was not public sector (government) debt, which at 52% GDP was less than many other developed countries including Germany. The problem was private sector debt at 328% of GDP, significantly more than all other developed countries.

Yet the coalition has persisted in cutting the public sector instead of addressing the private financial sector. Even by David Cameron’s criterion of “paying down the debt” his policies are not working.

According to the UK Statistics Authority, since he entered office public sector net debt has risen from £811.3bn (55.3% of GDP) in June 2010 to £1.11trn (70.7% of GDP) at the end of 2012. Signs are that it will continue to do so.

The Independent Office for Budget Responsibility rebutted claims by the PM that the government’s deficit-cutting strategy was not responsible for choking off growth when it stated that austerity had knocked 1.4% off GDP in the past two years. This was supported by the IMF’s chief economist, Olivier Blanchard, who explained that recent efforts among wealthy countries to shrink their deficits — through spending cuts — have been causing far more economic damage than experts had assumed.

There is plenty of historical evidence showing that these policies have never worked. The same happened during the 1982 developing world debt crisis, the 1994 Mexican crisis, the 1997 Asian crisis, the Brazilian and Russian crises in 1998 and the crisis in Argentina in 2002.  All the crisis-stricken countries were forced, usually by the IMF, to cut spending only to see their economies sink deeper into recession.

On the other hand countries that engaged in stimulus, such as Germany and Austria, did better than expected.

By David Murray, May 2013.

Sutton for Peace and Justice member David Murray, has put together a half hour presentation that makes a good introduction to these issues and prompts debate. David would be happy to give the presentation to meetings of local groups – please contact Sutton for Peace and Justice if your group is interested.


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