Tuesday, 14 February 2012

Austerity Is A Disaster – I Told You So

This blog will repeat many of the ideas and things I’ve already said, but how do you say ‘I told you so’ without repeating yourself?

Will we go where Greece has led?
Greece is a warning, as well as an exemplar, of what happens when you rely on austerity to cut the deficit. You simply get into a downward spiral where economic recession (and therefore tax revenue) runs ahead of the cuts and the deficit gets worse, not better.
In Greece, public sector salaries have been cut by 40%. Has austerity worked? No – the Greek economy has contracted by 6% in 2011 (manufacturing fell 15% in December), unemployment is running at 21%, 60,000 small businesses have gone under in the last six months … and VAT revenue is DOWN 19%.
People are committing suicide and abandoning their children outside orphanages, yet Greece has not a hope in hell of meeting its debt service charges … so what do we do? – Germany insists on more, more swinging, austerity cuts.

Meanwhile, Europe is indulging on a continental scale in what we are doing as a nation – blackguarding the very people we are victimising. In Britain we are blaming the ‘scroungers’ – saying that it is their lazy, indulgent, opulent lifestyle which is causing the deficit. Today I received an email ‘joke’ to the effect that there had been an international survey in Blackburn of whether Britain should join the Euro which had found that they would prefer the giro – it managed to stigmatise those on benefits AND be racist at the same time!
But we are doing the same internationally to Greece – accusing them of lying about their financial situation, thinking tax is optional etc.

It's DEFLATION, stupid!
It is all a nonsense.
If we used the word ‘DEFLATION’, not the more romantic term ‘austerity’ (with its overtones of reconstruction after the war), then the situation we find ourselves in would be much clearer in people’s minds:

The government makes ‘austerity’ (deflationary) cuts.
People get poorer/ the economy stutters
Tax revenues fall
The deficit gets worse not better
The Markets demand more ‘austerity’ (deflationary) cuts

This is the situation which Greece finds itself in, but it is a situation coming soon to a country uncomfortably near you.

The Catch-22 of 'Austerity'
Today, Rating’s Agency Moody’s has put Britain on a warning that it is about to lose its Triple-A rating. To a degree, we are hostages of fortune – Moody’s has said that our rating depends on the state of the euro, so there’s little we can do about that.

Balls has attacked Osborne saying that it proves that he has cut too far, too fast but – to be fair to Osborne – Moody’s have made it very clear that it is THE DEFICIT which is the ultimate arbiter. Instability in Europe will lose us our rating because it will threaten our ability to reduce the deficit. Our flat-lining economy will lose us our rating because it will threaten our ability to reduce the deficit.

But as fast as we try to reduce the deficit, the deflationary measures we are using to do so threaten our ability to reduce the deficit.
Catch-22 or what?

I am not a clever economist, but surely it is time to realise that ‘austerity’ (deflation) IS HURTING BUT IT’S NOT WORKING.

It strikes me that two issues are critical:
1. We MUST get people off the dole and back into work, so they are paying taxes.
2. We MUST grasp the nettle and TAX THE RICH; they will squeal, but there is no other solution – impoverishing the poor has surely been proved to be counter-productive.

I TOLD you: Austerity is a disaster.

1 comment:

  1. Fraser Nelson slaughters Osbornomics - a BRILLIANT article: http://www.spectator.co.uk/coffeehouse/7649088/a-warning-for-osborne-and-his-economic-agenda.thtml To quote Sgt Frazer: 'We're dooomed!'