A version of this post appeared on LabourList on 1st August 2012.
The charge sheet against Messrs Cameron and Osborne as the architects of the coalition’s economic strategy is growing, and it may not be long before they, like their buddies Andy Coulson and Rebekah Brooks, find themselves in the dock.Not perhaps the dock of the Old Bailey, but the dock of public disgust at their approach to the economy.
It is forgivable to get economic strategy wrong – for those who have understood Keynes’s real message, uncertainty is the prime feature of economics. What is unforgivable is to propagate clear untruths about the recession that is threatening the livelihoods and incomes of so many.
It is no longer credible to blame past debt, either public or private, for declining UK economic activity. Despite a high loading of public debt (resulting primarily from the consequences of the banking crisis rather than lack of fiscal prudence) the government is having little difficulty in servicing that debt. Currently, it can borrow for 10 years at only 1.5% per year – which means as long as inflation remains greater than that figure the government is effectively being paid to borrow!
For some, certainly, their private debt levels are making them unwilling to spend, but the counterpart of private debt is always private wealth – the cash lent has to end up somewhere. The key to getting the economy functioning is to get that wealth flowing back to those that need it to repay debts and to provide an adequate living for their families. Cutting back on infrastructure and public service contracts achieves quite the opposite.
Moreover, to shift those debt contracts that are most immovable, new loans are needed to allow those that want to provide goods and services – small and medium sized businesses and the unemployed and underemployed – to be matched up with those that want to receive them. The banking system must stop providing profit to the wealthy from high-margin money-shifting, and start providing guarantees and the regional focus to create jobs and demand.
What about the Eurozone? Certainly, demand from the EU has been affected by recent sovereign debt and banking crises. But as shown here, France and Germany within the Eurozone have not suffered anything like to the extent we have. And in fact the value of our exports to the EU remains around 30% higher than they were in 2009, and exports to countries outside the EU over 50% higher! So to lay the blame for the UK’s poor performance anywhere outside our own country and the coalition’s mismanagement is the most blatant nonsense.