Thursday, October 28, 2010
More on Osborne's Gambles
We do not need a rabid Keynesian to tell us that cutting government spending by £81bn when consumer confidence is stagnant will surely make matters worse. The government's economic policy is a seriously wild gamble, resting on two theses: one is that public spending cuts are vital to protect confidence in the government until its debt can be repaid; the other is that the negative impact of these cuts will be compensated by a surge in private sector activity.
He then points out that:
i) the bond markets are in no way seriously worried by UK's economic position and would be happy to lend money even with current budget deficits. This means of course that the cuts are in no way essential to UK economic survival as the Coalition has argued.
However, the people who have lost confidence are much closer to home:
The homebuyers, shopkeepers, suppliers, manufacturers and local bank managers
ii) Cameron and Osborne have blithely told us the private sector will 'take up the slack' of the half million to be made unemployed by the cuts. However, says Jenkins, the Coalition seems as incapable as Darling of persuading the banks to lend to business:
Just two years after the banks burned their fingers on bad debt, they are not going to lend recklessly to an economy from which Cameron is about to drain billions. Why should they gamble on expansion when Cameron is gambling on contraction?
I think Jenkins is spot-on here. Both gambles look very dodgy indeed at this present juncture. I wonder whether future events- the row over housing benefit, I suspect, is merely and augury of what is to come- will wipe the smug smiles of the faces of the well heeled public school boys who are currently running the cpountry?