Thursday, 10 June 2010

Cuts will do more harm than good

The Coalition, supported by the media and with apparent tacit support from Labour, have been very successful in marginalising, to the point of invisibility, any view that there is an alternative to massive public sector cuts.

It was therefore refreshing to see a letter in the London Evening Standard from Professor James K Galbraith, son of renowned economist John Kenneth Galbraith, on Tuesday that questioned this approach.

After suggesting that Cameron's speech, which appeared to almost relish the cuts,  was 'tactical hyperbole' with the 'dual aim of blaming Labour and foreshadowing relief when the final cuts don't prove quite as bad as expected',  he says the cuts that will be made will 'do enormous damage and little good':

"The basic problem is that public spending is part of economic output pound for pound. Cutting it cuts into incomes and therefore the tax base. Deficits cannot be controlled this way but only when private credit or export demand booms to create full employment.

But where does the Prime Minister - as he targets housing benefits, for instance - imagine that demand for private credit will come from? The UK in 2010 is hardly America in 1933, a housing bubble waiting to happen. And where will export demand come from, as a rising pound depresses competitiveness while Europe sinks into depression?

David Cameron claims a horror of rising interest payments. He'll get those anyway because deficits will not fall as planned as the slump deepens. But he'll get them with more misery and fewer jobs, than he could have had with a policy of growth and constructive reform. And he seems to expect that people will be grateful."

For Greens this of course raises the whole issue of the nature of 'growth' and our preference for  growth based on a Green New Deal and the construction of a low carbon economy rather than a return to mindless consumerism.

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