Lucas: Government must reverse brutal economic policies to avoid disastrous slump

Caroline Lucas, MP, a member of the Green New Deal Group [2], challenged conventional IEA (Institute of Economnic Affairs)  thinking on the economy today by urging the Government to increase employment to reduce the deficit - channelling investment into urgently needed green infrastructure.

At a working lunch at the IEA, Lucas said

With scant evidence of the kind of strong recovery expected after previous post-war recessions, it's time to admit that austerity in the UK has failed and that an alternative approach to reducing the deficit is needed.

SINCE 2010, CENTRAL BANKERS AND POLITICIANS HAVE PRESIDED OVER THE APPLICATION OF BRUTAL ECONOMIC POLICIES THAT HAVE IMPOVERISHED THE INNOCENT, ENRICHED GLOBAL FINANCIAL ELITES, AND EXACERBATED THE WORLDWIDE SLUMP.
 
In our 2009 report, 'The Cuts Won't Work [3]'_the Green New Deal Group set out what is now clear: that austerity and cuts in public spending during a slump - when private debt has grown to become 5 times the size of public debt - is completely delusional economics.

It is extraordinary that the government focuses so ferociously on public debt - which now stands at 70% of GDP - but turns a complete blind eye to private debt - now at 420% of GDP. A massive overhang of private bank debt goes a long way to explain why banks are not lending and why private sector investment is stalling.

The Group also predicted the 'triple crunch': a credit-fuelled financial crisis, combined with accelerating climate change and growing energy insecurity, which would "develop into a perfect storm, the like of which has not been seen since the Great Depression".

So it has come to pass - we're now in the sixth year of a widespread, international depression, with 2.5 million unemployed in the UK, many millions more under-employed, and youth unemployment at tragic levels.

The impacts of the climate crisis are becoming ever clearer, with 2012 going down in history as a year in which our weather spun out of control - and having carelessly assigned the nation's energy security to the invisible and unaccountable 'hand of the market', we face an insecure energy future with all the economic implications that brings.

A programme of productive investment financed by loans from the government's own nationalised bank - the Bank of England - is a crucial way to reduce the public debt, channelling public money into projects such as a comprehensive programme for retrofitting Britain's ancient housing stock, increasing our energy security and reducing bills.

THIS IS NOT INDISCRIMINATE SPENDING, BUT ‘TRANSITIONAL INVESTMENT’, WHERE ENERGY AND MATERIALS ARE FOCUSSED ON INVESTMENT IN INFRASTRUCTURE THAT WILL LEAD TO A REDUCTION OF DEMAND FOR THEM IN THE FUTURE.

A public works spending would succeed where traditional quantitative easing has failed - going straight to help employment and companies, and the projects which can add to national well-being, generating income through employment.

Caroline Lucas concluded:

Keynes argued and proved that such spending would pay for itself. The Government must now rise from its deep torpor, ditch its flawed economic orthodoxy and finally begin to undertake the level of public investment needed to reverse this disastrous slump.

 [1] http://www.iea.org.uk/
[2] http://www.greennewdealgroup.org/
[3] http://www.neweconomics.org/publications/cuts-wont-work
[4] http://www.carolinelucas.com