Nature is not natural and can never be naturalized — Graham Harman

Monday, January 30, 2012

Austerity Disastrous

I thought this was elegantly reasoned enough to post here. And it's from US News and World Report—how much more mainstream do you want? Hopefully many people can lobby their congresspeople about it:

The reason the economy is not creating jobs is simply that there is no source of demand to replace the demand created by the housing bubble. With nothing to replace this lost demand, companies see little reason to expand production and hiring.

Government spending is an obvious source of demand. However this spigot has been closed due to concerns over deficits. We have thousands of people in Washington who seem convinced that if the government would just stop spending money and lay off more employees then the private sector would respond with increased output and hiring.

While this might seem implausible on its face (what business hires people because the government has laid off school teachers or firefighters?), we no longer have to speculate about the impact of budget cuts and government layoffs, the United Kingdom is showing us.

The government elected last spring in the United Kingdom committed itself to rapidly reducing the size of its deficit. This government austerity was supposed to give a big boost to the private sector. It actually did the opposite. Growth has fallen to a near standstill. The I.M.F. projects that the U.K. economy will grow by just 0.6 percent this year and an only slighter better 1.6 percent in 2013. This pace is not even fast enough to keep up with the growth of the U.K.'s labor market.
It would be good if the politicians in Washington could learn these basic facts about the British economy. They might then realize that deficit reduction destroys jobs, it doesn't create them. There are times when we should be worried about the size of the deficit, but this is not one of them.

1 comment:

Schizostroller said...

What I find amusing is, although there have been many of them, one of George Osbourne's arguments for such massive cuts was that he didn't want to lose the UK's AAA rating. Of course there are are also many reasons why he may fear this that include the economic beliefs of the credit raters themselves. However the logic escapes me.

The point of a good credit rating is cheap borrowing (a point the seems to escape idiots who think a deficit is 'like an overdraft'). Borrowing is to help the government invest in the economy.

Now as the UK is warned that it may lose its rating Osbourne may have to borrow to invest in the economy that the private sector isn't willing to do.

Do you think it may have been a good idea to borrow that money when the credit was good?