Saturday 26 March 2011

Nobel Prize Winning Economist: There is An Alternative To “The Austerity Delusion”

It is a coincidence that in the week the UK government set out how it is continuing with its austere approach to setting our country's budgets a Nobel Prize winning American professor of economics has attacked George Osborne’s plans as "folly." Writing in the New York Times today Paul Krugman asks:

“Why not slash deficits immediately? Because tax increases and cuts in government spending would depress economies further, worsening unemployment. And cutting spending in a deeply depressed economy is largely self-defeating even in purely fiscal terms: any savings achieved at the front end are partly offset by lower revenue, as the economy shrinks.”

Professor Krugman is particularly critical that the UK’s Conservative led government has managed to halt the British economy’s growth and instead shrunk it by o.6%. He warns us:

“And then there’s the British experience. Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government’s pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right. But she hasn’t: British growth has stalled, and the government has marked up its deficit projections as a result.”

There will be hundreds of thousands of people marching in London today. All will be urging an alternative approach to managing our economy. Many more are racked with anxiety about their jobs, their family's well being and their future. Looking at the wider picture, this level of worry amongst millions of our citizens cannot be good for UK businesses whose sales and viability rely on consumer confidence. Professor Krugman suggests an alternative. One based on sound economic principles rather than a conservative agenda of shrinking the welfare state as Krugman has pointed out before.

Will the UK’s Conservative led government listen?.. Well they’re being egged on by the ultra-conservative Tea Party faction in the United States. And here’s was Krugman says about them:

“In short, we have a political climate in which self-styled deficit hawks want to punish the unemployed even as they oppose any action that would address our long-run budget problems. And here’s what we know from experience abroad: The confidence fairy won’t save us from the consequences of our folly.”

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