Guest blog by Plaid Hightown
Since the banking crisis we have been told that this is the gravest economic problem the world has face since the Great Depression.
In 1921 the UK economy was undergoing a post war boom, admittedly with high levels of debt due to expenditure on the war. The Lloyd George ministry, the last time the ‘Liberals’ were in power, responded to this situation with the ‘Geddes Axe’ which slashed public expenditure and resulted in a decade of stagnation followed by depression.
In 1928 at the end of a great decade of laissez faire economics the United States elected the conservative Herbert Hoover President, the only time being elected President was actually a demotion, Hoover oversaw the Wall Street crash and responded with same economic policies that favoured the rich at the expense of the poor.
The arrest of the Great Depression only began with the election of Franklin Roosevelt as President, who immediately began to tackle the economy by closing the bad banks and enforcing a stringent regime of banking and market regulation. Roosevelt oversaw a massive increase in public spending, which resulted in an increase of the debt and the deficit. Hoover failed and Roosevelt succeeded.
In response to the latest crisis in Thatcherite capitalism the UK Government has announced the most drastic cuts to public expenditure in generations because, they claim, the UK debt and deficit have reached ‘frightening’ levels. In fact they are half of what they were for the period 1918 to 1969. The debt and deficit stand at 70% and 11% of GDP respectively.
Up until 2008 the debt and deficit had been at respectable levels when the banking crisis occurred and economic growth went from a robust 4% in quarter 4 2007 to -5% in quarter 4 2008 so a direct correlation can be drawn from a decrease in economic growth to a massive increase in the debt and the deficit.
In order to put the deficit in perspective let us look at other G7 states, all of whom bar Canada have higher deficits and none of whom are proposing cuts like the UK Governments. In fact the US Government have been increasing spending as a financial stimulus, which has resulted in a higher economic growth rate than the UK’s in the last three quarters.
Now the UK Government says that it is imperative to reduce the debt and the deficit in order to regain the confidence of the financial markets and drive down the cost of Government borrowing. Even though the cost of borrowing fell during the first two quarters of this year.
The UK Government has ruled out tackling the deficit by raising taxes on the rich or business. Businesses like the banks that caused the financial crisis in the first place. The same banks that are doling out bonuses equal to 2007 levels.
UK GNP currently stands at $2.25 trillion, with the Government announcing cuts of $128 billion, this amounts to a reduction in GNP OF 5.7%.
This is allied with the shedding of 500,000 jobs from the economy. Now assuming that the UK employment rate stays the same as it was in the last quarter it would add an extra 35,000 to the figures of those on benefits.
So the UK Government have proposed growing the economy by reducing GNP and increasing the number of the unemployed. This would be a fantastic achievement and it is in everyone’s interest that the Government succeeds in growing the economy but the portents are not good. These cuts are unjustified, unfair and will damage the prospects of economic growth.