A bunch of economists, most would classify themselves as left wing and Keynesian, wrote to the Observer yesterday calling for an economic plan B, because growth was too shallow. Each time I turned on the TV news one or other of their number was being interviewed. I listened with an open mind each time. I heard little that made sense in today’s world, at this hour, with our problems. They were all well read. They knew their economic theory. They were highly respected. But they missed the point.
The point is this. Yes, even I think ways should be found to give greater stimulus to the private sector and manufacturing and one of my more recent posts focuses on this. What is utterly insane is to say slow the cuts, because this means we borrow more (oh yes it does!) and, worse, we slow the re-balancing of the economy. That re-balancing, which would be better described as rebuilding from a shattered base our capacity to make things both for home consumption and export, employing those previously unemployed or working for the State, must happen if we are to stand any chance of avoiding an outcome similar to Greece etc.
If Keynes were here today he would back Osborne. This is because his theories were based upon industrial economies, employing large workforces operating at well below capacity with millions laid off. Stimulate demand and you put people back to work. The crisis now, is that the UK makes very little it uses every day or which overseas consumers want to buy, so to stimulate demand is to suck in imports. On top of that we have inflated our housing costs to such barmy levels that people cannot afford to buy consumables unless they borrow. The wealth we thought we had built in the Labour years was an illusion, because if you value the so called assets at their real worth and deduct all the money owed against them, there was no growth.
The only way out is to, essentially, start again. This will not be quick, but the fire is kindled and growing. Conditions world wide are adverse, but there are good opportunities in the BRIC driven developing markets and we have to go out there and sell. At home, the opportunity to make consumer goods is almost limitless. Even if the unemployment benefit bill rises, it is for a purpose, because in the end these people will mostly get jobs. But to raise government borrowing to fund jobs, which act as a permanent burden upon the shoulders of everyone else in some daft government initiative or quango, would be, literally, to sabotage recovery.
The economists who want to do this are so very badly mistaken. Yesterday we listened to them politely. Today we should ignore them and get on with the job. As a mischievous extra we might check who pays their salaries. If it is the taxpayer, there may be room for more economies.