Thursday, 8 April 2010

The Economic "Crisis"

All three major political parties seem to accept that there is a crisis in the public finances, and that this must be tackled by "savage cuts." The truth is that, there is no crisis. The debt to GDP ratio is a modest 61%. Throughout the 1990s the "Qualifying Rate" for joining the Euro was no more than 60%, so, even after bailing out the banks we are still close to what is thought to be reasonable. By contrast Greece (120%), Japan (107%) Italy (102%), the US (69%) and Spain (66%) are deeper in debt and France and Germany (57%) are slightly less indebted than we. (figures from a graphic in the Guardian, 14/12/09)

It is true that the level of current borrowing is high (about 12% of GDP compared with a preferred maximum of 3%,) but those who are not quite so deeply in debt can afford to borrow more. The idea that this level of borrowing will endanger our AAA rating is dismissed as "scaremongering" by no less an authority that David Blanchflower, the member of the Monetary Policy Committee that got it right.

So why all this talk about "savage cuts" which will harm the weaker members of society. it is particularly galling that the "savage cuts" phrase is associated with th Liberal Democrats, heirs of the party of both Keynes and Beveridge. What Nick Clegg and Vince Cable should be advocating is continued public spending to "pump prime" us out of the recession. There is plenty of scope with the investment necessary to bring about a green energy revolution, bringing our transport network up to date and, if we can't think of anything better, burying the pylon lines..

Instead all parties seem to have fallen for the Tory con that the public finances in a parlous state: a ploy which enables them to indulge almost unopposed in their mania for cutting back the public services which are important for most of us and essential for the weaker members of society.

And if politicians are so worried about the state of the public finances, why isn't there much more talk about higher taxes from those who can afford to pay?


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