Imagine a recession hit tomorrow. Housing markets crash, stock markets crash, unemployment rises etc. How would we react? Interest rates are, of course, at zero. QE is still taking place in some parts of the world. Monetary policy is already very expansionary. It's obvious that a QE programme would be needed but, monetary policy wouldn't be able to do as much as it did in 2008. It's obvious: we'd need proper federal intervention. It's hard to argue that austerity has been a success. Productivity has barely grown, growth remained stagnant for a full 5 years after 2008 as countries that increased government spending - such as the US - grew much faster than Europe. The only arguable success is in employment - a weakening of labour restrictions and lowering of taxes has brought the UK employment rate to its highest level ever - a huge achievement as other wealthy countries see their employment rates steadily decline.
So, it's clear that if this recession was to hit, austerity would be devastating. It was government investment that got us out of the recession in the 30s with few monetary policy interventions, it has to do the same in the 2010s.
The problem: governments. The electorate has a dreadful understanding of economics and so think of the government's finances as they do their bank accounts. Most people know you can't spend £100,000 on a new car every year unless you save, otherwise you run up huge debts and go bankrupt - that's how it must work for the government, right? I mean look at Greece, we were 'on the verge' of that in 2010 according to David Cameron and has said it probably a few hundred times since. Well, let's look at the magical steps he took to get us out of that Greek-like situation.
Surely David Cameron, if we were like Greece you wouldn't be able to borrow over half a trillion pounds under your leadership?
Surely David Cameron, if we were in a Greek-like situation, our economy wouldn't be growing significantly all the way up to late 2010 when austerity properly began?
Surely David Cameron, if you 'fixed' the Labour mess, you would at least get productivity to rise one bit since the recession as all our neighbours begin to jump ahead of us?
If you think austerity was a success, you're hugely wrong. All of the graphs above demonstrate a recovery even under the loosest monetary policy in the BoE's history and it still wasn't nearly enough as fiscal policy was so strict. So, when the next recession hits and monetary policy is still incredibly expansionary, government will have to intervene. But, with an ideologically driven Conservative government in power and a misguided electorate, I don't see that happening. So, as the US powers ahead with its successful Keynesian ideas on government investment, I fear Europe, with its mainly right-wing governments will fall behind even further.
The next recession is inevitable, obviously but when it comes, governments have got to finally learn to ditch their obsession with austerity. I'm doubtful.
So, it's clear that if this recession was to hit, austerity would be devastating. It was government investment that got us out of the recession in the 30s with few monetary policy interventions, it has to do the same in the 2010s.
The problem: governments. The electorate has a dreadful understanding of economics and so think of the government's finances as they do their bank accounts. Most people know you can't spend £100,000 on a new car every year unless you save, otherwise you run up huge debts and go bankrupt - that's how it must work for the government, right? I mean look at Greece, we were 'on the verge' of that in 2010 according to David Cameron and has said it probably a few hundred times since. Well, let's look at the magical steps he took to get us out of that Greek-like situation.
Surely David Cameron, if we were like Greece you wouldn't be able to borrow over half a trillion pounds under your leadership?Surely David Cameron, if we were in a Greek-like situation, our economy wouldn't be growing significantly all the way up to late 2010 when austerity properly began?Surely David Cameron, if you 'fixed' the Labour mess, you would at least get productivity to rise one bit since the recession as all our neighbours begin to jump ahead of us?
If you think austerity was a success, you're hugely wrong. All of the graphs above demonstrate a recovery even under the loosest monetary policy in the BoE's history and it still wasn't nearly enough as fiscal policy was so strict. So, when the next recession hits and monetary policy is still incredibly expansionary, government will have to intervene. But, with an ideologically driven Conservative government in power and a misguided electorate, I don't see that happening. So, as the US powers ahead with its successful Keynesian ideas on government investment, I fear Europe, with its mainly right-wing governments will fall behind even further.
The next recession is inevitable, obviously but when it comes, governments have got to finally learn to ditch their obsession with austerity. I'm doubtful.
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