All three parties stamping on the ‘green shoots’ of recovery….

David Blanchflower has this piece in the New Statesman which makes interesting reading. Firstly, it torpedoes the assertion that underpins the ‘cut the deficit’  discourse; that the ‘recovery is established’. Lending is weak; business growth rates are low across the board and projections are not for an economy firing on all cylinders in 2010. So, given this why is Alistair Darling and the others talking as if the recovery is established and healthy?

Blanchflower points to the danger of removing the fiscal stimulus too early and the effects this could have on the economy; leading to the infamous ‘double-dip’ recession. However, his article should raise questions about other policies whose aim is to cut the deficit. For example, the cap on public sector wages; a ‘flagship’ policy of all three parties;

Non-labour incomes have fallen because of the low rates of interest on savings, and the latest release of the average weekly earnings index of pay in the private sector suggests that earnings growth has turned negative. Self-employment incomes, in all likelihood, have collapsed. So the pain has been shared more evenly than in previous recessions.

Since lower incomes mean less expenditure, less capital flow and less job creation why is the state; in capping public sector wages, taking a measure that will make this problem worse; not better? The answer lies in the ideological hubris of the Conservatives and the capitulation of  Labour and the Liberal Democrats to the climate of moral panic created around the national debt. If the trade unions resist these proposals they should be supported because a rise in incomes across both public and private sector is in the interests of growth.

Similarly, the increase in National Insurance Contributions (a disastrous policy if ever there was one) will have the same effect; not encouraging growth but stunting it and making a ‘double-dip’ all the more likely. Why were NIC’s raised if not to fulfil the reckless pledge of Darling that the deficit will be cut in half within four years? Blanchflower also criticises Mandelson’s swinging cuts to university budgets as another similarly myopic economic move.

Capitulation to the ‘Debt Crisis’ narrative will not only stunt the economic recovery but in fact will in the long-run reverse it entirely. Far from being encouraged; the ‘green shoots’ of recovery are stamped all over in the name of chasing higher-poll ratings by Labour and the Lib Dems and ideological blindness on the Conservative side.


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About darrellgoodliffe


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