Not a good start to the year for the Chancellor, and all those economists that so firmly backed his economic strategy. But vindication for Prof. Chick and myself, who warned the UK government in June, 2010 that if at a time of slump, government investment is cut, the deficit will rise. And so it has today…..
Below find my piece on Left Foot Forward. Tomorrow I am speaking at the Summit on Good Banking, organised by the new economics foundation and Compass…although I cannot find any details of it on their sites. Next week (on Tuesday evening) I will be at the Hay Festival, speaking on the cheerful subject of: “What if the Banks crash again?” …a session about which you can read more on the nef site.
“One has to feel sorry for the chancellor. Many mainstream economists – in both the City and academia – backed him to the hilt: egging on his austerity policies, and boldly forecasting the rate at which the deficit would fall. The governor of the Bank of England caused controversy by endorsing the strategy. Markets greeted the austerity programme with euphoria. And No 10 was castigated for preparing a plan B.
Professor Chick and I were among the few to sound a warning, in our June, 2010 publication: “The economic consequences of Mr. Osborne” we insisted that once the private banking crisis had been transmitted to the real economy, fiscal consolidation would not ‘slash’ the government’s debt, but cause it to rise. Our argument was not based on ideological conviction, but on a century’s worth of macroeconomic evidence.
Today, those who shared our fears have been vindicated – even before the coalition’s deep, job-destroying spending cuts have been fully implemented. The announcement by the Office for National Statistics (ONS) that the deficit had widened dramatically in April by £10 billion -the largest April budget shortfall since monthly records began in 1993 – has been seized upon in shock by the chancellor’s friends in the media and the City. Without any apparent qualms, they have fallen over themselves to deplore the rise, and predict economic gloom.
Mr Osborne ought to choose his friends (and economic advisers) more carefully.”