Friday, 12 February 2010
Warning: cuts are bad for the economy
This week a lone voice was heard in the mainstream media. He has different ideas as to the best way of tackling the UK's estimated £178 billion budget deficit. Up until now newspaper readers have been bombarded by pledges from the three main UK political parties about how they will butcher the public sector in order to balance the books.
The consensus is that big cuts are needed. The argument is about how wide and deep cuts should be. The Tories seem to be winning the PR battle by hinting at the type of cuts that will devastate the lives of millions but won't scare the wealthy and influential bankers who got us into this mess in the first place. A banking crisis has now become the problem of the public sector in one of the great conjuring tricks of recent years.
Anyone familiar with Compass, an independent left-wing think tank, will know they have produced a paper called ‘In Place of Cuts’ that stands as a compelling and coherent alternative to the cuts agenda. It promotes the scrapping of socially useless projects such as Trident and the watered down ID card system and introducing a fairer tax system that makes those who can afford it, pay more as a means of protecting jobs in the public sector. It has received little coverage in the media and the leaders of the main UK political parties have either ignored it or dismissed it. Are we living in a political climate where anyone opposing the cuts agenda is accused of living in ‘cloud cuckoo land?’
This consensus was delivered a mortal blow when a very cogent voice in the world of economics entered the debate this week. Joseph Stiglitz, a Nobel Laureate and former special advisor to Bill Clinton, warned against the dangers of “fiscal fetishism.” In an interview with The Independent newspaper, Mr Stiglitz explained: “Because cutting back means the economy goes into a downturn and the markets lose even more confidence, as it will trigger another recession or depression." What you’ll get then, he said, is a double-dip in the economy.
He also raged against the reverse Robin Hood distribution of wealth from the poor to the rich since the crash of the banking sector in 2008. On this he said: "The current crisis has seen the government assume a new role – the 'bearer of risk of last resort'. When the private markets were at the point of meltdown, all risk was shifted to the government. The safety net should focus on protecting individuals; but the safety net was extended to corporations, in the belief that the consequences of not doing so would be too horrific. Once extended, it will be difficult to withdraw. Firms will know that if they are sufficiently big and their failure represents a sufficient threat to the economy – or if they are sufficiently politically influential – the government will bear the risk of failure."
When we unveiled our plans to introduce a living pension so that pensioners would have enough money to heat their homes as well as eat (how unreasonable!), Plaid Cymru was attacked for being irresponsible by our political rivals. We proposed finding the money to fund the first phase of this policy by simplifying the pension system so that pension credits no longer go unclaimed and by the scrapping of Trident and the ID card system. Perhaps the guardians of fiscal responsibility will remember the words of Joseph Stiglitz before saying this is 'cloud cuckoo land' politics next time.