Tuesday, 6 July 2010

Is this really the time to be cutting spending...?

A very pessimistic piece of analysis from the Telegraph financial section on the US economy. It's feels just like 1932, says the report, quoting Former US Secreatry for Labour,Robert Reich...
"The economy is still in the gravitational pull of the Great Recession. All the booster rockets for getting us beyond it are failing."
All the indicators in the USA are going in the wrong direction: unemployment rises while the workforce shrinks, earnings are down, consumption is down, revenues are down and production is down.

The USA is seen as the engine of world trade. Its enormous economic power drives the global financial and economic systems. If the US is in trouble, we're all in trouble.

And it's worse than that...
"Investors are starting to chew over the awful possibility that America's recovery will stall just as Asia hits the buffers. China's manufacturing index has been falling since January, with a downward lurch in June to 50.4, just above the break-even line of 50. Momentum seems to be flagging everywhere, whether in Australian building permits, Turkish exports, or Japanese industrial output".
Meanwhile, back in the good old UK, our government continues to shrink the economy far faster and deeper than necessary or sensible.  Yesterday Michael Gove announced that 750 school building contracts in England were to be cancelled at the cost of thousands of jobs, and billions of lost investment (not to mention the hopes of pupils and teachers). Meanwhile Danny Alexander sneaked out more cuts in already existing programmes.

Internal spending and consumption is shrinking and the government is making the contraction even greater. Meanwhile, with the USA and Europe contracting, the main markets for our exports are also shrinking.  Where exactly does the UK government expect growth to come from?

To hark back to 1932: the depression was made worse and longer by the very conservative policies that now prevail in Europe and the UK: cut spending, contract the economy, reduce activity. Recovery began with the USA spending on internal projects, good old Keynseian economics. As the US economy recovered, other countries could export to the USA, and slowly grow back to normality.

How stupid is our own government not to have learned that lesson? Why can they not see the logic of their policy is that there will be donward spiral, a race to the bottom, as governments cut and economies shrink, 'til there is nothing left to cut and nowhere else to go?  Unless all governments can agree on a growth and investment startegy, the recession continues and a double dip looks more and more likely.

Gordon Brown, above all others, recognised this and he knew the policies needed to reverse the recesssion. A great pity he's not in charge now...


  1. Just came across this wisdom...brilliant and depressing in equal measure.


  2. It's quite frustrating to see what is happening in the USA these days as well as in the UK. Almost everyone is going through tough and difficult economic times. In my own point of view, I think there is a need to tighten our belts which means that the budget on unneccessary expenses be cut or eliminated. If we look into the expenses of the government, we can find something that can be removed and it won't hurt us a bit. I guess, all we need is a little bit of a sacrifice.