By Tony Weekes on June 20, 2010
… but, reading this morning’s newspapers, it seems that ‘reducing the budget deficit’ has now replaced ‘restoring economic growth’ as the principle (if not the only) objective of public policy.
One problem is that I do not think that the measures proposed by our Chancellor can achieve the objective he desires. The present system (it hardly needs to be said) is driven by a symbiosis between the creation of money (more precisely, the creation of debt based credit) and economic activity. Cutting public expenditure will (as we have already been solemnly warned) cause unemployment, which will, in turn, lower economic activity, lower the tax ‘take’ (both direct and indirect taxes) and raise the number of welfare claimants. The effects will spiral (economists call this ‘a multiplier’ effect – this time, though, it will work in a pernicious direction) … and the interest on the debt (public and private) will not go away; it might even increase.
Hence, I conclude (and others have said it more eloquently than I), the public revenue will still fail to cover the perceived budgetary deficit.
In the first half of the 20th century, the absurdity of this policy was demonstrated – many times and in many places. But the conventional education in economics, which many of the government’s advisers will have received, includes little (if any) economic history!
All this at a time when we need a proactive public sector which can drive the task of moving to a renewable, lower carbon based economy (which is not, I hasten to add, to imply that there’s no role for a equally responsible private sector).
Can I offer anything at all? Perhaps the move towards serious reform of the monetary system (see, for example, the website www.bendyson.com) might gain ground and support over the next year or so, and lead in turn to action. But the damage is being done now.
I wish I could offer more … !