Tags

, , , , ,

Among most circles, double-dip would be a euphemism. For economists it is the worst phrase ever. It is proof that whatever plan you had has failed. For the Government, their twisted brand of orthodox economics has failed.

Is this surprising? Hardly. As a historian, Mr. Osborne should have learnt the lesson and realised that not only did orthodox economics bring down a government it also drove the UK into a protracted recession, or depression – definitely a lot worse than a recession and Mr. Osborne would be very lucky if he can avoid one.

Luckily, at last month’s budget there were signs of a creeping acceptance of Keynesian economics – an increase in the personal allowance, a cut in the top-rate of tax. However, to rely on this alone will not bring growth.

According to the preliminary report the growth sectors would appear to be the sectors with the greatest inflation – price increases will lead to sectoral growth. Utilities, water and transport sectors reporting the largest quarterly growth. Would it be wise to follow the shining beacon of these sectors? Of course not. For every £1 increase in price in these sectors roughly leads to a £1 decrease in spend in other sectors. Sectors, like construction, which aren’t necessary for business as usual.

The tax burden on the middle and lower incomes need to be reduced, radically. I am not referring to a cut in percentage points that correspond to a few hundred pounds a year but a complete remodelling. A flat tax, say of 20%, the introduction of which above £20,000, would be a radical measure in the right lines.

Getting banks to lend more to businesses is risky and akin to the circumstances which preceded the 2007 crash. Easy money creates hard times further on. The only way any government will get strong and sustained growth is to get individuals to spend more. This can be aided by the government – tax cuts, construction of houses, infrastructure investment etc., all measures to reduce the burden on the individual and free up capital to spend on everything from milk through to Ferraris.

Dark days are ahead and not helped by the prophetic fallacy of the weather. The way to brighten the situation up is to be bold, be radical and, above all, be Keynesian.

Advertisements