Sunday, 24 March 2013

We need some dexterity in Austerity

Britain is struggling through the coldest March on record, our long, and miserable winter just won't go away. High pressure from the Arctic hovers to the east driving bitingly cold winds across the whole country; the daffodils that have come into flower are wishing they hadn't. Many of us gardeners are despairing for a little warm weather to get some important jobs done, the time for sitting around is over.  

More weather woes at -

There are some uncomfortable parallels between the climate here and the economy, which has been stuck in a recession, or something close to it, for five long years. Like much of the western world we have had enough.

The argument raging on how to turn things around has now become quite banal, two camps have emerged. We have the "austerity is working" crowd, of which George Osborne is a cheerleader and the Keynesian opposition who insist that governments need to increase the level of debt and spend more to supplement low levels of private consumption. The noisest and probably the most eloquent proponent for the Keynesian approach is the Nobel Laureat Paul Krugman, who blogs in the New York Times.

The hardening of attitudes over time can be attributed to concerns around ulterior motives.  The Keynesian guys suspect the Austerians of using recession as an excuse for downsizing the state and on the other side there are concerns that increased borrowing is an excuse for reintroducing 'big government'.  Austerians worry that reactive measures (like the Bankers Bonus law) will signal a new era of over regulation.  This entrenchment of ideologies is not helpful.  The unsightly glee that the opposition Labour party displays when more bad news in unveiled is patronising beyond belief, similarly the stubborn adherence to plan A from our Government creates the same feeling of dejection.

It's becoming clear that this polarisation in the debate has the potential to become very dangerous as opportunistic politicians try to sloganise extremely complex arguments for unknowing electorates. We are seeing the early signs of this in Japan and in some countries of the Eurozone, where economic policy making is becoming quite childlike in its simplicity. We now see Japan borrowing billions and Spain cutting back billions to resolve the same problem. The sadness is that a thoughtful debate might lead us in a better direction; the mantra politics that we get is likely to prolong the economic pain.

As is so often the case the solution to our economic woes will lie somewhere in the middle, in economics grey is the colour of success not black or white. Austerity in some areas of the economy will be helpful and some demand and supply sides initiatives could also be positive. So we need some dexterity in austerity and some latitude on the supply side and most of all a bit of luck.

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