The Economy – Best Left Alone?

The way out of a global crisis caused by excessive borrowing? Borrowing even more! Even those closest to Gordon Brown must see the horrible irony in his recently announced budget. In what the headlines have dubbed ‘Brown’s big gamble’, the Prime Minister has announced a 2.5% cut in VAT as well as an extra £4bn to spend on public works. In total this is said to have added £20bn to the UK’s national debt, the total of which, officially, will spiral to over 1 trillion pounds next year. And this figure does not account for much of the country’s debt in the form of PFI and various other ‘investments’ the Brown government keeps off the sheets. Even if we had been running a budget surplus and could now afford to borrow money, this sort of Keynesian economic approach is very much outdated and, quite simply, doesn’t work.

Part of being in a free market economy is accepting the consequences of failure, something Gordon Brown seems to have forgotten. Recessions are a natural part of the economic cycle and no amount of borrowing or spending is going to change that. What the government can and must do in a situation like this is to ensure confidence and make sure that businesses built to weather a downturn can continue to function as normal. Instead the former Chancellor intends to throw money we don’t have at a problem he can’t and shouldn’t solve.

Mr Brown’s transparent attempt to turn around his own political fortune rather than that of the country’s economy will do a lot to harm the current situation and nothing to help.
Brown has said that the extra money the country spends will be paid off by higher taxes in 2011, when the country will, he predicts, have come out of the recession. Yet he has provided little conclusive evidence that recovery will be so quick. The general consensus amongst economists is that the mid-point of the recession will fall at approximately this time and so Mr Brown has simply created a fiscal time-bomb ready to go off when the country is least in a position to cope with it.

With all these economic initiatives Mr Brown has managed to paint the Tories as the do nothing party, as if this is something to be scorned. By tampering with the already fragile economy, Brown is creating public debt of unprecedented levels, as well as allowing unemployment and inflation rise dramatically. Letting the recession take its course, while keeping inflation low and ensuring businesses are able to function, is the only responsible action to take in a situation like this.

5 comments

  1. Wow! Does anyone ever comment these articles?!? Oh well, I will then. One word to describe the current crisis is “long”

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  2. The author’s decision to write on an issue that he clearly knows very little about is a quite unfortunate one.

    If the economy was “left alone” as he says, then neither businesses would be able to “function properly”, nor would unemployment be contained or inflation kept low.

    In fact, what we would have is 1929 all over again; failure to act would most likely result to our economies slowly dying on their own feet.

    At this point, the only “responsible action” to take is one that does not involve this kind of self-constrained and blinded rhetoric. What governments in every corner of the entire civilised world have already acknowledged that we really need is a new New Deal, and we need it before the crisis starts to bite hard.

    It would be criminal to overlook the serious inadequacies and inefficiencies of an overly deregulated economy, especially at a time of recession, to be naively supporting a model that is clearly failing us on more than one level.

    You say that Keynesian economics have been refuted. And indeed they have, by the 70’s crisis that signaled the beginning of the end for this particular macroeconomic model.

    However, you have not even examined the possibility that this, much more severe, crisis will do the same thing for neo-liberal Thatcherist/Reaganist and even Third Way views.

    Realistically speaking, both Keynesian and neo-liberal economic models have failed us.

    This crisis calls for fresh ideas, not regurgitating of the soggy old mantras.

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  3. What better way to critique someone than from behind the veil of anonymity Mr (Mrs?) “G”, or should that be ‘George’ based upon a similar comment on another article? At least have the courage to put your own name to your opinion, or do you fear the backlash would be so harsh your reputation would be forever in ruin?

    As you picked up on, I did mention that the economy should be left alone, but this does not mean the government cannot take other vital action to ensure businesses continue to function normally. This is not to say government should prop up failing businesses, far from it, part of a functional capitalist society is that businesses that fail. Instead the government should ensure a healthy supply of credit is available to business in order to ensure that liquidity does not become a problem. The solution to the problem lies in its name; there is a reason it’s called the “credit crunch” and consequently governments should try and to make sure credit remains liquid.

    Mr “G” also goes on to say that the neo-liberal economic model of the last two decades has failed. I’m sure most people would agree the current economic crisis was caused by bad lending in the subprime mortgage market, something which does not link to an inherent flaw in a tried and tested economic model. Mr “G” would no doubt argue that the subprime collapse was caused by a lack of regulation, which the neo liberal model advocates. It is not the case that more regulation was needed, but rather that the regulation in place was badly constructed so that banks could disguise bad debt and sell it on, leading to the situation we are now in. What we don’t need is more regulation, but what we certainly do need is better legislation to ensure a similar even is not allowed to happen.

    In spite of this, Mr “G” seems to have overlooked any argument over the debt time bomb Mr Brown has incurred. The result of which, when it does occur is likely to cause a much more harmful and steep recession than the one we currently face. In the current globalised economy, having a fiscal deficit coupled with our current account deficit spells economic doom, and paying back all this debt will be painful. The classic example is 1930’s Germany, were the government was forced to repay huge amounts of debt in the form of reparations meaning Germany was crippled economically. By no means do I wish to scare monger people with an image of what would become Fascist Germany, but a similar economic outcome is the only result. However, perhaps it is Mr “G’s argument of “fresh ideas” and radical new thinking to solve this problem, which in fact fits better with the image of 1930’s Germany.

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  4. It is blatantly evident that the cause of the economic crisis was giving the economy, the banking sector and certain individuals TOO MUCH freedom. It is proof that the market, given freedom, will still have massive peaks and troughs – and, frankly, I don’t want to have another Great Depression.

    Granted that your article is more geared towards what to do now… but I would suggest that leaving the economy alone now would heavily damage the poor. Having spent a long while studying the “winter of discontent” I don’t really want to see any areas of the country fall into similar levels of destitution. Keeping employment high, keeping incomes high and keeping the economy under better control will make us weather the storm much more easily.

    Unsurprisingly, of course, the Conservative Party are taking the stand that people who are less likely to suffer and more likely to pay taxes (i.e. the priveleged/rich) shouldn’t have to… whilst they are more than happy to let those who sit at the bottom of the hierarchy cope with even less money and higher costs. Ridiculous.

    I would definitely agree that neoliberalism has failed. Its ideas were useful in the early 1980s in pulling us out of an economic problem but the other concepts it put forward were SOLELY RESPONSIBLE for the problems we face now. Likewise Keynesianism was responsible for the problems in the 1970s, albeit had fewer drawbacks. There either has to be an amalgamation of the two into some sort of intelligently-designed capitalistic system or a completely fresh approach because, frankly, it has now been proven that modern economics fails. Epically.

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  5. Surely when looking at japans experience of a banking crisis it would be stupid to think doing nothing is a good idea! It would far more expensive for the government to acquiesce and have a ‘lost decade’ as japan did, resulting in being in debt to the tune of more than 100% of its gdp. Taking active steps as sweden did in its banking crisis is surely the more rational approach.

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