The news that Britain is now in the grip of a double-dip recession for the first time for 37 years and struggling with the slowest recovery from slump for 100 years is grim. What makes it intolerable is that there is an alternative way out staring us in the face, but no leaders in politics or business or finance have either the courage or the vision to demand it or promulgate it. Osborne is fanatically fixated on his endless and self-defeating austerity package, and Labour, while relishing the political throwback from a disastrous economic strategy, is still stuck on the mealy-mouthed mini-version that the government should cut less far, less fast. As a plan for avoiding the gathering collapse, that is a show-stopper.
The real alternative is to acknowledge that relentlessly chopping public expenditure when the private sector is flat on its back and an exports recovery is largely blocked by the Eurozone recession is a recipe for a self-reinforcing downward spiral – falling growth, business bankruptcies, rising unemployment, lower tax receipts, higher budget deficits, still lower growth. Instead of ignoring growth or assuming it will happen automatically as debt falls (if indeed it falls at all), the only way of stimulating lasting growth in the current crisis is by a public sector-driven jobs and growth strategy, initially investing in infrastructure, house-building and laying the foundations for a green economy. The rise in incomes, tax receipts and the level of aggregate demand will steadily generate a virtuous spiral out of the present vortex of deepening decline.
Two arguments are used against this: how will it be funded, and how will the bond markets react to a rise in expenditure and therefore debt? It can be funded from two sources without increasing the budget deficit. One is quantitative easing, the electronic printing of money, which has already been used to pump £325bn into the banking system to stave off collapse, almost none of which filtered through to the economy. Ploughing even just 5% of such a sum into direct investment into real economic activity could turnaround the recession. Or taxing the 0.01% richest sliver of the population, whose gains in the last 2 years staggeringly exceeded the entire present budget deficit, could equally trigger the economic revival the nation needs. And no-one more than the markets would be delighted and relieved to see that happen.
Yet it is depressing that the dominant group in the Labour Party, the remaining but still numerous Blairites, still insist that Labour must show it is realistic about the deficit by being prepared to take tough decisions, ie.e. by making big cuts in public expenditure. It is frankly extraordinary that when the Osborne strategy is visibly disintegrating before our eyes, the Blairities are determined to jump on the sinking ship. This is a priceless opportunity for Labour to regain dominance over economic policy. At the moment the party’s flunking it.