It is almost incredible that faced with the very real likelihood of a slide into world slump, as Obama is now warning, Merkel continues to parrot the reactionary monetarist mantra that “there can be no growth through borrowing”. There can certainly be no growth through prolonged austerity, though she didn’t admit that. But leaving that aside, she totally fails to recognise that there is all the difference in the world between on the one hand borrowing to increase consumption, which is unwise at the best of times and utterly reprobate at the worst of times, and on the other hand borrowing to generate public investment which will create jobs and sustainable growth. That is what private business does all the time, borrowing on the basis that the investment is soundly based and will create jobs and growth.
But what the reactionary monetarists don’t understand, or refuse to recognise, is that there can be public investment to create jobs and growth without borrowing. According to the Sunday Times Rich List published last month, the richest 1,000 persons in Britain, just 0.003% of the population, increased their wealth over the last 3 years of austerity by no less than £155bn, a sum considerably greater than the entire UK budget deficit. If those gains were taxed at the current capital gains tax rate of 28%, it would raise £43bn for the Exchequer. That would be more than enough to generate the public investment needed, primarily in house-building and infrastructure, to create 1.5 million jobs in the next 1-2 years. That would unquestionably turnaround the economy and begin the virtuous growth spiral. And with no public borrowing at all.
All ways round that is a vastly more sensible strategy for cutting the deficit. At present it costs £7bn to keep a million people on the dole, when with the same money we could create 400,000 jobs. How much better, instead of paying them to remain idle on the dole, to employ them building the houses that Britain desperately needs (with 1.8 million households on Council waiting lists) together with repairing and improving Britain’s degraded infrastructure including major new energy and IT developments. And a million more persons in work would hugely increase tax receipts (income tax, national insurance, and VAT) which is the quickest way to cut the deficit.