There are now unmistakeable signs that Osborne’s so-called economic recovery is fading, despite all the right-wing think tanks and pro-Tory media to talk it up. A survey of 7,000 businesses by the British Chambers of Commerce has just found that manufacturers have suffered a sharp slowdown in export orders, and even more significantly domestic sales and orders – the part of manufacturing that has been faring better due to household expenditure based on rising debt – are now also reported to be slowing. The third quarter growth figures also show the UK economy losing steam, down from ).9% in the second quarter to 0.7%. The TUC has just reported that not since 1865-7 has there been a comparable squeeze on earnings for British workers, with an 8% fall in real earnings between 2007-14, and the fall is still continuing with the latest figures this year showing annual wage growth of 0.7% against inflation at 1.5%, i.e. a further real wage fall of 0.8%. There is then a serious knock-on adverse effect in a reduced tax take for the government which is actually this year increasing the deficit (from the current £100bn to around £105bn) when Osborne’s whole object is ostensibly above all else to cut the deficit. His austerity programme is now beginning to eat itself.
Osborne’s excuse for his austerity policies now starting to unravel is that it’s all the fault of the Eurozone and world markets hit by global growth fears. It is true that the collapse in export orders is pushing Germany into recession and pulling down the whole eurozone area nearer to deflation. But that is because Merkel is pursuing the same dogmatic policy as Osborne, namely an obsessive drive to eliminate the deficit above all other considerations and to reject out of hand any measures to restore demand within the economy, such as major public investment in urgently needed new infrastructure as even the IMF is now demanding.
On the global front it is true that markets are spooked by fear of deflation in the eurozone, weakness in emerging markets, falling oil prices, and rising tensions in Ukraine and the Middle East. But these are the side-effects of the attempt to resurrect the business-as-usual model that collapsed so spectacularly in 2008-9. The real underlying lessons of that near-catastrophic breakdown have still not been learnt. If one sticks rigidly to the supply-side model and ignores the demand-side need to build long-term capacity, one finds as we are at present that we are trapped in a cycle of credit booms. Working out of debt generates a vicious circle from high debt to low growth and back to even higher debt. The biggest lesson of these crises is not to let debt run ahead of the long-term capacity of an economy to support it in the first place.