'Shock Doctrine' IMF Economists Are Pushing The Same Remedies In The UK That Didn't Work Here. Why?
This caught my eye because it's really quite crazy. Last year, the International Monetary Fund pushed the UK quite aggressively for an austerity budget -- and now they're warning that the UK austerity budget has resulted in just 0.2 per cent growth in the second quarter of the year, following two quarters of poor growth. Gee, you don't suppose unemployment, wage cuts and the additional costs incurred by public program cuts resulted in people having less money to spend, causing a demand problem?
So what strategy do they recommend if growth doesn't improve? Come on, you already know: tax cuts and more quantitative easing. You know, the same things that didn't work here! It's not really science with these people; it's fundamentalist religious dogma, like the conviction that Adam and Eve co-existed with dinosaurs -- that, and disaster capitalism:
In a comprehensive analysis of the state of the British economy, the economic watchdog said that, between them, families would have £35 billion less disposable income due to the Government’s attempts to tackle the deficit. In addition, a fall in the value of houses would wipe off more than a tenth of their “tangible” wealth in real terms by 2016, the IMF said in its report.
The forecast for household finances came amid a growing political row about recent slow growth. George Osborne has come under pressure from David Cameron to come up with new ways to stimulate the economy.
The IMF reiterated its support for the Government’s programme of cuts, which it said had “significantly reduced the risk” of a sovereign debt crisis. However, it warned that tax reductions might be necessary if the rate of economic growth did not improve. And although it said the Government had made the right decisions to tackle the deficit, the impact on households would be significant.
[...] As total disposable income last year was £974 billion, the IMF estimated that the cost would be roughly £35 billion annually – shared between Britain’s 26 million households.
Alongside the squeeze on savings, it said near-static house prices until 2016 would knock 12 per cent off families’ “tangible” wealth in real terms as the value of property fell in comparison to home owners’ income.
The damage to household finances would weigh on the recovery for years, it warned, as consumers had less money to spend on the high street. Due largely to the weakness of consumer spending, the IMF is predicting growth this year of 1.5 per cent — against official forecasts of 1.7 per cent.
[...] Despite its concerns, the IMF again threw its weight behind the Government’s austerity measures.
“The weakness in growth and rise in inflation raises the question whether it is time to adjust macroeconomic policies. The answer is no,” it said.
“Recovery from the financial crisis is under way, but is bumpy and incomplete … Fiscal headwinds will continue.”
Vicky Redwood, senior UK economist at Capital Economics, the research consultants, said the analysis demonstrated that “households are in for a tough five years if not more”.
“It’s payback time for the high spending of the past decade,” she said. “It’s going to be a prolonged period of nastiness for households.”
You could spread that irony with a knife. Is it time to "adjust macroeconomic policies?" Let's ask Paul Krugman, the man who quite literally wrote the book on macroeconomics - and also wrote about the planned austerity cuts for the UK back in October 2010:
The Nobel prizewinning American economist Paul Krugman launched a scathing attack today on chancellor George Osborne's spending cuts, just as a prominent member of the Bank of England's rate setting committee argued that the cuts paved the way for strong growth.
[...] Krugman believes the government is using the financial crisis of 2008 as a cover for advancing an ideological programme to downsize the welfare state, saying the plan "boldly goes in exactly the wrong direction" and has been sold to the public with an unprecedented and unwarranted degree of fear-mongering.
The British plan, he wrote, appears to come straight from the desk of Andrew Mellon, the US treasury secretary who told President Herbert Hoover to fight the Great Depression by liquidating the farmers, liquidating the workers, and driving down wages. "Or if you prefer more British precedents, it echoes the Snowden budget of 1931, which tried to restore confidence but ended up deepening the economic crisis". As a result, the British government seems "determined to ignore the lessons of history".
But economist Andrew Sentance, who has gained notoriety as a member of the monetary policy committee for consistently voting for an interest-rate rise, said in the Sun: "Overall, I do not think the review will endanger our recovery.
"In some areas, such as the health service and schools, spending will rise. To make room for this, spending is being cut back more heavily elsewhere. Taking public spending as a whole, it will still rise in cash terms over the next few years but slightly below inflation."