Ed Balls tries to claim he saw it coming, which he didn't and should be ridiculed as a naive opportunist who got lucky. But his view that there isn't enough demand in the economy is fundamentally correct.
Yet the Chancellor George Osbourne refuses to see to point. He wants to continue his deficit reduction plan, cutting public spending and raising taxes. While the deficit may shrink, so will Aggregate Demand.
Yesterday Oliver Blanchard, Chief Economist at the IMF (a New-Keynsian) said austerity had gone to far and that an easing up on the [plan was called for. It seems like good advice.
The Government could continue with their cost cutting in government, but they need to learn the lessons of their own explanation of the downturn. If Europe can't add to AD by raising our exports then its time Government spending did. A one off investment in infrastructure, something 'shovel ready', such as offering all schools a new building or subsidising new low cost homes as long as they start the work within 2013 will help. Such programmes can be extended if need be.
The VW recession is now a possibility.
A decrease in demand has occurred also due to a decrease in the confidence of consumers as they look to save their wages in fear of a re-occurrence of another recession.
ReplyDeleteThe chancellor's, George Osbourne, plan to reduce our deficit really doesn't help the situation our economy is in either. Although the deficit has been increasing over the past few years perhaps spending money on capital such as infrastructure, as mentioned above. In doing this the government can help by doing this, and although results won't be immediate, what it does is increases the confidence of consumers to spend more, thus increasing demand.
The idea of subsidising new low cost homes is good as well as there are so many students who will be looking for accommodation around the place and in recent times there has been an influx of foreign students coming in to study so this will be helpful as well.
Of course AD needs to be risen in someway, but how can you expect government to be happy to spend? Please expand on where these funds would be coming from? The country is already in a huge debt, and taxes are on the rise. If this new spending would come from taxes surely by taking it out of the circular flow and putting it back in at a later time would be pointless? Or are you hoping that by reducing everyone's money people are forced to save less (As it is often seen the richer a person is the more likely they are to save) Another raise in tax could also give entrepreneurs another reason why they should not bother wasting their time with a business in the UK when the profits would be much greater abroad due to the much lower tax rates. If the plan of increasing government expenditure comes from borrowing more will it not make the government look bad when it comes to the next elections and they will have increased the national debt, when decreasing it was one of their main aims. In the long run increasing debt may help to increase AD and be beneficial, but there will not be much time until the next elections and without seeing a large decrease in the national debt many voters may choose to put their trust elsewhere.
ReplyDeleteJust to clarify, the 'VW' recession doesn't relate to the German car firm. In fact, their sales figures seem to somewhat defy the general downturns experienced in Western economies in the last few years. It actually refers to the fact that we are now experiencing a 'triple-dip' recession. A graph of growth or National Income against time would look take the shape 'VW'
ReplyDeleteSee previous blog post and remember I said it first!
ReplyDeleteThe problem is the strategy that George Osborne is pursuing in terms of fiscal consolidation. He said that the UK would be a 'safe haven' and we are now on the brink of a tripe-dip with the loss of our AAA. I think Andrew is wrong to suggest we should avoid increasing taxes on the rich, because we should be concentrating on cutting taxes for the poor or increasing their wages. That would be a good way to boost demand and then get growth in the economy.
ReplyDeleteThe reason of the UK economy shrank in the last three months of 2012 may not only because of the recession in the EU, but also because of the causes of Olympics 2012. As a host of this year’s Olympic Games, London was the world’s hottest spot over the summer. Being in charge of such an important and massive event that brings together athletes, visitors, politicians and media from all parts of the world is definitely a stunning role that London should be proud of. However, the huge costs of the expenditures on facilities, safety measures, transportation, housing and maintenance that Olympics hosts need to make in order to meet the requirements of the International Olympic Committee and to impress the public. It is said that the higher than estimated spending is outweighed by the positive effects on the UK economy.
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