[lbo-talk] Britain´s failed experiment?

Doug Henwood dhenwood at panix.com
Fri Dec 9 05:31:16 PST 2011

On Dec 9, 2011, at 6:19 AM, Lenin's Tomb wrote:

> On 09/12/2011 10:17, SA wrote:
>> On 12/9/2011 3:52 AM, James Heartfield wrote:
>>> as yet this is no Thatcherite assault on the public sector.
> That's reassuring. It's not, however, the way the Tories see it.

Nor is it the way the OECD sees it. In their latest Economic Outlook, they describe the "fiscal consolidation" - austerity - as "ambitious." They quantify it as about 1.25% of GDP a year over the next couple. With a sick economy, that's harsh medicine. It may hurt, but it's necessary:

> Hence, planned fiscal consolidation tightening needs to continue despite the significantly weakening economic outlook, and this is assumed in the projection. The underlying primary balance will improve by about 1.3% of GDP per year between 2010 and 2013. In line with the fiscal plans and targets, the automatic stabilisers are assumed to be left to work fully.

Automatic stabilizers = unemployment benefits and the like.

Things may get bumpy. Should the economy turn out worse than expected:

> Short-term fiscal support would be warranted, for example by easing up on the planned cuts in public investment, temporarily slowing consolidation in relation to government plans. However, credibility will demand that the medium-term fiscal targets be retained and achieved, implying greater tightening later on. The measures to implement this future compensating tightening should be announced upfront.

The austerity plan is not without risks:

> The weak economy is worsening social conditions. To mitigate the social and long-term economic impact of the recession, targeted support for the weakest is needed. Upgrading the quality of vocational training and providing stronger financial incentives for young people from poorer backgrounds to remain in education and training would cushion the long-term labour market impact of the crisis. Effective measures to combat fast-rising homelessness should be implemented.


More information about the lbo-talk mailing list