Monday, July 5, 2010

Economic Salvation

The British Government in its Budget has announced public service cuts of up to 40% in some departments. That’s drastic. There will be consequences. Women will be affected more than men. The poor and the needy will be at greater risk. I am confident that up and down the country people will be saying ‘necessary’ and ‘about time’. It takes time for consequences to emerge.

Here, Bill English uses the same cue. Whenever I watch Parliament’s question time he seems to be burbling on about the ‘bloated bureaucracy’. Well, that is his government’s servants he complaining about. .I notice they don’t cut the number of people working in the Beehive.

It appears to me that economics is a bit like religion – it’s an act of faith. Upbringing plays a major factor. My Stage I Economics in the 1950s years had Samuelson as its text. It was a Keysenian analysis. Some people rebel against their youthful indoctrination, others, like me, accept it as part of the life-blood of the spirit. So I’m rather sceptical of the ‘austerity’ faith while trickle-down theory seems a shibboleth on par with sacred cows.

Ireland went down the heavy austerity path a few years ago. Matters have not got better, indeed they’ve got considerably worse. Greece has gone down that track. The World Bank would have Spain, Portugal and Italy cantering towards the same approach. .

It’s complex. I accept that. As well as Samuelson I grew up with my elders telling me how the Labour Giovernment, Bob Semple in particular, had helped solve the depression by public works such as the Summit Road on the Port Hills, the Rimutuka tunnel, the rail link to Picton and the Karapiro Dam. State Housing greatly assisted. But later reading revealed a currency crisis that was basically solved by the Second World War. But  in the process, men – I use that word deliberately – got work, things got built, confidence grew and money circulated.

All the reading I’ve done about the American recession that began in 2008 suggest that one of its biggest causes was the removal of the safeguards that Roosevelt had introduced as part of the New Deal to cope with the Great Depression of the early 1930s. According to Beinart George W Bush for years kept teasing his Secretary of the Treasury who had warned him at the beginning of his presidency that the bubble would burst. That teasing stopped in the final months of Bush’s presidency.

Being a bear of very little economic brain I find it hard to comprehend why humanity cannot harness the economic forces unleashed in war-time to be used in peace-time.

Apparently Obama worried at the G8 conference that the European faith in austerity would delay the recovery from the recession. Most commentators say the stimulus package began by Bush and extended by Obama has greatly helped in the USA. But candidates in the forthcoming Congressional elections are baying after different prey. ‘Tax cuts’ and ‘fiscal responsibility’ are chanted and cheered as acts of faith.

I am not asking for reckless spending. I believe strongly in good monitoring of government’s expenditure, (from the politicians down). My hero in the first decade of the 21st century was Michael Cullen. He balanced the books, allowed some stimulation, (not nearly as much as his fellow MPs and constituents desired) but did not slash and burn existing services. Roger Douglas and Ruth Richardson had led us down that driveway far enough for the majority of the electorate to realise it was a dead end. But those  two have faithful clones who long to advance further down the same track. They hover around, ever hopeful. I do not believe Paradise exists at the end of that driveway. And I feel sorry for other nations being asked to explore it as an approach to economic salvation.

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