IMF indicts Osborne

Submitted by Matthew on 24 April, 2013 - 7:54

Economic figures published on Thursday 25 April will show whether the UK is technically “in recession” again.

Even if the figures escape the formal definition of a “triple dip” since 2008, jobs, services, benefits, and wages are definitely in a slump, and set to continue that way for years.

The coalition government claims this is an inevitable price for the supposed (but imaginary) “overspending” by the last Labour government on public services. Conservative and mainstream voices are questioning Osborne’s “inevitability”.

On 16 April the International Monetary Fund (IMF) published a new edition of its twice-yearly World Economic Outlook. “In the United Kingdom”, the IMF said, “where recovery is weak owing to lacklustre demand, consideration should be given to greater near-term flexibility in the fiscal adjustment path”.

That was polite official language for: “Cuts as big as Osborne’s are crazy. They depress economic output — people can’t buy stuff, and capitalists seeing flat markets don’t invest — and thus also depress government revenues. They do not even reduce government debt”. The UK’s ratio of government debt to annual output has risen from about 80% when Cameron and Osborne took office to 91%.

A “growth tracker” graphic in the IMF report maps major countries’ phases of slump, stagnation, and recovery since 2008. It shows the UK as doing no worse than most others until early 2011, and since then doing worse than any of the countries tracked except Greece and Portugal.

On 15 April, three US economists had exploded a famous bit of research which Osborne had cited to “prove” that cutting, and cutting again, until eventually government debt does decrease, is essential to restore economic growth.

The Harvard economists Carmel Reinhart and Kenneth Rogoff published figures in 2010 claiming to show that government debt above 90% of annual output makes economic expansion difficult or impossible.

Their critics have shown, unanswerably, that the statistical analysis was dodgy.

Historically, higher government debt levels tend to go together with somewhat lower growth. But the correlation is loose. Further analysis by another economist, Arindrajit Dube, shows that the correlation is probably mostly a matter of lower growth causing higher debt levels rather than vice versa.

On 19 April, the US ratings agency Fitch struck a third, though symbolic, blow to Osborne’s credibility and confidence by downgrading the rating it gives to US government bonds as a safe investment.

In truth, getting economic recovery, or even reducing debt, are not Osborne’s priorities. He himself explains his policies as an effort to “make the UK the most attractive destination in Europe for businesses and investment”, that is, to use the crisis to out-compete other European countries as a site for future profit-making. Thus the cuts in top income tax and corporation tax, and the continued zoom of top pay (chief executives’ pay went up 16% in 2012), at the same time as wages are slammed down and benefits axed. If becoming “attractive for businesses and investment” means the UK also becoming horrible for workers and the unemployed, that’s fine with George Osborne.

Labour’s Ed Balls seized on the IMF criticism of Osborne. But in hard fact, still all he proposes is marginal changes from the Tory trajectory — a few tax tweaks here and there.

In 2012 the TUC congress voted for public ownership and democratic social control of the whole banking system. The unions should demand that Labour take up that demand.

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