Sunday, 30 January 2011

It's not the snow stupid!

Ever heard the one about the wrong kind of leaves on the line? That's the much mocked excuse that has been used by rail companies for some train delays in the UK. Now the Tory-led coalition government is blaming the contraction of the UK economy by 0.5% in the last quarter on the weather! The snow may have had some impact, but not nearly as much as the governments ideologically driven economic polices.

The office of National statistics (ONS), which published the figures earlier this week, said that without the effect of the bad weather the economy would have been flat, meaning no growth at all. As long ago as June I predicted that the government's deficit reduction plan would result in an economic collapse. That may have been a dramatic use of words but as I've said before you cannot cut your way out of a recession. This was demonstrated in the 1930's when the same policies were followed leading to a slump which lasted until the second world war.

The only reason the economy came out of the longest recession in its history, after the crash caused by financial capitalism, was due to Alastair Darling's stimulus package in the dying days of the Labour government. Since then, the Tories have been lying about the cause of the structural deficit by blaming it on Labour. Osborne has called the Shadow Chancellor, Ed Balls, a deficit denier but it is Osborne who is a deficit liar. Now the Tories are losing sleep because they know that the worst effects of the cuts and tax rises haven't been felt yet. In addition, inflation is set to rise to 5%, and, as Mervyn King admitted recently, incomes for working people have fallen by 12% in the past three years. If interest rates rise as they will probably have to, the already moribund UK housing market will be hit harder and repossessions will go up. This toxic mix is likely to drive the economy down further, possibly into the double dip some have been predicting. That is why Osborne announced recently that the government were likely to reduce fuel prices in the forthcoming budget - a cynical move to curry favour with the electorate.

With their reckless shock and awe tactics of £80 billion in cuts the Tories were confident that they could dump the costs of the financial crash onto the UK public and get away with it, protecting their capitalist chums in the process. They are in a hole and still furiously digging. They have a choice. They can continue on the same course, in which case they risk busting the economy and the collapse of the coalition or they can do a u-turn and try to put together a stimulus package which might save the coalition. Either way their reputation for economic competence will be ruined. The chickens are coming home to roost. Pity we all have to suffer in the process.

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