Tuesday 24 May 2011

The Coalition deficit cuts will increase the deficit

On March 26th half a million people marched in London against the savage £81 billion worth of cuts introduced by George Osborne in the 'emergency' budget last year. More recently an impressive (sic!) estimated 350 people attended a 'Rally against debt' on the 14th of May. Not hard to see where the British peoples' sympathies lie then - and the vast majority have got it right because the Coalition government's cuts are not only going to cause great social harm but they are more likely to increase the deficit than reduce it.

How can that be right? How can cuts in expenditure increase a deficit? Well, you only have to look at Greece and Ireland to see how. Both countries are in deeper debt now than they were when they began their austerity programmes. If you slash spending you increase unemployment which increases costs and reduces your income in the form of taxes. The best way to pay off debt is to earn more. Governments earn more if they increase taxes and if the economy grows. As the economy grows government income, in the form of taxes, increases. But the cuts here have lead to a stagnant economy with no growth. There is further bad news to come in the form of increasing unemployment as the cuts bite further. Government borrowing last month was the highest ever recorded for April because tax receipts fell. Osborne has clearly shown his economic illiteracy in the last budget, which did nothing to address the problems caused by these savage, unnecessary, ideological cuts. What our economy needs is a stimulus with investment in jobs through a Green New Deal, not savage cuts.

The same failed course of action is leading to an even greater crisis in the Eurozone where Greece is unable to repay its debt and will have to default at some stage. The effects of this could be even greater than the collapse of Lehmans in 2008. In addition, Ireland, Portugal and Spain are all in trouble. The truth is that none of the bailouts of the Eurozone countries were made to help the people of those countries. They were made to bail out the bondholders and the banks - the money lenders . As with the bailout in the USA and UK, taxpayers are being asked to bear the pain and bail out the market. It is clear where the real power lies, and that's not in your democratically elected government, which exists to serve the market, whatever the cost to you and your family. And if your economy is ruined in the process its just tough luck.

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