The Biggest Economic Experiment Of The Last 5 Years Has Ended In Disaster … The U.K.'s economic story for the past five years has been bleak. Since then there have been two recessions This week again we saw the labor situation deteriorate. Next week we'll find out if the U.K. has entered its first ever triple-dip recession. Economists project the economy will post a tiny 0.1% – 0.2% growth in the first quarter. Even if the country does manage to grow a little bit, it's clear that the economy is underperforming. – Business Insider
Dominant Social Theme: If we do austerity right, everyone will benefit.
Free-Market Analysis: We've been writing on this theme for a long time, and to see similar reporting being provided by the quasi-libertarian Business Insider is gratifying in a melancholy way.
Austerity as it is being applied in Europe, Britain and America doesn't work.
Oh, it sounds good but that's only because the reporting has little or nothing to do with what is actually happening "on the ground."
The hypothetical austerity is one in which the wise men of various political parties get together to debate and then implement spending cuts with an eye toward encouraging government growth while pruning waste.
The reality of "austerity" is that it is an International Monetary Fund formula that emphasizes higher taxes and doesn't preclude additional regulations while firmly taking aim at social benefits.
This has two results. First, the economy is often virtually paralyzed by the high-powered assault on "tax evaders." In Greece, for instance, we've read satellite imagery is being used to count swimming pools in the hopes of identifying wealthy individuals who might not have paid their "fair share."
Second, additional regulations and cuts in social services have an inordinate impact on poor people, with a resultant destabilization of the civic order. It is no wonder this recipe for wealth confiscation and social destabilization ends up encouraging exactly the opposite trends to the ones desired.
Here's more from the article:
The IMF lowered its growth forecasts for the U.K. by 0.3% for 2013 and 2014. It now expects the economy to expand just 0.7% in 2013, and 1.5% next year.
As the U.K. economy continues to skate on the edge between growth and recession, economists have increasingly blamed the current government's commitment to austerity, for the nation's economic woes that began with a run on Northern Rock bank in 2007. This was the first run on a U.K. bank in 140 years …
In late 2008, the Bank of England cut interest rates, and announced a £50 billion plan to partially take over major U.K. banks. The U.K. entered a technical recession. Growth declined for six straight quarters tumbling as much as 2.6% in Q1 2009, before emerging from the recession in Q3 2009 with a modest 0.2%.
This brings up another point, which is monetary policy itself. When a loose monopoly monetary policy is pursued in conjunction with "austerity" as we have defined it, well … this merely prolongs the pain. The economy itself, instead of unwinding, is left in a state of perpetual permafrost, with half-functioning financial enterprises that should have been allowed to fail.
As a result of these policies, employment grows only slowly and society's prosperity is hard-put to make any kind of comeback. The combination of aggressive fiscal (tax) policy, regulatory authoritarianism, monetary debasement and welfare slashing is a noxious brew that cannot provide anything but increasing failure over time, especially if it is provided without deviation, as the IMF often demands.
What is needed in such cases is a loosening of regulations, an aggressive tax slashing in conjunction with lower spending and a gradual reduction in social programs so that those counting on those government-provided resources are not left without any sort of provision.
The austerity in Greece, Spain and Britain, among other countries, is the kind that Argentina rebelled against in the early 2000s. It is spiteful, mean-spirited and steeped in inevitable failure. It is actually exacerbating the very trends it is supposed to be resolving. It is so bad, one might think it was planned to deepen sociopolitical and economic crises rather than to alleviate them.
Is that such a "far out" idea?
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