The IMF has claimed that austerity is not working and there is a need to slow the pace of budget cuts and provide further stimulus if there is to be a recovery next year ("Borrowing rise puts pressure on Osborne", The Herald, July 20).
Meanwhile, "It is time for a change of tack'', demands The Herald ("Retail sector in need of hard sell", July 20).
I disagree with these misguided Keynesian views, because this is not a Keynesian recession. Keynes argued that, within the context of sound money, the Government should borrow and spend idle savings in order to increase economic activity: in other words, run a budget deficit during a downturn and pay it back by running a surplus during a boom.
With public sector net borrowing up again (at more than £13 billion in May and June, and running to more than £120bn over the year), Mr Osborne is being as Keynesian as he can be in the recession without frightening the markets and forcing up borrowing costs and bond yields. Our problem is that, far from excessive saving, we are almost overwhelmed by public and private debt thanks to Gordon Brown, who disdained a big surplus during the boom years of 2001 to 2008, keeping interest rates too low, running a fiscal deficit, letting asset prices and credit explode and households and the banks binge out of control.
The EU and the US behaved in the same irresponsible fashion. Scandinavia, Canada, Australia, Switzerland and the Far East did not: they do not have a hangover. But even their copious savings are not enough to fund Western borrowing in the absence of cuts by the debtors.
Things are slowly turning up. Employment is stirring and unemployment and inflation are falling back at least for the near future. Sterling has strengthened against the euro and the dollar. In an era when Britain's exports are much less price-sensitive, the terms of trade are therefore moving in our favour, raising real incomes and the ability to pay down debts. Cutting tax revenue outflows on foreign aid and EU contributions would allow tax cuts for Brits, and would propel the process further, but this is viewed as heresy by the Tories, LibDems, Labour and SNP. How foolish they are.
So the Bank of England and the Government should just sit tight: no more interest rate cuts, no more quantitative easing and no additional spending and borrowing. We must just sweat it out and cut our public and private debts, probably until 2020 as David Cameron fears. We are, and still would be, far better off than we were before all this began. Were our living standards in 2001 really so bad? Of course not. If some households are in difficulty, then, sadly, they let themselves be taken in by Labour's profligacy and imprudence.
14 Ancaster Drive,
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