I’ve been reading the posts by Labour Tweeters over the past couple of days with regards to the 60+ economists agreeing with Labour policy over cuts. They do have a point to a degree as the majority of thinking is about starting the cuts later.
However the minority were predicting a bursting housing bubble before the recession. How many people dismissed Vince Cable over rising house prices? Were these people not also in the majority?
Please correct me if I am wrong, economics is not a science. It’s a theory on how the finances of a country will go under certain conditions. Recessions of the past are being dragged out to prove theories of today and yet today’s recession is different, so why should the fix be 80 years old? Yes lessons can be learnt, but new thinking also needs to be applied.
What does concern me is (and again, please correct me if I missed it somewhere) how many of these economics “experts” saw the recession coming?* How many have got their predictions right on the economy over the past few months?
So why should I believe them now when the weather forecasters seem to have a better track record.
To me it’s as much about how people react to the cuts as the cuts themselves. What if people are seeing that the cuts are being held back not because of some fiscal stimulus but as an electioneering ploy? Doom and gloom sets in and the economy isn’t restarted.
Now, say the government came up with a short-term plan and made some cuts. Not huge ones but enough to say “look, we are doing something to start reducing the debt”. It might encourage a feel good factor that someone is doing something.
My personal opinion? The government will stick with what it is doing now and the UK will get even further into debt (we over borrowed by £4bn in January – the first time ever apparently).
- Tories win and the economy picks up, even if briefly, mainly due to the “at least it’s not Gordon” factor. Whether it lasts is another matter!
- Labour win and the GBP takes a hammering, money moves out of the country, interest rates rise and the economy hits a double dip recession.
- There is a 3 way hung Parliament and we hopefully get some sense back into politics
Hey it’s only a theory 🙂
* Apparently David Blanchflower did – thanks to Ben Cooper for that.