Section:OBS 2N PaGe:53 Edition Date:190804 Edition:01 Zone: Sent at 3/8/2019 9:41 cYanmaGentaYellowblac
- The Observer
Economics 04.08.19 53
Phillip
Inman
@phillipinmanW
hen con-
fronted with
an uncertain
future, writers
who claim
to have seen
through a window into the next
decade fi nd it easier than usual to
make the bestseller lists.
Some futurology books are
gloomy and some are optimis-
tic. Britain’s prime minister proba-
bly did not read any of them before
coming to the conclusion that a
strong sense of belief and a sunny
disposition could cure most ills.
Many readers will be familiar
with the current argument between
the “ gloomsters ” on the one hand,
who worry about borrowing
more money, and those, like Boris
Johnson, who believe it is possible to
blast through a no-deal Brexit and
turn longer-term stagnation into
turbocharged growth with barrels of
borrowed funds.
Back in 2009, just as the UK was
climbing out of recession , the then
prime minister, Gordon Brown,
confronted his chancellor, Alistair
Darling, urging him to produce a
budget that displayed a level of con-
fi dence suffi cient to persuade con-
sumers and businesses to forget
about the fi nancial crisis and carry
on as before.
Unfortunately for Brown, only
he and a smattering of hardcoreKeynesian economists believed that
it was right for a country as fi nan-
cially troubled as the UK to spend its
way out of trouble.
Brown failed, and Darling pro-
duced a budget that slashed pub-
lic investment. Darling’s successor,
George Osborne – in many ways the
UK’s worst chancellor of the post-
war period along with Ted Heath’s
fi nance chief, Anthony Barber –
went further, with cuts to public ser-
vices and lower welfare spending.
Brown was proved right and the
institutions that failed to back him- the International Monetary Fund,
the OECD and many of the UK’s
domestic thinktanks – were forced
to eat humble pie, if not apologise.
In one sense, Brown was behaving
like a fi nancial trader. He knew that
Britain’s stock was artifi cially low
and any investments at that stage
would reap strong returns.
Infrastructure could be bought
cheaply and the money to fund
it borrowed at rock-bottom rates
of interest. More than that, busi-
nesses had entered the fi nancial cri-
sis geared up for neverending strong
growth. They had the expertise and
people to carry out the work. What
better than to keep the wheels of the
economy turning and tax receipts
pouring in? Austerity be damned.
Ten years on, the same battle is
raging. The question must be: does
the analogy with 2009 still hold?
The only element that remains the
same is the rock-bottom borrowing
rates. Otherwise, times have moved
on and not for the better – at least
not for those who ask why Britain
cannot borrow more, even increas-
ing its debt-to-GDP ratio above the
current level of 83%.
Businesses, and especially those
that export, have had a torrid
10 years, putting them in a very dif-
ferent position to where they were in- They haven’t invested much in
new plant and machinery. A glance
at the offi cial fi gures for investment
shows that they haven’t done much
more than upgrade their IT equip-
ment. Training budgets have been
cut to the bone and the govern-
ment’s only response to this lamen-
table trend – the apprenticeship levy
- has so far failed to have any mean-
ingful impact.
Labour says the government
should borrow and channel the
funds into the economy through
regional development banks. But
there is no evidence that the fi nan-
cial services industry is in as bad
a state as it was in 2009. It has the
reserves in place to lend to small
and medium-sized businesses:
sadly, there are no takers. Add to
this picture the widely held concern
that the global economy is about to
go through troubled times, and the
2009 analogy hangs by a thread.
Is this situation merely deter-
mined by the uncertainty of a no-
deal Brexit?
Studies such as one from the
Washington-based Peterson
Institute last week show that wage
stagnation in the US (and therefore
probably the UK too) is more likely
to be caused by technology hollow-
ing out the market for skilled blue-
and white-collar jobs rather than
competition with China and the Far
East. This tells us there are funda-
mental issues to confront aside from
the loss of access to our biggest
trading partner, the EU.
Britain is better placed than most
countries to tackle the problems
confronting developed-world econ-
omies, from deindustrialisation
to the climate crisis, but Johnson’s
incoherent spending in pursuit of
past glories – from employing more
police to funding more shipyards,
and all with borrowed money – only
adds to the instability of the econ-
omy and the sense of gloom.This isn’t
2009 – we
can’t spend
our way out
of trouble
РЕЛИЗ
ПОДГОТОВИЛАГРУППА"What's News"VK.COM/WSNWSРЕЛИЗ ПОДГОТОВИЛА ГРУППА "What's News" VK.COM/WSNWS