So even Christine Lagarde, Osborne’s neoliberal capitalist ally now ensconced at the IMF, has turned against him. Even she is now uttering the words that will not escape his lips – words that no Tory MP is permitted to utter – namely that the need for Plan B is now overwhelming. It is now perfectly clear even to the IMF, the cheerleader of deregulated finance and marketisation uber alles, that Osborne’s policy of obsessive austerity, has not worked, will not work, and needs to be changed.
Otherwise it risks, indeed is, dragging down the economy into a self-reinforcing spiral of recession where jobs and growth are choked off without even the policy of cuts succeeding. Osborne is already admitting he will have to borrow far more at the end of this term than he originally announced. So where should policy go now?
When the IMF, the champion of monetarist deflation, actually recommends in place of cuts (88% of which according to the IFS still await to be implemented in the UK) aseries of “policies to bolster demand”, in effect the game’s up. The IMF would never publicly pour ordure over the policies of a friendly Western government, particularly since Osborne was the one who ardently promoted Lagarde for the IMF post which destroyed Brown’s chances ( a double whammy he must have felt), but that in officialese code is exactly what the IMF is now saying – without of course a hint of apology for the disastrous misjudgement they made two years ago in backing Osborne’s spending cuts to the hilt. Osborne’s comment however is breathtaking: he said that the IMF reports ‘showed that the government was on the right track’. He is simply in a state of denial.
So what should be done? The IMF recipe is pretty feeble. Cut interest rates, but they already on the floor at 0.5%. Launch another round of quantitative easing, but that won’t increase aggregate demand which even the IMF now recognises if the heart of the problem. Jonathan Portes of NIESR has a better idea. Borrow £30bn for a public works programme since the annual cost at current bargain basement interest rates would be a mere £150m a year. I have an even better idea: tax the richest thousand persons in the UK on their capital gains over the last 3 years and that would raise even more money (£43bn) for a public works programme at the cost of no borrowing at all.