Osborne’s 8 July budget will be forced through in the teeth of all economic experience. The history of the last 70 years demonstrates one conclusion irrefutably: austerity is the wrong way to cut deficits. After the second world war had dramatically drained Britain’s wealth and left the country with colossal debts amounting to 260% of GDP, these huge deficits were easily tamed by fast economic growth in the post-war years.
President Clinton achieved a similar turnaround in the US after he inherited an enormous deficit in 1992 and ended his 8-year presidency with none, largely due to rapid economic growth. Again, the Swedish high budget deficit was successfully brought down during 1994-8 by a policy of fairly fast economic growth. Even in the US in recent years, despite the political deadlock and a largely non-functional Congress, the US has achieved a far bigger and faster recovery from recession than Europe, again as a result of the priority given to growth by Obama. Continue reading