Britain Is Embracing Austerity 2.0 As Recession Bites

“We are materially worse off given rising energy prices and rising government debt—there is no way around that,” says Dibb. But as he and others argue, massive spending cuts won’t resolve these issues. Rather, they simply create a “doom loop” in which a lack of investment leads to low productivity and slower economic growth or even a recession, thus triggering continued spending cuts and tax rises that can even lead to higher debt levels had austerity not been pursued.

Part of the reason that governments resort to spending cuts is because they are politically easiest to do. They are also bolstered by the argument, made by those whoin 2010, that spending cuts give governments more capacity to borrow when major crises such as the COVID-19 pandemic arrive. But this, like the fiscal black hole itself, can be misleading.

While the desire for fiscal responsibility is one reason that the government has taken these budgetary steps, the other stems from its desire to restore Britain’s international credibility, especially after Truss’s tax cuts unleashed turmoil on the financial markets. “They want to demonstrate that the grown ups are back in the room and these people are back in charge who are sensible and doing all the things which are not going to lead to further market turmoil,” says Dibb.

Source: News Formal (newsformal.com)

“Cutting your spending as we go into recession is the opposite of a Keynesian response,” he says, referring to a school of economic thought that calls for economic stimulus in difficult conditions.

vote this worm out of officer ASAP

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