Friday, 9 July 2010

Bloodletting - kill or cure?

Bloodletting was once the treatment for hysteria, heart disease and just about every other malady, The theory behind the practice changed often over time, but the practice itself remained much the same -- with doctors often bleeding patients until they were weak, pale and, sometimes, unconscious. 
Doctors routinely bled patients in efforts to prevent sickness brought on by excess food, weather changes and wounds. So this conventional wisdom lasted centuries. No one seemed to notice that the patients were dying in their droves, it must have been the malady not the cure that caused the deaths
As in medicine so in economics it would seem. The draconian cuts we are about to undergo would seem to be ideologically driven rather than necessary. 
Most would agree that some cutbacks were necessary to reassure the panicky European markets. But the strategy adopted by the coalition government cuts to much to soon. Why? So that we have a budget surplus by 2015. 
A somewhat pointless exercise. If it kills those roots of recovery.
What the present policies achieve are our public services downsized to levels that inflict real pain to the consumers of the services and with a real prospect that the fiscal belt tightening will contribute to years of stagnation.
There is no denying the fact that the public accounts plunged deeply into the red because of the global recession. But the country has been bullied to believe that we were on the verge of disaster. Despite the government leading us to believe that the Greek tragedy would befall us. 
However, Britain was not in the same position as Greece. Recovery would have eventually wiped out much of the debt. Alaister Darling’s stiff but less damaging cuts would have done the rest. 
Yes, there would have been a deficit of 1.6 of GDP. But are cuts in departmental spending of between 25% and 40% over the next four years worth it to simply convert that deficit to a surplus of 0.3 per cent. Is it worth it at the cost of new schools and other worthwhile and necessary capital expenditure and the the loss of half a million public sector jobs?
Bleeding at this level is not justified by any economic theory. Most economists and even Vince Cable before he became a Minister, have argued for delaying the most severe cuts until a more robust economy recovery.
All the government’s hope rest on the shaky assumption that as government money dwindles from the economy the private sector will step in and replace it. Its unlikely that private investors will take the plunge if they see only hard times ahead for the economy.
In Wales, with our high dependency on the public sector, this policy will have a disproportionate negative effect. Our economic life blood will drain away and our economy could crash because of the medicine.

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