Ending Austerity Demands More Than Wishful Thinking

I, like many others, find the arguments from distinguished economists, over whether and how to end austerity, quite limited and often confusing. So I am going to throw into the argument some simple principles of my own. Since economics is a cause and effect discipline rather than an exact science, anyone can contribute.

You cannot maintain an austerity programme for longer than eighteen months, without damaging economic output. This is underscored by a persistent failure to balance the budget. The original forecast in 2010 was to achieve this in 2015. It was extended to 2020 and then on to 2025, all because, while the cuts were made, growth has been very poor.

You cannot have low taxes in a welfare economy with low growth. To enjoy low taxes linked to evenly shared prosperity, you have to construct an economic model which achieves growth at 3% above inflation.

You cannot reflate the economy and drive substantial and sustained net growth without major public investment, in which limited long term borrowing is matched by increasing the money supply into the base of the economy.

Asset inflation sucks out new wealth creation. It must be reduced and the creation of new wealth at the base of the economy increased.

Spending on public services must increase to bring them out of crisis and up to standard. In the short term this will require tax increases.

But in the longer term better services will be funded by  economic growth driven by large public investment over several years, to bring our public infrastructure, communications, security, health, education and housing up to acceptable standards.

This will stimulate the private sector into investment and expansion of its own, driving up tax revenues. Rates can then be reduced. This will act as a further economic stimulus.

Taxation reforms and restoring democratic responsibility by reducing outsourcing and quango management are required to deliver an efficient state.

For too long we have drifted downwards with gaps between rich and poor, state and private, old and young, north and south, growing all the time. This process must be reversed. We have to start now.

So over the coming weeks and months listen to the politicians and follow whichever of them comes nearest to addressing all these issues.