Dr David Green: You can overdo austerity
Dr David G Green is Director of Civitas
The Government’s austerity programme is starting to harm our economic recovery. As Tim Montgomerie argued yesterday, 'Cuts are now the dominant theme of this government'.
Much of the current debate pits supply-side economics versus demand management, but in A Strategy For Economic Growth, we argue that the reduction in manufacturing has structurally weakened our economy and impaired the ability of the private sector to grow rapidly.
The scale of our national debt is a major cause for concern, but it is not the biggest challenge we face. Nor is climate change. It is de-industrialisation. In fact, the massive de-industrialisation of our economy in the last 30 years has been a major cause of our high public and private debt. In particular, it led to a current account deficit, which has been partially funded by borrowing. The spare productive capacity that could be taken for granted in the economic downturns of the early 1980s and early 1990s is simply no longer there. This means that tight control of fiscal policy of the kind currently in favour cannot be counted on to spark automatic economic growth in the private sector. Large scale investment, especially in new manufacturing capacity, is needed; and in the immediate future some of it will have to come from the public sector.
And yet, the government is committed to an austerity programme that is making matters worse. The argument is developed in this piece in the Telegraph, which links the follies of the Weimar Republic with Mr Cameron’s austerity package, especially his blind refusal to cut taxes.
Manufacturing is still called "metal bashing" by some commentators, as if it belongs to yesterday, but its vital importance for our economic revival is described in this Telegraph article.
You can overdo austerity.