Too late to turn the ship around?

If there is one thing that will stick with me from CSM’s ‘Devil in the Detail’ economics day, it is probably the stark table that showed quite clearly how a decrease in economic stimulus after the First World War led to decreased growth, increased debt as a percentage of GDP, and rising unemployment. Should it be any surprise to us that as a result of the cuts, we have seen unemployment rise to 8.4%, the highest in 16 years and the Chancellor having to exceed his borrowing targets. The ratings agencies need reform and greater accountability but as far as the health of the UK economy goes I pretty much agree with their ‘negative outlook’.
Of course it may sound reasonable when the Chancellor compares national public debt to personal debt and calls for restraint, but it is clearly not the same thing. Public spending builds infrastructure, creates jobs and generates growth; it is very different from overspending in the January sales on clothes that you will only wear once. Moreover, what the Conservative MPs fail to say when they stress the need for paying down the deficit, is that public debt remains at around 64% of GDP. This is nowhere near ‘Greek proportions’ as some have claimed and it pales into comparison when you consider the level of private debt in the UK – estimated to be over 400% of GDP.
With rising unemployment, a squeeze on public sector wages and banks who are not lending as they should, it is difficult to see a way out of this private debt crisis. The economic plan is not just failing in macro-economic terms, but it is impacting on the most vulnerable within our communities. In Southwark where I live, the Council was required, in order to balance the books, to cut nearly £30m from the budget last year. There are more cuts to be made this year on top of that and there is very little room to manoeuvre. A lack of jobs and support means that private debt is increasing, demonstrated in the prevalence of payday loan shops on our high street charging usurious rates of APR. It has been encouraging to see churches stepping in to meet need through debt counselling organisations such as Christians Against Poverty (CAP) and through Food Banks such as the one in Peckham, but is this how it should really be? My neighbours reliant on food aid?
I was particularly struck by the Keynes quote, “What we can create, we can afford”. Job creation schemes, paying a decent living wage, would surely be not only the moral thing to do, but also the economically sensible thing to do. It would enable people to pay off their debts, would reduce the welfare bill and would get the economy moving again. Other measures (fiscal or otherwise) that could reduce inequality within the UK could also lead to a healthier society overall, and better regulation of the City could help establish a more stable financial services sector.
There is a part of me which is still struggling to reconcile the creation of credit in the Keynesian sense, with the growing reality of looming resource scarcity in a world where population now exceeds 7 billion. From an international development perspective, we surely want to see communities improving their living standards, accessing credit themselves and generating economic activity. How to do this in a sustainable way will be the key question considered by world leaders at the Rio +20 summit this June. After-all, if we can no longer create, then we will be in trouble. One of the ways to meet this challenge head-on would be, as discussed by CSM, to properly invest in green growth, injecting credit into the global economy that would create jobs in areas such as energy efficiency and the development of renewables. One of Ken Livingstone’s proposals for London, to retrofit homes, make them more energy efficient and reduce heating bills at the same time, is a great example of innovative thinking and it is ideas like this that could help us turn the ship around.

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