The US and UK following Keynesian Policies and Suffering Jobless Recoveries

Posted by PITHOCRATES - April 28th, 2012

Week in Review

The US is not the only country suffering through a ‘jobless’ recovery.  Which is just another way of saying continued recession.  Or double-dip recession.  The UK is having the same problems we’re having.  And using inept government policies to try and fix them.  Just like in the US (see A recession made in Downing Street – but not caused by cuts by ALLISTER HEATH posted 4/26/2012 on City A.M.).

The first problem has been the composition of the austerity package. Much of the tightening has been via tax hikes rather than spending cuts – capital gains, national insurance, stamp duty, value added tax, and now pasties and the rest. That was the wrong choice: lower taxes are good for growth, higher taxes are bad. The trick is to deliver austerity by cutting spending, not by hiking taxes.

The next issue is that the government’s supply-side agenda has failed miserably. By now, developers should have been set free to build new airports and even cities; the labour market should have been liberalised; job-reducing red tape eliminated; the top rate of tax abolished; mad EU rules abolished, and so on and so forth. Britain needed a revolution; it was granted a few over-hyped reforms…

…excessive inflation has slashed real incomes and real wealth; this, rather than cuts, is what has depressed spending the most…

Last but not least, banking rules. It was right to ensure banks held more capital and that credit became priced rationally – but the reforms have spiralled out of control…

What is most depressing is that the double-dip (if that is indeed what it is) will wrongly discredit austerity, even though the state remains incredibly profligate…

President Obama has broken deficit and debt records.  While he chastises the Right for irresponsibly spending beyond their means.  Demanding that they raise taxes to pay for this irresponsible spending.  That somehow higher taxes will fix all of America’s ills.  Or, at the least, address the social injustice of prosperity.  And happiness.

Both the UK and the US are steadfastly following the failed policies of John Maynard Keynes.  Demand-side Keynesian economics.  Tax and spend.  Because they’ve ‘worked so well’ in the past.  Of course they haven’t.  They never have.  And they never will.  What works are supply-side economics.  Those policies embraced by Margaret Thatcher.  And Ronald Reagan.  Who enjoyed real economic recoveries.  The kind that created jobs.

Politics never change.  Politicians dumb down public education so the people never learn the lessons of history.  That all of their policies are tried and failed.  So they make the same arguments every election cycle.  And the young believe in the goodness of these policies.  The fairness of these policies.  Never knowing the lives they have destroyed through the years.  Which is why politicians work so hard to get the youth vote.  Before they learn the truth.  And become conservative.

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