We are in for a choppy recovery, George Osborne will always tell us, before adding that his deficit reduction plan is the only way forward for UK's economy. I'd always had the view that this explanation cannot be right. Except I has found it difficult to oppose this argument without sounding like a deficit denier or of Ed Balls' school of thought.
Economic commentators have not helped largely because we are in unprecedented territory and all rhetoric is acceptable. Until I watched Obama's speech to the U.S. congress in the early hours of Friday. Putting aside the charged political atmosphere, Obama went on to deliver his speech on his new Jobs Act which would create jobs largely through tax cuts for individuals and businesses; and through infrastructure spending.
Alas! The reason why I do not agree with George Osborne's position is that standing still is never an option. Not for me anyway! I'd prefer to keep moving, even if it takes me on a longer journey, than standing still and hoping that traffic will ease. That is what this government's position is - stand still and hope it blows away.
There are many advantages of this plan. Chief among them is its political expediency. If the government does nothing and recovery picks up soonish, they will be banging on about the accuracy of their plan. If it fails, they will say they inherited the economic mess from the last government.
But on economics, this stand still plan does not work. Japan went through a form of it last decade and have not recovered since. It is so bad in Japan that they have had 6 prime ministers in 5 years. Searching for answers to economic recovery and a competitive economy, for Japan, is still years away. The damage that the earthquake, earlier in the year, caused is already rubbing salt in the wound of Japanese economy with GDP contraction in the last quarter. And to think two decades ago, the U.S. were quaking in their boots at the thought of Japan challenge them for the spot of largest economy in the world.
I agree that the deficit must come down, but George Osborne needs to come up with a plan that will keep Britain moving. Keep momentum up. Keep the wheels of the economy moving. I know this plan will cost money and the Chancellor will argue that we have none. But we don't have to start big. We could start in the North East for example and work our way down to the South East. Since the plan for deficit is already in place, tax breaks to businesses beyond what is needed to plug the deficit should be introduced urgently. On infrastructure investment and on hiring.
Can the economy withstand any external shock when we are in stand still mode. I seriously doubt that!