300 of US economists and major civic leaders have recently issued a stern statement warning the US Governments about the real dangers of implementing tough austerity measures to tackling national deficits at the risk of inducing a double dip recession.
In the statement they warn that huge cut backs of Federal and State Government spending risks jobs, economic growth and fundamentally threatens the US economy. Instead they urge President Obama to focus on major investment in rebuilding the US economy through a programme of national infrastructure renewal.
With the UK facing the same economic challenges the warning by such a high profile group of economists and civic leaders will echo with many here in the UK. What is being challenged is the prevailing economic orthodoxy both in the US and the UK that concludes that deep cuts to public spending levels are the only option for tackling national deficits.
The statement by US leaders cite the example of President Franklin D Roosevelt who in the 1930’s was forced into spending his way out of recession exacerbated by savage austerity measures, by launching the New Deal programme of investment in jobs and rebuilding the country’s infrastructure.
Here in the UK similar arguments are being advanced by campaigning groups such as the Coalition of Resistance who are calling on government to reverse its austerity programme in favour of a strategy of investment in jobs and growth.
The US statement reads
“Today there is a grave danger that the still-fragile economic recovery will be undercut by austerity economics. A turn by major governments away from the promotion of growth and jobs and to premature focus on deficit reduction could slow growth and increase unemployment – and could push us back into recession.
In focusing on the future they continue: ” History suggests that a tenuous recovery is no time to practice austerity. In the Great Depression, Franklin Roosevelt’s New Deal generated growth and reduced the unemployment rate from 25 percent in 1932 to less than 10 percent in 1937”.
And warning of the dangers of cutting budgets to deep too fast they state:
” However, the deficit hawks of that era persuaded President Roosevelt to reverse course prematurely and move toward budget balance. The result was a severe recession that caused the economy to contract sharply and sent the unemployment rate soaring. Only the much larger wartime spending of the early 1940s produced a full recovery.”
As the economic debate in the UK rages it is vitally important that both the UK and US economies take action that will produce a sustainable growth pattern. If the US economy falters then no matter what action is taken here in the UK the effects result in economic devastation and a double dip recession.
Filed under: Economy |