Six reasons why Cameron is wrong on the economy

It is increasingly clear that the PM is out of his depth and out of touch. This is "nothing for noth

In a speech on the economy yesterday that was 2,235 words long, an out-of-touch David Cameron only mentioned jobs and unemployment once each. He didn't mention the young at all in a week when youth unemployment hit the million mark. It is becoming increasingly apparent that Cameron is a) totally out of his depth when it comes to the economy; b) has no clue what to do to fix the problem; c) has little sympathy for those who are less fortunate than he is. He just doesn't care. Cameron has failed to recognise that his government's economic policies are in complete disarray, and all he can do is resort to spin and obfuscation. Austerity in the UK has failed.

The part of the speech that really struck me was this:

[T]here are some who seriously try to argue that additional spending and borrowing will actually lead to less debt in the end ... despite the fact that no evidence supports this assertion. These arguments are just a way of avoiding difficult decisions ... the kind of something for nothing economics that got us into this mess ... which is why no indebted European country is taking that path. Nor are there any major European opposition parties in high deficit countries arguing for additional borrowing -­ except here in Britain.

It is about time we put this joker straight.

1) Actually, additional spending would stimulate growth and that would increase tax revenues, as it did in the US under the Clinton boom. In case you haven't noticed, Dave, your pal Osborne slashed spending and raised taxes, which increased borrowing. That is why you are in such a mess. What if the government borrowed £100bn that was funded by the MPC through QE, and used the money to say, build ten nuclear power stations. That would lower the cost of fuel, employ people and help masses of small and large firms. It would raise productivity and in the long-run lower our debts, wouldn't it? If not, why not, Prime Minister?

2) There is an enormous amount of evidence to suggest that fiscal and monetary stimulus can increase growth. There is actually no evidence from anywhere in the world to support the ideology you have been following of an expansionary fiscal contraction, especially when it is not possible to lower interest rates. Such a view is "oxymoronic", as Larry Summers has said.

3) These arguments are not a way of avoiding making difficult decisions. They are what has to happen, because your government made the wrong decisions by imposing austerity before the recovery was fully established. You can't blame the eurozone, as it was clear when you formed your government that there were major downside risks to UK recovery from the European periphery and European banks. You just chose to look the other way and go forward with your mistaken policies, wilfully disregarding the potential dangers for the British people.

4) "Something for nothing economics" is a nice phrase but is totally meaningless. If I recall, Dave, you matched Labour's spending plans, supported deregulation and opposed rescuing the banks. It looked like you may have to do the latter if things continue the way they are. Lloyds and RBS are in trouble again. What you did was slash and burn hoping for growth, but you killed off the tender shoots of recovery. The policies you have undertaken without a growth plan is "nothing for nothing economics".

5) "No indebted European country is taking this path." Well, actually, most other European countries grew faster than the UK did over the last twelve months. GDP growth was as follows. Belgium 1.8 per cent; Germany 2.6 per cent; France 1.6 per cent; Netherlands 1.1 per cent; Austria 2.8 per cent; Finland 2.8 per cent; and the UK 0.5 per cent. The eurozone is headed into recession because they are stuck in monetary union. Portugal this week went to the IMF and asked for more stimulus as austerity has failed there too. Austerity doesn't work when banks aren't lending and your major export market is heading into depression. The German central bank, the Bundesbank, today cut its 2012 growth forecast to between 0.5 per cent and 1 per cent, from a June prediction of 1.8 percent. It said a "pronounced" period of economic weakness can't be ruled out if the crisis worsens.

6) "Nor are there any major European opposition parties in high deficit countries arguing for additional borrowing -­ except here in Britain". Denmark has lower bond yields than the UK and lower unemployment, and its new government is introducing more fiscal stimulus. These other countries would do this if they could, but they are stuck in a fiscal and monetary straightjacket. That is why there is talk of the eurozone breaking up.

Dave, you are in a big mess on the economy. What are you going to do if the crisis worsens, as it looks like it might? Panic, I guess.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Did John McCain just save Obamacare? What's next for the Affordable Care Act

To gasps in the Senate, McCain announced he was against the "skinny repeal" bill - and cast the deciding vote.

The last time John McCain, the maverick Republican senator from Arizona, had a chance to shift the course of history, it was 2008 and he was running for President against Barack Obama. 

This time, McCain interrupted his treatment for brain cancer to come back to Washington to vote on the Republican attempt to repeal Obama's biggest domestic legacy - the Affordable Care Act, aka Obamacare.

President Donald Trump, who ran on a platform of scrapping Obamacare, seemed convinced McCain's vote was in the bag. He also managed to convince wide sections of the left-wing twitterati, who put aside qualms about attacking an ailing octogenarian. 

But it was McCain who had the last word. To gasps in the Senate, McCain announced he was voting against the "skinny repeal" bill - the deciding vote which sank the bill by 51 votes to 49. 

McCain ended the day with a plea for a return to bipartisan politics, from both the Democrats and Republicans. He said: "We must now return to the correct way of legislating and send the bill back to committee, hold hearings, receive input from both sides of aisle, heed the recommendations of nation's governors, and produce a bill that finally delivers affordable health care for the American people. We must do the hard work our citizens expect of us and deserve."

So while McCain may have proved himself his own man, what next for Obamacare? Here's what you need to know:

What were the Republicans trying to do?

The Republicans spent years in opposition vilifying Obamacare, but here's the problem - even for those Republicans who hate every inch of the Affordable Care Act, replacing it is a huge operation. Now they truly do have the power to take healthcare away from poor and sick voters, some are having doubts. 

So the bill to repeal it was "skinny" - it would have repealed the obligation for employers to offer workers healthcare, and the obligation for individuals to take out health insurance, or pay a penalty in higher taxes. It would have also given states more flexibility to create their own healthcare systems. 

The problem is, the Affordable Care Act isn't just about legislation, but about playing the rules of the insurance game. In an insurance market, your insurance can only be cheap if the chance of the insurer paying out is low. In other words, for Obamacare to work smoothly, you need young and health people signed up to it rather than just a self-selected group of the sick. Remove the obligation to take out health insurance, and the second scenario looks much more likely. 

So what will they do next?

After the vote, the stunned Senate Majority Leader Mitch McConnell said: "It's time to move on." However, Trump tweeted the more cryptic: "Let ObamaCare implode, then deal."

For all Trump's bluster, this might be the end of the Republican Party's Grand Plan to Destroy Obamacare. Whether it means Obama's legacy is safe, though, is another matter.

The Affordable Care Act might have become a temple of the left, but there are problems with it. For example, insurers have been dropping out, and middle-income Americans are facing an increase in premiums at an average of 25 per cent in 2017. 

If the Republicans truly want to run Obama's legacy into the ground, they can just sit back and refuse to consider any improvements to the system - a la Trump's strategy.

On the other hand, McCain has called for more bipartisanship. If moderate Republicans and Democrats were willing to listen to him, they might be able to produce a wonkish bill that addresses some of the real concerns of middle America while preserving the principle of affordable care.

But based on the Trump administration's progress so far, this kind of co-operation looks unlikely. 

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.