Yesterday, the OECD delivered its biannual economic outlook, cutting the UK’s growth forecast for 2014 by 0.1 percentage point to 1.5 per cent (and yes, growth of just 1.5 per cent in a year is pretty abysmal stagnation, and not something to be celebrated even if it would be a “return to growth”). Even while accepting that our economic situation is bad and getting worse, however, the think-tank backed the Chancellor, saying that:
With a high budget deficit and gross government debt rising to 90% of GDP in 2012, further fiscal consolidation is necessary to restore the sustainability of public finances.
Philip Inman, on the Guardian‘s economics blog, argues that if the OECD wants to actually provide some useful advice (beyond “stuff’s bad but there’s not much you can do about it, good job guys”) it should get over its obsession “with reducing the annual budget overspends by indebted government to the exclusion of all else” and start looking at what other measures need to be implemented. Jobs, growth, infrastructure – there is something to be said on each of them. Instead, the outlook is a paragon of complacency, proclaiming that “employment performance has been good” and “growth is projected to pick up slowly”.
Just picking one area the OECD could have looked at, Inman cites a TUC report calling for a £30bn investment in house-building. The organisation argues that “spending £30bn now on an ambitious house-building project, as well as modernising the UK’s transport, energy and communications network is the best way to kick-start our flat-lining economy”.
Of course, spending on housing isn’t a panacea. The OECD like simple instructions, and (in their playbook) deficit reduction really will fix everything in one go. But even if you have a more realistic view of the situation (and understand that high debt doesn’t lead to slow growth, but the other way round), there’s still a huge amount else to do in the economy, and it would be the height of irresponsibility to focus on infrastructure investment and ignore the effects monetary policy has on fiscal stimulus, or delay efforts to tackle plummeting real wages. But no-one is arguing we should do infrastructure investment and only infrastructure investment; and if it can help (it can help), then doing it is better than not doing it.
If you’ve got a broken arm and detached retina after a car crash, then splinting your limb isn’t a panacea – you’ll still be half blind. But you’d be hard pressed to find a worse reason to say no than that.
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