In his Budget speech, the Chancellor George Osborne claimed that: “Our country’s fiscal plans have been strongly endorsed by the IMF, by the European Commission, by the OECD and by every reputable business body in Britain.”
That was always a dangerous game to play, especially if growth started to disappoint — which it has. He omitted to mention that an ever-growing majority of economists, including many economics Nobel laureates, oppose his policies tooth and nail.
Both the OECD and the IMF, along with NIESR and the OBR, have downgraded their forecasts for the UK economy and a number of business leaders, especially of high street firms, have expressed their concerns about lack of growth and declining consumer spending.
And now, the boss of the IMF has sounded the alarm bells.
Dominique Strauss-Kahn, managing director of the IMF, in prepared remarks for a speech at the Brookings Institution in Washington on 13 April 2011, warned against cutting budgets too far and creating long-term unemployment.
What about fiscal policy? Advanced countries need to put fiscal positions on sustainable medium-term paths, to pave the way for future growth and employment.
But fiscal tightening can lower growth in the short term and this can even increase long-term unemployment, turning a cyclical into a structural problem. The bottom line is that fiscal adjustment must be done with an eye kept keenly on growth.
The latest data for the fourth quarter of 2010 showed that growth in the UK fell by 0.5 per cent. And it took the coalition a year to prepare its feeble growth plan. The coalition is not serious about growth, as it has its eyes elsewhere.
There is a strong possibility that Strauss-Kahn will resign to run for the French presidency against Sarkozy. In any case, his term expires in June 2012.
Gordon Brown is the obvious candidate to replace him. His recent book Beyond the Crash makes the case for a global effort to solve the problems of what he calls “the first crisis of globalisation”. Speaking in Washington at Georgetown University yesterday — down the road from IMF headquarters — Brown argued that solving pressing international problems would require a worldwide effort.
We are in a new situation. Problems that . . . are in need of global solutions cannot be solved by one country alone, or bilaterally, or even trilaterally, but can only be solved by the world coming together in co-operative action.
He is saying all the right stuff to head the IMF, a great world institution that emerged from the first Bretton Woods conference.
George Osborne is probably not going to be terribly happy about such a possibility, especially given that he seems to personally dislike Gordon a lot. If Brown were to get the job, it is pretty unlikely that he would say what a great job Osborne is doing.
It turns out that Brown has a lot of support in the US and from other countries and may actually get the post. It would be fun to watch the two of them going at it.
Osborne continues to play the political game of blaming the Labour government in general — and the former PM in particular — for the economic problems he inherited.
That we have been faced by a global financial crisis that started in the US housing market and spread to the UK and the rest of the world suggests that these claims are nonsense. That Brown refused to take us into the euro and set up an independent central bank were major achievements.
Let us not forget that Conservative economic policy was to match Labour’s spending plans. Our current Chancellor has still not told us what actions he would have taken; presumably because he has no clue.
Would he have rescued the banks? Increased stimulus? What would he have done?
The British people are entitled to know. So if I were to get to interview George, I would ask him this simple question — what would you have done differently in the crisis?
Interestingly, claims that all our economic problems are Labour’s fault no longer seem to be resonating with the public. The latest YouGov/Sunday Times poll of 2,206 British adults conducted on 7 and 8 April 2011 asked: “Do you think the coalition government is managing the economy well or badly?” 37 per cent said well, while 53 per cent said badly and 10 per cent said they didn’t know. When asked about the state of the economy, 77 per cent said it was bad; a further 62 per cent said they expected that the financial situation of their household would be worse in 12 months time.
Support for Osborne’s strategy is crumbling in the country. Support is likely to fall further when the GDP numbers for the first quarter of 2011 are published on 27 April, which is likely to be well below the 0.8 per cent the OBR is forecasting.
I am expecting a number around 0.2 per cent or 0.3 per cent at best, with worse to come later in the year. Strike the IMF from the list of organisations that Osborne claims support his reckless policies.