A pawn on a floating chessboard

The government is cutting too far too fast, declares Ed Balls. He is not alone in his view. Polls in August assigned Labour a double-digit lead over the Conservatives. Austerity was never going to be popular. If the slump persists, the double-dip recession may be the turning point at which voters overcame apprehension over Ed Milliband and flocked to Labour. The 2010 election may indeed have been a good election to lose.

Although the economy contracted 0.4 per cent last quarter, employment has gone up. This will surprise economists, who expect growth and unemployment to shift in unison. Markets are adjusting following changing patterns in consumer demand. Instead of GDP, consider the fall in the Misery Index – determined by an index of inflation and unemployment. With inflation halving to 2.5 percent and more people on the payroll, you may question to what extent there is a crisis.

However a lack of growth, there remains. This unsettles voters, who have scruples with David Cameron’s repetition that the world economy is in disarray. Germany and others continue to expand however, underlining Britain’s lack of competitiveness and overlooking of drivers for growth. Mr Cameron should do away with Britain’s red tape and make it more market friendly. 58 percent of British exports go the EU; embrace this, whatever the Europhobes say. He could lower VAT to
decrease British prices and grant a boon to blighted UK exporters.

Yet remember that unless other economies recover and foreign consumers increase demand for our goods and services, there is unlikely to be substantial growth. The state of the economy could be concluded to be beyond Cameron’s decisiveness.

Would Labour do things differently? The deficit must of course be addressed and our AAA rating preserved, so a Miliband prime ministership may have less room for manoeuvre than claimed. It could cut more slowly, raise taxes and promote the emigration of the wealthiest 1 percent – who own a fifth of total wealth in Britain. The result however, would be less money in the taxman’s pot, causing greater cuts and even increase unemployment in the long term. The
government currently incurs borrowing costs of more than £40 billion
per year. It is time it paid its deficit.

The world economy is a floating chessboard, and the river leads to a waterfall. While Labour’s economic policy resembles a chessman paying no attention to half the pieces, the Tories are wasting turns. Great emphasis is placed upon improving the supply-side of the economy, but
the demand-side receives little attention. It is these same demand policies that will encourage firms to increase output – and economic growth. Without boosting confidence, nothing will come from nothing. Little has been made of the Bank of England’s bringing of inflation within target due to such an absence of demand.

There exists no convincing alternative to the cuts. If the Tories cannot remedy the economy, do not overestimate the ability of how a Miliband or Clegg alternative would fare. Remember: it will take 26 other EU members to tango and even more for the global economy to improve.