The economic case against spending cuts is simple - why isn't Labour making it?

 By madcowk

If you’re in a hole, stop digging. It’s generally a sound bit of advice. But as the Coalition’s pit deepens, Eds Ball and Miliband choose precisely this moment to cheer on Osborne’s efforts.

The economic case against the government’s spending cuts is simple. If government cuts its spending, demand in the economy falls. If demand falls, firms sell less. Firms that sell less make redundancies and cut wages. Demand falls further. The entire economy becomes locked into a vicious downward spiral. Cutting in a recession makes the recession worse.

This is the death-spiral that economies across Europe are now trapped inside. By attacking public spending, austerity is destroying real economic activity. And because it is wrecking economic activity, the real burden of debt is worsening.

Greece is the most graphic example. At the end of 2009, Greece had a national debt of 130 per cent of GDP. After two years of vicious austerity, that burden is now forecast to hit 189 per cent this year.  Nobel Prizewinner Joseph Stiglitz has called European austerity a “suicide pact”, comparing the procedure to “medieval bloodletting”: painful, destructive – but fervently believed to be necessary.

Quack doctors Cameron and Osborne are inflicting the same treatment on the UK. That’s why forecasts for borrowing are now so grim. The UK is being driven back into recession by rapid spending cuts. Because we are being dragged back into a slump, taxes fall and spending on unemployment benefits remains high. The debt becomes harder to repay.

The more austerity is inflicted, the worse this will become. The Coalition policy isn’t “credible”. It’s certifiable.

The path out of the crisis starts like this. End austerity. Stop the cuts. Government spending should be rising, not falling, in a recession.

Spend the money wisely. Invest in green employment. Take control of the UK’s bloated, parasitic financial system to deliver this.

These are the first, necessary, steps to anything like a recovery. They are a complete reverse of the Coalition’s current policy. And if the official Opposition lacks the wit or courage to make the case, the unofficial Opposition, as Andrew Simms has written elsewhere, must take the lead.