Wednesday, December 07, 2011

Austerity or Stimulus?

What is the best way to extract the global economy from the present serious debt crisis? This is the question posed by every news comment programme, and it is very clear that the experts do not have any answers.

Austerity is the orthodox prescription. It is a simple concept:

Government spending more than it is receiving in taxes?
Then Government must spend less.

This hits the poor, by reducing services and adding to the ranks of the unemployed, and it hits the economy by damaging private firms who service the public sector, and therefore reducing total tax take. By widening the rich poor gap, we compound the social problems and lay up more demonstrations, riots and strikes in the future.

So austerity  is simple, but worse than useless.

It is like a mediaeval physician who tries to cure anaemia with a course of bloodletting. 

So what is the alternative to austerity?

The first principle is Keynesian stimulus. In 2011 this means Green Keynesian stimulus, primarily centred on energy conservation and renewable energy. This has the attraction of taking people out of fuel poverty, securing our energy needs, blunting the malign effects of Peak Oil, and addressing climate change - a very attractive set of attractions.

But how can the stimulus be paid for? Conservatives argue very strongly that we cannot borrow our way out of debt.

There are three interlocking answers to this challenge.

First, Green Wage Subsidy is an ultra-low cost way of getting people off benefit and into good, constructive green work without any compulsion.

Second, getting the rich to pay their fair share of taxation will overcome the deficit and bring in enough to pay for any stimulus.

Third, by terminating the monopoly of private financial corporations on the creation of money, Government, acting in the interests of the people, can escape the ever deepening circle of debt, and can create money to provide the necessary stimulus.

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