The simple alternative we proposed was to print money and invest it in infrastructure projects that would support sustainable growth and to couple that with keeping interest rates very low and having a reasonable level of government spending.
If you look at what the government has actually done instead of what they have talked about doing then yesterday's budget figures give clear evidence that such a strategy works. In the UK and the USA huge amounts of money has been printed. £375,000,000,0000 of it in the UK alone. We have had zero interest rates for almost a decade. Not surprisingly the UK is growing very rapidly. Not surprisingly the government's income is rising and its costs are not rising as quickly. Not surprisingly the government's debt relative to the size of the economy has become much easier to handle.
Put simply the government has talked about austerity whilst allowing the Bank of England to pump easy money into the economy and it has eventually resulted in some improvement in government borrowing figures. For much of the duration of the same period the EU has followed a policy of applying worse austerity and the consequence has been slow or negative growth and debts that have become unmanageable in some countries.
The sad thing for the UK is that, instead of using the easy money that has been created in a constructive way, the government has allowed some really irresponsible things to be done with that money and managed to create a form of high risk growth in which ordinary people are squeezed very hard indeed.
After years of low wage increases and cuts in welfare payments Osborne in his recent budget chose to impose even more cuts on the poor not because they were necessary but for ideological reasons. The tax credit cuts weren't cancelled, despite what he said. They were simply relabelled and delayed a touch. They will be every bit as bad and start at the same time as a huge number of other changes under the title of 'universal' benefits. For universal read lower. At the same time he is in real terms cutting spending on those in care, cutting spending on 16-19 education, increasing the cost of getting a train to work by cutting the transport budget, and cutting massively expenditure on protecting the environment. All unnecessary. All ideological choices.
The money he has allowed to be created has gone into banks to help them rebuild their balance sheets and lend more. Not surprisingly banks have chosen to provide very cheap money to those who are good risks. Those who are already well off. They have used the money to buy second homes and to invest in the stock market. So instead of secure and sustainable long term growth we have an asset price bubble. At a time of zero inflation we have a rising stock market and a housing price boom. All of which creates a risk of repeating the financial market free enterprise crash of 2008 which got us into the mess in the first place.
A wise long term policy would have been to invest the money. It could have been used to build a large number of council houses or housing association properties thus increasing housing stock and making it easier and cheaper to rent. Such a policy also increases supply of homes and so drops the price and helps those who want to buy a home.
Instead of investment in increasing the community housing stock his policy of pumping all £375 billion of the new money into the banks has encouraged them to lend and created a house price bubble that has resulted by the Chancellor's own admission in a drop in under 25 home ownership from 60% to 30% and falling fast. Young people simply can't afford to buy a home at current prices and salary levels. Osborne's solution is for the state to subsidise people to buy a house. That can only cause one thing. The price of houses will rise by exactly the size of the subsidies so the taxpayer will waste billions but completely fail to help. The one good thing he has done in the entire budget is to tax second homes. This cuts down on one very large source of demand and so lowers house prices whilst collecting revenue. A rare piece of common sense from a Chancellor facing a massive housing crisis of his own making because of an ideological refusal to encourage building from outside the private sector.
The most important way to achieve long term sustainable growth of the whole economy is, of course, to invest in reducing our consumption of non renewable resources so that we put our economy on a more sustainable basis and get the country at the cutting edge of the next phase of technology. Osborne has just done exactly the opposite. Since the election he has cut subsidies for solar, scrapped several home insulation incentives, and encouraged fracking instead. In his budget he cut £700 million of incentives for renewable heating, cut £1,000 million more from carbon capture, gave extra funding to diesel cars, reduced spending on public transport and increased spending on bribes to local areas that accept fracking.
Nothing could have more clearly indicated his determined rejection of climate science and his deliberate ideological choice to move away from green energy. He made that move at exactly the time when green energy has been proving its huge value in cutting costs and creating a low energy environment.
Contrary to popular opinion green subsidies don't increase fuel costs - they cut them. Let me explain this assertion. If you increase the supply of a product you change the balance of supply and demand and reduce the price. Investing in green energy has helped to do exactly that. An increasingly supply of green energy and the prospect of a significant further increase is one of the reasons why oil and gas prices have plummeted. Investing in green energy has done what some of us always said it would do. It has stopped the price of oil rising inexorably as demand rose and supply became harder and more expensive to source. Instead it has helped the price of oil to drop like a stone.
Of course slower world growth and the introduction of shale gas has also done that. But only one of these three factors helps in the long term and is sustainable. It isn't good news for ordinary people when they see incomes rise slowly and there is a huge need to lift people in the third world out of poverty so slow growth is bad news. Fracking for shale gas is a temporary and environmentally costly solution that pumps more greenhouse gases into the air than we can sustain. Investment in green energy allows low inflationary growth.
In other words the situation is almost the exact opposite of the way the Chancellor describes it. We have growth because we have had easy money not because of cuts. We have unaffordable homes because of low government spending on homes and high private expenditure on buying the few that exist. We don't have secure and sustainable growth we have an asset price bubble. Finally we have had low inflationary growth because of spending across the world on green energy but that is exactly where he has cut the hardest.
Osborne has done his usual trick. He has threatened cuts for months and then delivering cuts that are very nasty indeed but not as bad as he had led some to expect. Then he has proceeded to gloss over ever one of those cuts as an efficiency saving in the hope no one will notice. It will be interesting to see how many days it takes after this budget for the vicious reality of the cuts he has imposed to become clear to all. The devil in this budget is in two places. It is in the detail and it is in the dangerous ideology that forces endless cuts on the poor out of choice and not necessity and allows a recklessly out of control private banking sector to continue to operate without serious lasting reform. It is not a recipe for success.