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The government’s principal justification for pursuing austerity lay in tatters today, after it was revealed that the economic theory behind it is based on a mistake.
The Chancellor’s entire austerity policy is based on a paper by economists Carmen Reinhart and Ken Rogoff, which is itself based on a spreadsheet concluding that public debt of more than 90 per cent of a country’s gross domestic product (GDP) slows down growth by 0.1 per cent – which is wrong.
It should have found that countries with such levels of debt see their economies grow by 2.2 per cent – but the false conclusion was used by the UK Treasury to justify the horrific austerity programme that has already caused terrible harm to many British citizens, and is expected to cause much worse harm in the future.
It means that the slaughter of innocents down at the DWP – the deaths of many thousands of people claiming Employment and Support Allowance, due to changes in the assessment regime that were based on a false theory dreamed up by an American insurance company when it needed an excuse not to pay out – have been in vain.
It means that the huge cuts to social security benefits for those who are out of work and those in work but poorly paid are totally unjustified. Here in Mid Wales, they average out at £433 per year, for everyone of working age. That’s roughly one week’s wages here – and of course much more than that in terms of benefits because, let’s remember, this government wants to make sure that work pays more than worklessness.
And it means that the Income Tax cut for the very rich, and the cuts that have reduced Corporation Tax by a quarter, were also unjustified. Let’s not forget that the Coalition government has been giving our money back to its influential friends.
Gideon George Osborne’s ridiculous plan was known as “expansionary fiscal contraction”. Just looking at those words together, anyone with an ounce of common sense knows it’s ridiculous. It implied that the economy would grow if it was starved of investment. What rubbish. How on earth can anything grow if it is being starved?
Now that plan has been exposed as “total nonsense” – which is exactly the way Ed Balls described it after hearing of the mistake.
Osborne, of course, is sticking to it. An aide said it was “absurd” that only one paper supports the Chancellor’s case for austerity – but put forward no examples of other justifications.
The aide said “the majority of economists still back the government’s strategy”.
But the International Monetary Fund doesn’t. The IMF was the main supporter of Osborne, using the same Reinhart-Rogoff paper to justify austerity schemes three years ago.
Now, both IMF chief economist Olivier Blanchard and its head, Christine LaGarde, have suggested that he should be “slowing the pace” of his cutbacks.
In fact, we all know why Osborne will continue to push austerity down our throats, and it has nothing to do with balancing the budget.
He knows it is extremely unlikely that the Conservative Party will win an election in 2015 – the damage he has already done to all our lives means that is a statistical probability on which he can rely.
But he has more ideologically-motivated changes to foist upon us, whether we want them or not. His buddy David Cameron once said he wanted to see all public services except justice and the security services privatised, and we can expect Osborne to push this agenda forward with vigour.
This government is all about taking public services and putting them into private hands, for profit and to spite the poor.
That is the real truth that was revealed by a statistical error in a spreadsheet this week.