Bruce Kasman of JP Morgan said the worldwide withdrawal of fiscal stimulus projected for 2021 amounts to 2.4pc of GDP, comparable to the “now-widely-understood policy missteps in 2011-14 when fiscal austerity hindered recovery from the global financial crisis”.
The estimate of “fiscal drag” for this country is a staggering 7pc of GDP. “The UK is facing a perfect storm,” he said.
For the Government to deliver such a contractionary shock on the eve of Brexit is surely to pile Mount Pelion upon Mount Ossa, unless your purpose is to discredit Brexit. Presumably that is not the purpose. In which case, the lack of statecraft is simply breathtaking.
Bernard Connolly, doyen of British Wicksellian economists, said temporary furloughs have merely deferred a slump rather than preventing one. The decision to knock away the props before the job is done now risks a chain of events akin to the 1930s.
He warns in the US journal International Economy that officials seem “hell-bent on creating a new Depression and everything that might very well come with it.”
The Germans and French have extended their subsidy schemes through 2021 to varying degrees. Others have done so at least until the end of this year. Both parties in the US agree that a fresh package is needed immediately, but cannot bridge the gap between the Democrats’ demand for $2.2 trillion and the Republicans’ refusal to go above $1.6 trillion – still vast figures either way.
Britain alone in the G7 has decided as a matter of policy to shut off serious support as soon as this month, and to do so on the basis of what economists call the static household fallacy.
“We have a sacred responsibility to future generations to leave the public finances strong, and through careful management of our economy, this Conservative Government will always balance the books,” Chancellor Rishi Sunak told the Tory party conference this week.
Who can dispute that piety? As a matter of economic science, however, it is demonstrably false that fiscal drag of 7pc of GDP in the midst of a crisis – with the Office for Budget Responsibility fearing 4m unemployed – will in fact lead to strong public finances.
Such austerity instead threatens to undermine the gilt market through multiple channels of economic, social, and political havoc. Standard & Poor’s says it is more likely to downgrade UK sovereign debt if the Chancellor proceeds with premature tightening. “The message is go for growth,” it says.
The British media has been fulminating for weeks over minor failings in the Covid test and trace system. Much the same failings – and the same confected outrage – are evident in France, Spain and a string of other countries. Italy’s media is raging about eight-hour delays for drive-in tests in Milan.
These are common problems faced by democracies struggling to create a pandemic testing system from scratch. The abuse directed against the Prime Minister in recent weeks over the handling of the pandemic has been shrill. It is the parallel and greater error on the economic front that deserves more scrutiny.