This is getting quite boring, repeating over and over and over again that austerity measures are hurting rather than helping countries mired in recession. Q2 GDP growth figures came in for the UK economy at a shocking -0.7 per cent, far worse than predicted (the general consensus was a prediction of -0.2%) meaning that the economy has had three successive quarters of negative growth. Said leader of the opposition Ed Miliband:

We’re in deep recession as a country, I’m afraid because of this government’s economic project. I think that today marks the death knell for their economic plan.

I don’t see how you can have three quarters of negative growth and have an economy which is smaller than when you took over and see this as anything other than a failure.

It has been a failure and frankly, they should wake up to the fact it has been a failure.

David Branchflower in the New Statesman was more scathing:

The coalition government took over an economy that was growing and by its inept policies it has killed growth stone dead. In interviews today, the Chancellor claimed he was “relentlessly focused” on sorting the economy out in the same way (presumably as King Canute was also determined to keep the tide back?). This, as ever, was worthless drivel because it is clear to all that the government’s economic policy of austerity has failed and they have no clue what to do.

The problem with strict adherence to ideology is that it is incredibly difficult to accept being wrong. The unyielding faith in markets and deregulation is a immovable part of conservative ideology these days – and once that goes, there isn’t anything left really. Modern Tories are usually socially liberal, so reneging on free market capitalism would essentially make them Lib Dems, or worse yet, part of the Labour Party.

This really should be the end of austerity as economic policy in the UK as the evidence is now so overwhelming the Tories are beginning to look like creationists.

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Christine Lagarde: Managing Director of the International Monetary Fund (Photo credit: Wikipedia)

From the Independent:

The International Monetary Fund yesterday handed the UK a bigger growth forecast downgrade than any other advanced nation and warned the global economy remains in a “precarious” state.

The international lender of last resort said that the British economy will grow by just 0.2 per cent in 2012, down from the 0.8 per cent it was expecting in April. The 0.6 per cent downgrade is the largest experienced by any advanced economy in the IMF’s regular World Economic Outlook.

Even the outlook for the two recession-hit eurozone nations, Spain and Italy, has not deteriorated so badly over the past three months, according to the IMF. Spain’s outlook has been upgraded from a 1.8 per cent contraction to a 1.4 per cent fall. The forecast for Italy is unchanged at a 1.9 per cent decline.

The US economy is expected to grow by 2 per cent, down from 2.1 per cent seen in April. Germany is seen as contracting 0.3 per cent, rather than experiencing flat growth. The IMF sees China growing by 8 per cent in 2012, down from 8.2 per cent.

For the global economy as a whole, the IMF, led by Christine Lagarde, sees growth of 3.5 per cent. Despite the host of downgrades, this is more or less the same as in April because growth in the first quarter of the year turned out stronger than expected.

However, the IMF warned that the global economy could easily turn out significantly weaker if policymakers in Europe failed to tackle the eurozone sovereign debt crisis and US politicians do not prevent automatic spending cuts kicking in next year. “Downside risks continue to loom large … reflecting risks of delayed or insufficient policy action,” it said.

The substantial downgrade for the UK increases the pressure on George Osborne because the IMF argued last September that nations with low borrowing costs, including the UK, should slow their pace of fiscal consolidation if growth fell short.

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From the Independent:

Chancellor George Osborne defended the Government's austerity package today after Britain was threatened with the loss of its AAA credit rating amid fears over weaker growth prospects and potential shocks from the eurozone crisis.

Ratings agency Moody's put the UK on “negative outlook” last night, increasing the chance of the country being stripped of its cherished status.

Shadow chancellor Ed Balls said the move was “a significant warning” and urged the Government to spark economic growth, but Mr Osborne said it was “a reality check for anyone who thinks Britain can duck confronting its debts”.

The Chancellor told BBC Radio 4's Today programme: “We can't waver in the path of dealing with our debts and here is yet another organisation warning Britain that if we spend or borrow too much we are going to lose our credit rating but, more importantly, what that leads to potentially is a loss of investor confidence in our economy.

It doesn't seem to matter how badly the UK economy gets, the Conservative government simply refuses to change course insisting austerity measures are the only way back to stability and growth.

Yes, debt is a problem and needs to be dealt with, but incessant government warnings about hyper inflation related to borrowing and spending are completely overblown. As Paul Krugman has pointed out over and over again, these fears are unfounded and do not conform to reality.

Will the UK government ever listen? It doesn't seem that way right now, but I'd bet a significant amount of money that they start to increase spending before calling another election. Because the truth is, Keynesian economics does conform to reality and the Tories will have to accept it if they want to get reelected.

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I have long argued with friends of mine that voting for the Conservative Party in Britain (or the Republicans in America) basically means voting to help rig the government to benefit the rich.

The political parties in both countries are two wings of a business party. One side tries to temper the effects of market capitalism by providing a safety net for the poor – the other side does absolutely nothing, and leaves business to control every aspect of our lives. The problem is that conservative political rhetoric often sounds good in theory; individual responsibility, freedom from government, family values etc. The reality however consists of a life dominated by corporations, job instability, growing wealth inequality, declining standards in health and education and fiscal crisis after fiscal crisis.

Market capitalism is a failure, yet it is still packaged by political parties as the only way to run an economy. It isn't, and the evidence just keeps pouring in: From the Independent:

The poor will be penalised and the better-off helped by George Osborne's latest economic measures, according to the respected Institute for Fiscal Studies.

The poor will suffer disproportionately from the Chancellor's failure to increase tax credits, a study by the IFS concludes, and will not benefit to the same extent as the better-off from the council tax freeze (because they pay less council tax) and the delay of the fuel duty increase (because they drive less). The overall effect of the Treasury's new plans will be to reduce the incomes of those in the bottom 30 per cent of earners and to benefit those in the top 60 per cent. The Chancellor's decision will also push more children into poverty, IFS researchers conclude.

This should come as no surprise. The Tories are the business party, and their entire mandate is based on engineering policy to cater to them. The middle classes and poor are there to be lied to and abused – Tory PR and the right wing press do a good job of deflecting the blame for the economic crisis onto unions and excessive government, all the while ripping the guts out of the state and fleecing the poor to pay for the gigantic hole left by a reckless banking industry.

There is only so much PR and spin the public can take. You can't tell people that your policies are working if they can't afford to heat their houses or clothe their children. At some point reality dictates politics and Cameron and his cabinet will find themselves out of a job.

Hopefully sooner rather than later.

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Another nail in the coffin for neo liberalism in Britain (from the Guardian):

An extra £5bn of capital investment, funded by spending cuts elsewhere, will form the centrepiece of an overall £30bn national infrastructure programme due to be announced by George Osborne on Tuesday as part of an attempt to prevent the country from sliding back into recession.

The chancellor will unveil nearly 500 public sector projects, many of them to be funded by commercial pension fund investments.

Some of the £5bn extra capital investment over the next three years will go to a £600m schools programme to fund an extra 40,000 places by 2014.

To anyone with a basic understanding of econmics (and those not indoctrinated with neo liberal ideology) Osborne’s move was entirely predictable. Every serious economist who predicted the economic crisis back in 2008 has argued vociferously not to ram through austerity measures. A prolonged recession, rising inequality and unemployment were all completely foreseeable, yet the Tory government in Britain decided that ideology trumped reality and went ahead with their economic agenda believing rhetoric and spin would disguise their actions.

No more. Faced with the prospect of losing the next election due to their severe mishandling of the economy, the Tories are now getting in to the Keynesian stimulus business. Osborne may still talk about meeting his deficit reduction targets and continuing austerity measures, but as the economy verges on the edge of another recession, his boss has told him to forget the fancy theories and get down to serious economics that actually work.

It’s hard to trust the Tories on issues like this – they have a history of giving with one hand and taking with the other – but on the face of it, any investment in Britain’s infrastructure should be seen as a good thing. It’s just a shame they won’t admit their economic ideology has been proved defunct.

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George Osborne

The British Conservative government has long argued that deregulation and austerity measures are key to Britain's economic health. According to supply siders David Cameron and his chancellor George Osborne, everyone must go through pain in order to rebalance the economy, including the very wealthy. This is in stark contrast to the Keynesian approach that prescribes a huge jolt of government spending in order to stimulate the economy and replace private sector spending in the short term. Britain is in the middle of an economic experiment where the government has implemented one method over the other, and unfortunately we are seeing the direct proof that the supply side theory doesn't work.

According to a new study from the Institute for Fiscal Studies, the austerity measures will not only continue to depress the economy, but hit the poorest the hardest making inequality even more extreme than before. From the Guardian:

George Osborne's austerity programme will cut the living standards of Britain's families by more than 10% over the next three years as those on the lowest incomes suffer most from the tax increases and spending cuts designed to reduce the budget deficit.

A study from the Institute for Fiscal Studies, the UK's leading experts on the public finances, concludes that the chancellor's strategy will result in greater inequality and rising child poverty, throwing into reverse progress made in the final years of the last Labour government.

This study goes to the root of the deception behind conservative economic policy, uncovering the dirty secret that the Tories have never, and will never be concerned about wealth disparity or structural poverty. Their policies are designed to ensure corporate profits continue to rise regardless (and even at the expense) of the majority of the population. The rhetoric used to soothe the public is as empty as the threats against the banks – token gestures with little intent. 

So now maybe it is time to acknowledge the reality and move on from this grossly unfair economic doctrine that continues to harm millions of people around the world.

How much more proof do we need that helping the rich doesn't help the poor, that cutting government services and jobs doesn't boost the economy, and allowing people to spiral in to poverty is not the best way of promoting economic equality?

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As more and more details emerge from the phone hacking scandal in the UK, we are seeing a clearer picture of just how deeply intertwined the Murdoch media and political establishment have been.

Jeff Jarvis writes:

What was exposed in Parliament during the Murdochs' testimony wasn't necessarily News Corp. — we shall see what happens to it — but instead the cozy, closed ties between institutional journalism and institutional government. The corruption of their close links was what was most shocking about today: news executives and politicians at lunch and spas and sporting events; news executives hired by politicians and police to give advice and spin their ex-colleagues; news reporters paying police; news executives sneaking through the back door to the seat of power; government officials being protected from hearing too much about the dirty work of news…

This presents an absolute PR nightmare for David Cameron, who had been doing well before the scandal broke. Cameron routinely kept Labour on the back foot, never allowing Ed Miliband to control the narrative or score effective points against him. Miliband was seen as a weak leader without the necessary artillery to take on a polished shark like Cameron.

All that has now changed – partly due to Miliband seizing the moment, but mostly because Cameron wedded himself to Rupert Murdoch and is now paying the price.

Like every successful politician in the UK over the past 30 years, Cameron realized that without Murdoch's support, his chances of beating the opposition in the general election would be dramatically reduced. Andrew Sullivan writes:

Cameron started out as the kind of Tory who would try not to become too enmeshed with the Murdoch press. But when it duly turned on him, and Gordon Brown looked as if he might win a snap election, Cameron caved to chancellor George Osborne's darker instincts and fatefully hired former NOTW hack, Andy Coulson, implicated in the phone hacking scandal, to be his press spokesman. He famously said he wanted to give Coulson a second chance. But what he effectively did was signal that he would sign up for a compromising Blair-type deal with Murdoch to win favorable coverage and thereby votes. And it worked! Murdoch's mass market tabloid, The Sun, shifted from Labour to Tory overnight. Cameron won. And since the election, Cameron has had more social and business meetings with the Murdoch tribe than with the rest of the British newspaper world combined. He has also had the worst week – deservedly – since he came to office.

Cameron is a brilliant PR man (largely as a result of his time in the industry), but he is having a very difficult time controlling public opinion as his name is dragged through the mud. His party's ties to Murdoch are threatening to unravel his government, and Cameron is now engaged in the fight for his political life.

In an ironic twist of fate, the man who helped him win the general election may now be the man to help him lose the next one.

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