Tuesday, January 24, 2012
A generation lost to austerity
Above IMF projections on unemployment, in reality the US has done much better and the UK has done much worse, and austerity is the major reason.
IMF got it wrong. The above data has checked lines for projected unemployment between the United States and the UK. The prediction of the IMF at the start of 2010 they saw UK unemployment staying stable, despite the coming austerity, at just under 8%. US unemployment for starting 2012 for the US was going to be 9%, UK was going to be 7.8%.
In reality 2012 has opened with US unemployment at 8.5%, UK unemployment at 8.3%. So in both cases the IMF was off.
As an evaluation of austerity, the UK has embraced austerity strongly in 2011 more than the US. The US economy has outperformed IMF projections by a 0.5% on unemployment. The UK has under performed IMF projects by 0.5%.
So how come the IMF was wrong?
Mostly because the IMF failed to fully understand the destructive impact of austerity. The assumption the IMF had was that the blow to unemployment in 2008 would be followed by a slow recovery, what the IMF failed to take in to consideration is the danger of government change in the UK. The UK was previously ruled by Brown's government, one of the most accomplished macro-economic leaders in the west (I know that does not say much) but Brown was able to keep the impact of the recession lower in the UK.
The UK public rewarded this amazing accomplishment by, typical to their self destructive style, putting in a rich right wing government which the Occupy Movement would call the 1%. This government has only one policy: austerity. This austerity policy reversed the track of the recovery
The above graph shows just how conditions under the new government have harmed employment. Austerity had assumed a growing private service sector would make new jobs for public sector workers, thus painlessly accomplishing the long held free market fetish of dismantling public sector work, the public sector being a major employer of women and ethnic minorities thus reducing their power as well.
What has actually happened is the private sector has found demand reduced as 100s of thousands of public sector workers pull back for fear of losing their jobs.
What is most disturbing about this double dip graph has been the failure of the UK government to even consider a course change. Austerity still remains the only economic policy of the government. The UK, like much of the EU has no strategy from growth. And the EU is learning that investors in job creation are not really that interested in public debt compared to growth.
Economies with massive debts have boomed before. The USA in the 1980s had a long period of prosperity in a massive explosion of debt. With the UK able to borrow money at about 2.3% for an ENTIRE 10 years (0.23% per year) while unemployment grows and business close there is no logic at all for an austerity only program.