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The economic divide

Nick Robinson put it rather well last night. The political divide in Britain has been clear for some time. But with Mr Cameron’s speech last night, the economic divide became crystal clear. Mr Cameron has set himself against the fiscal stimulus we put in place. Here’s what he said; ‘”You need to start the process of bringing spending down now. In practice that means that the substantial increase in spending next year, which is currently planned by Labour, is unaffordable. ” He said the rise in public spending next year was; ‘political calculation, not economic necessity. “

This is a recipe for putting the recovery at grave risk. But don’t take my word for it. Here’s a selection of thoughts….

Dominique Strauss-Kahn, Head of IMF at Bundesbank conference on 4 Sep: “Unwinding the stimulus too soon runs a real risk of derailing the recovery, with potentially significant implications for growth and unemployment” …”Premature exit from accommodative monetary and fiscal policies is a principal concern.”

ECB President Trichet 4 Sep 09 “Now is not the time to exit.”

Martin Wolf (9 September):”The response to the crisis was both essential and successful. But it is still too early to declare victory. Now suppose that, instead of keeping calm, the authorities are frightened into premature monetary and fiscal tightening. Given the extreme fragility of the private sector, that could cause another economic downturn.”

David Blanchflower (formerly of the MPC): “I am worried that in the UK and the rest of Europe people don’t appreciate that unemployment is still rising and that this, alongside rising negative equity, will be extremely damaging for confidence and for the broader economy. Despite these figures, banks are still not lending; these are not green shoots – they are just noise” 9 September

Paul Krugman: “Just a brief reminder. Industrial production is now rising; so, probably, is real GDP. Given the way the official business cycle dating committee dates recessions, this probably means that the recession – again, as officially defined – is over. But unemployment is still very high and rising. As Calculated Risk points out, long-term unemployment – which is the most destructive in human terms – is at its highest level recorded since the Depression. And the purpose of stimulus is, first and foremost, to mitigate unemployment. The fact that the economy may be technically in recovery is irrelevant.”

Bottom-line: Mr Cameron is as wrong on economics as he is on politics…


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