Has Keynesian school of thought ended in Europe and UK?
One of the most celebrated economist in the history John Maynard Keynes of UK preached us something which until now was considered to be the mantra for survival of modern economies when they were spiralling down into the biggest economic havoc in decades. But the most prominent and stringent act comes from the country of his birth which tend to ridicule his long stood prophecy that was almost a legacy.
New York Times reports,
In Britain, George Osborne, chancellor of the Exchequer, delivered a speech on Wednesday that would have made Keynes — who himself worked in the British Treasury — blanch.
He argued forcefully that Britons, despite slowing growth and negligible bank lending, must accept a rise in the retirement age to 66 from 65 and $130 billion in spending cuts that would eliminate nearly 500,000 public sector jobs and hit pensioners, the poor, the military and the middle class because of what he insisted was the overwhelming need to reduce the country’s huge budget deficit.
Indeed, across Europe, where the threat of a double-dip recession remains palpable, governments from Germany to Greece are slashing public outlays. But even as students and workers in France clash with the police and block fuel shipments to protest a rise in the retirement age, the debate in Europe is more on how fast to cut government spending rather than whether such reductions are the right thing to do under the circumstances.
The stiff upper lip with which Mr. Osborne delivered his call for sacrifice on Wednesday in the House of Commons reinforces that point. It is grounded in memory of Britain’s economic collapse in the 1970s, when the International Monetary Fund had to come to the rescue just as it has done recently in Greece.
Even the previous Labour government of Prime Minister Gordon Brown proposed substantial budget cuts before losing office in May, many of them incorporated by Mr. Osborne into his four-year spending plan.
That contrasts sharply with the United States, where White House policy makers are urging caution in reducing deficits too quickly, fearing that ending stimulus efforts before the economy is clearly on the road to recovery risks making a mistake similar to President Franklin D. Roosevelt’s budget cutting in the middle of the Great Depression, which extended the downturn.
For the British public, of course, the austerity now being experienced in countries like Ireland, Greece and Lithuania has yet to hit home.
In Britain, and throughout the rest of Europe, policy makers hope that by the time it does, a private sector recovery will be well under way, helping to compensate for the tighter government budgets. If not, however, they may be tempted to call upon the spirit of Keynes after all.