The 8.10 Today programme slot this morning went to Nick Clegg. The programme wanted to discuss with the deputy PM the BBC’s finding that those areas most dependent on the state would be hit hardest by the coming cuts, for some reason this statement of the obvious is regarded as news. But John Humphrys, in his haste to interrupt the deputy PM, made some statements deserving of further scrutiny.
First, Humphrys suggested that the cuts will take place before Christmas. They won’t. Unlike the cuts announced in the immediate aftermath of the election, these are not in-year cuts.
Next, Humphrys claimed that the economy is at ‘stall-speed.’ But growth in the second quarter was 1.2 percent, perfectly respectable and the fastest quarterly growth rate that we’ve seen in more than eight years.
But beyond these quibbles there’s a more fundamental problem with the assumption underlying Humphrys’ questions. The experience of the US shows that fiscal stimulus just isn’t working at the moment. A stimulus of six percent of GDP has, by the Congressional Budget Office’s own estimate, only succeeded in reducing unemployment by 0.7 to 1.8 percent. Why? Because when countries are running deficits as big as the US and British ones, both of which are over 11 percent of GDP, further stimulus serves to depress confidence. Taxpayers and businesses know that the result of this stimulus will either be higher rates of tax or inflation. Contrary to the neo-Keynesian conventional wisdom, austerity is actually the best form of stimulus in the current circumstance.
However, my favourite moment of the interview was when Clegg declared that the coalition must ensure that growth returns to "our great northern cities… and Middlesbrough."