Thursday, 1 July 2010
Job cuts: Slasher Osborne drives us back into recession says top economist
This is not scaremongering but a realistic possibility – and the worry is that the government has no plan B if the data come in badly
So says top economist David Blanchflower writing in the Guardian today (Picture above).
The secret Treasury analysis reported by the Guardian today shows that Slasher Osborne's rash austerity budget will result in at least 500,000 public sector jobs and between 600,000 and 700,000 jobs in the private sector being lost by the end of this parliament. Sad but true.
The drop in the number of private sector jobs comes about because many private sector workers are dependent on the public sector for their livelihoods. Cuts in public spending put them out of work. And things may be even worse than that. Many self-employed obtain significant proportions of their work in the public sector, and even though this may not put them out of work it may seriously reduce their incomes.
So these numbers come as no surprise, and seem entirely plausible. The big question is why the government is not prepared to publish the details in full. It looks awfully like they have something to hide.
Rather than publishing the numbers at prime minister's questions, David Cameron cited a separate forecast that just happened to be published today by the Office for Budget Responsibility, the government's panel of outside experts. They immediately jumped to the piper's tune. So much for independence.
But let's look in detail at what the OBR is saying. First, in its own budget forecast it projected that unemployment would fall steadily each year from 2010, however it is measured. Second, despite the fact that they are planning on cutting 1.3 million jobs, overall employment will rise by about 1.2 million from 29.1 million in 2010 to 30.2 million in 2014, meaning that the private sector would have to create approximately 2.5 million jobs.
This is completely implausible. It is simply not credible to argue that suddenly the private sector will step into the hole created by Osborne's rash budget. And what if it doesn't?
According to the Office for National Statistics, between the first quarter of 2000 and the second quarter of 2008, the private sector created 1.6 million jobs at a time when the economy was booming. The vast majority of this job growth came from the financial and construction sectors – which seems unlikely to be repeated. So where exactly will these private sector jobs come from?
There is little evidence that the private sector has any plans to hire. According to the Bank of England's Agents (who report economic conditions from the regions), "private sector employment was expected to remain broadly stable over the next six months". Their evidence is consistent with the most recent EU surveys.
This unnecessary and dangerous budget will to push the economy back into recession, believe me. The big worry is that it will lead to what economist Paul Krugman has called the long depression– zero growth and high unemployment for years.
This is not scaremongering but a realistic possibility. The worry is that the government has no plan B for what will happen if the data come in badly, as it surely will. When that happens this government will have to change course and reinstate any public spending cuts and reinflate the economy. And that will surely spook the markets that Slasher places so much faith in.