In the UK, headlines are dominated by one thing: the hung parliament, and which party, or coalition of parties, is going to take power. Perhaps the subject slips to issues of economic crisis, with mention of uncertainty in the markets over the pound due to the political limbo, not to mention the Eurozone debt crisis emanating from Greece.
Otherwise, anyone would think the world has stopped to watch endless numbers of pundits pore over, continuously, the fact that Liberal Democrat leader Nick Clegg has been in talks with Cameron and Brown.
Meanwhile, thanks to the Institute for Fiscal Studies report released prior to the elections last week, we now know that all three parties fundamentally agree on the extent of the austerity measures designed to close an enormous 163 billion deficit up to around 52 billion of whichno partyhas been able to account for vis-a-vis future economic and fiscal policies.
The big problem is that the three-party consensus on how to deal with the deficit is completely defunct, with Labour, Conservative, and Liberal Democrats all ignoring the most obvious and viable solutions, while skirting the issue of deep-rooted structural reform. AsThe Economistpoints out, looking across the Atlantic but with highly relevant implications over here, it is a "simple truth", that "you don't cut government spending or raise taxes during a recession" citing Washington's Center on Budget and Policy Priorities (CBPP). Rather, if governments should ever run deficits, it should be purely "during recessions to compensate for lack of private demand" efforts to "balance the budget" through spending cuts should occur "during periods of strong economic growth and full employment." The CBPP notes that massive unqualified cuts in government spending in a recession"would reduce the overall demand for goods and services" with reduced expenditures in health, education, and infrastructure leading to increased unemployment, reduced consumption, demand slump and thus declining productivity "and thereby partially or fully cancel out the economic boost that the recovery measures were designed to provide."
Of course, this is not the full picture. Running a deficit is never an optimal option, neither in nor out of a recession and the exponential escalation in deficits of the North over the last decades has been a key structural feature of neoliberal globalization based ona monetary and banking systemwhose structure generates debt through the process of creating money. Indeed, the preceding years of "growth', driven not by productivity gains in the real economy, but by stupendous profits raked in by financial and information services, have relied directly on generating creditbased on accelerating debttied to asset-boom driven speculation.
To Tax or Not to Tax?
The Economist'ssuggestion that raising taxes is not an option is therefore only partially true. It's certainly the case that the solution offered by the three-party consensus which is to raise taxes in such a way that will most likely impact on the majority of the public will of course impact detrimentally by squeezing people's already excruciatingly tight budgets. But that doesn't mean taxes aren't one answer to the issue.