Thanks to a Vox Political commenter for this:
The Guardian has reported: George Osborne has warned he may have to impose bigger than expected cuts to public spending towards the end of the current parliament as the “storm clouds” in the global economy hit economic growth.
This is utterly bizarre. GDP is, it is pretty universally agreed, made up of four elements:
GDP = C + I + G + (X – M)
C = consumption
I = investment
G = government
X = exports
M = imports.
What George Osborne is saying is that GDP us at risk of falling.
And let’s be clear, what we also know is that we are already operating in an economic environment where we are using less than the UK’s economic capacity.
GDP could be bigger than it is, but is being constrained because there is a shortage of demand (so C is under performing); business is under investing because business is sitting on massive likes of cash (so I is under performing); G is under-performing because of austerity and we know imports are apparently growing faster than exports. No wonder George says it is not a pretty picture.
And despite knowing all this Osborne is saying that if C, or I or (X – M) fall then he has an obligation to reduce G. In other words, if these three elements of GDP is falling George Osborne is saying that he has a duty to exacerbate the trend by cutting government as well.
This is utterly illogical, for three reasons.
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