These Myopic Cuts Will Only Lead to Global Depression

Published: Financial Times, July 20 2010 02:12 | Last updated: July 20 2010 07:35

From Mr Harry C. Blaney III.

Sir, Martin Wolf’s lucid and compelling article, “Three years on, fault lines threaten the world economy” (July 14) was right on about the precarious elements in our national and global economy structure. It is not just Britain’s Conservative and Liberal Democrat government that is undertaking what can only be called a Hoover-like depression policy, but much of Europe, led by the conservative German government. With the forced cuts in the budgets of high deficit and poorer European Union countries, these myopic acts will spread the contagion of economic downturn. The poorest countries will suffer too.

Here in the US, the action of the Republicans in Congress are likely to have the same impact in moving us downward rather than upward. In both the US and the UK and in other possible “deflationary” economies we are seeing already some of the consequences. The burden of the proposed American Republican and British Tory-Lib Dem cuts will fall on the poor and vital public services. The cuts will indeed hamper growth and thus likely increase the deficit they intend to reduce. They will likely devastate the UK, but there is an even larger and sadder perspective on a global scale. If the Republicans win in November we may experience the same so-called “deflation” that threatens the other side of the “pond”.

These actions, by stopping any further stimulus and cutting off unemployment and other benefits to the neediest, will create the dreaded double-dip – double pain for all.

The result will be a possible global depression unless wiser heads prevail soon. As any economist worth his salt knows, and Mr Wolf’s analysis is clear on this, these policies create a self-enforcing downward spiral that would be hard to correct once widespread. As he has indicated, we need to grow out of our crisis, not exacerbate its impact. What are these conservative governments and parties thinking?

Harry C. Blaney III,

Senior Fellow,

Center for International Policy,

Washington, DC, US

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