Here’s to a 1930s Style Recession

A couple of months back a ComRes poll asked 2000 British respondents:

Which of these statements do you believe to be the most accurate?

The Coalition Government is planning to REDUCE the national debt by around £600 billion between 2010 and the end of this Parliament in 2015	49%
The Coalition Government is planning NEITHER TO REDUCE NOR INCREASE the national debt between 2010 and the end of this Parliament in 2015	14%
The Coalition Government is planning to INCREASE the national debt by around £600 billion between 2010 and the end of this Parliament in 2015	6%
Don’t know	31%

So just 6% of the British public know that far from reducing Britain’s debt, the coalition plans to double it!

Or in other words, the British people don’t know the single most important fact about their government’s policies.

In January, David Cameron said in a party political broadcast:

“We’re paying down Britain’s debts”.

That is a disgusting lie.

Britain is hurtling toward bankruptcy and the people are in the dark. They don’t know the stark truth, because the government and media are not telling them.

And that’s a shame, because the most important precondition for the decisive action needed to fix the problem is that the people should know about it in the first place.

But while the government has added more than £100 billion to Britain’s debts every year since 2009 the media with the adolescent-lefties at the BBC in the fore have drowned out any possible consideration of the implications by endlessly bemoaning the “savage Tory cuts”. What cuts? Spending has never stopped going up.

Then yesterday after five years of borrowing our way out of a debt crisis George Osborne gave his long awaited last-chance-saloon budget. So 5 years after the crash with the economy flat-lining what has he come up with?

More of the same.

Apparently, what the British economy needs is one last push in the form of a £15.5 billion subsidy to reflate the housing bubble.

The only thing to be said for this initiative is that £15.5 billion is a drop in the ocean of debt that this government has loaded on to everybody’s back and won’t make much of a difference either way. Needless to say, though, the last thing we need right now is another house price bubble.

***

In the confusing new world our leaders have found themselves in since the crash of 2008, they have been absolutely convinced about only one thing. And that is the absolute need to avoid a 1930s type depression.

But, strangely enough, a 1930s type depression is exactly what we do need!  

There are very strong parallels between the recessions which started in 2008 and back in 1930. Both were triggered by financial crises and both were deep. The low point for our current recession saw a fall in GNP of 6.5% which is hardly less than the 6.8% fall suffered in 1930.

But that’s where the similarity ends. Because now in 2013, more than 3 years after we scrapped bottom, the Chancellor is predicting growth of just 0.6% for the British economy.

Back in 1934, three years after the bottom of their recession the economy grew at nearly 7%! That was more than TEN TIMES as much as George Osborne is hoping for this year. It was also years before the rearmament for World War II had had any effect on production.

This suggests a couple of pertinent questions.

Weren’t the 1930s really bad?

Well, they were and they weren’t. In all the literature and history taught in our schools and broadcast on our TV channels the 1930s were a bleak depressing time. And as such they are very useful as an eternal indictment of anybody who would ever consider cutting a penny from government spending.

But in the real world the 1930s were a stunning British success story. The economy grew by an average 4% a year from 1934 to 1939. In fact, Britain’s economy outperformed every other major country in that decade. The 1930s saw 2.3 million new homes built and extraordinary growth in the new electronic, motor and aviation industries.

The only truth in the Bleak House view of the 30s is that large parts of the north dominated by the old coal, steel and ship-building industries suffered very badly and didn’t recover until rearmament started in the late 30s.

But outside these areas and for the majority of British the prewar decade was one of unprecedented  prosperity and strange to say optimism. Most people were unaware till 1938 of the threat to all this from Hitler’s Germany.

Why was the 1930s recovery so dramatic?

First and most importantly, in 1931 nobody apart from a few Labour MPs thought that they had the right to pass a crippling debt burden to future generations to buy their way out of current problems. It was obvious to almost all that the budget must be balanced and quick.

So in 1931 the National (coalition) government cut spending all at once and across the board by 10%. All civil servant salaries and government benefits were cut by the same amount. At a stroke this created the conditions for recovery.

The first thing to note is that it was this substantial cut in spending that led quickly and directly to the subsequent economic recovery. This runs exactly counter to the current theory that it is only the extraordinary levels of government borrowing and spending that are keeping the whole show on the road. Economically speaking, the worry about national insolvency is far more of an obstacle to recovery than a temporary cut in government spending. The National government’s decisive action restored the vital ingredient to any economy’s prospects: confidence.

In fact, the government was able to restore the cuts in benefits and most of the salary cut within just 2 years. And by that time the economy was doing so well that the government was even able to cut taxes, which further reinforced the virtuous cycle they had created and so the boom went on right up to the war.

Would such a policy work now?

Yes, in spades.

Spending under New Labour increased 60% in real terms. And if you’re thinking that the government doesn’t seem to be 60% more helpful as a result, you’d be right. Data from the Office for National Statistics shows that public sector productivity was actually lower after 13 years of Labour “investment” than before it. In fact, a very large proportion of the extra spending disappeared into increased salaries, unnecessary new staff and welfare spending.

So there’s certainly plenty of scope for a 1930’s style 10% cut even after the last 3 years of the “cruel Tory cuts” our state sector has already suffered.

But as a pre-requisite to the other cuts, I suggest the government cut the funding from the BBC socialist propaganda operation. Their treason against Britain has gone on long enough.

This would undercut somewhat the smug self-righteous rage that state employees feel at the all too justified temporary reduction in their circumstances.

And after a couple of, no doubt, pretty fraught years we would all be able to look forward to a more prosperous future.