Osborne relies on Chinese Keynesianism
There is a lot of kremlinology to be done on George Osborne’s comment piece in today’s Financial Times (£), in part no doubt because of the need to blur the language to co-sign with his opposite number in Singapore and line the Australian, Canadian and South African Finance Ministers up as co-authors. It is being presented as ‘the rest of the world – including a couple of socialists – agree with the coalition’s cuts’ – although it would in practice have been perfectly possible for Ed Balls to sign up to almost all of it, as it sidesteps the issue of how fast and how deep to make cuts, what ratio of cuts and tax increases is needed, and how far measures to promote growth should take the place of/delay either. But it is absolutely clear, as the FT’s accompanying news item pointed out, that you can only promote growth at the same time as massively reducing domestic demand in the developed world if the rest of the world stimulates its own domestic demand and buys our exports. And by and large, the rest of the world mostly means China.
So, UK government economic policy depends on the Chinese government promoting domestic demand, which is generally held (by international institutions and also on occasions by Government Ministers) to mean raising workers’ wages and building up the welfare state (not least to discourage Chinese workers from saving money for their children’s education, for health care and so on). Such irony is likely to be lost on the British workers seeing their wages fall and their welfare state being slashed.