Firstly, David believes that the British economy has all of the vitality of a “fatigued and aging tortoise.”He feels that the government has frightening people and businesses into lower spending, which lead to lower demand and therefore the risk of a “lost decade” in the Japanese mould.
Secondly David draws attention to the concept of a “balance sheet recession” where companies and households have increased their savings by more than the government has borrowed. This implies that the government is somewhat premature in its fiscal consolidation: the UK is not Greece. The UK has much stronger fundamentals than the Greek economy.
David joins Paul Krugman and Larry Summers in arguing against the “voodoo economics” of deficit reduction. He states that it is simply impossible for a government to nurture and support the private sector while halving the deficit: they are mutually exclusive goals. Only time will tell if he is correct.
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