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Fiscal austerity
The ‘cure’ which makes the patient worse

In his paper for Class Prof Malcolm Sawyer explains why the austerity programme is economically irrational, socially irresponsible, and fundamentally lacks credibility in its central goal of reducing the budget deficit. He argues instead that the reduction of the budget deficit can only come from a revival of private demand which is harmed by an austerity programme.

It is the ‘jobs deficit’, and not the ‘budget deficit’, which should be at the centre of policy concerns. The ‘jobs deficit’ has to be addressed through the appropriate stimulation of demand and employment creation programmes.

Higher investment, especially green investment, would help rebuild the productive potential of the UK economy which has been badly hit by the financial crisis. Reducing inequality and raising low wages would also stimulate demand.

These policy approaches, highly beneficial and advantageous in their own right, would reduce both the ‘jobs deficit’ and the ‘budget deficit’.