Top economist Richard Murphy slams austerity: “The economic crash was not Labour’s fault”

Top economist Richard Murphy reported for Tax Research UK that Cameron and Osborne would be found guilty by a jury of their peers for a mishandling of the economy after the economic crash. He adds that the UK crash “would have been just as bad if the Tories had been in office as it was under Labour” but points to a difference in the approach of recovery taken by both governments.

By 2009 banks had simply stopped lending. And people and businesses were saving because they were worried. Both were entirely logical things to do. But in an economy dominated by a single currency as the UK is savings must equal borrowings. And as the creator of cash, if most of the economy insisted on saving in 2009 (as it has also done so since because there is still only limited confidence in where we’re going and what the risks are) then the government has no choice but to act as borrower of last resort i.e. it has to borrow what everyone else insists on saving because that cash has nowhere else to go. And so it ran a deficit. It did not even have a choice but do so: the economy demanded it because of the simple equation that in cash terms savings will equal borrowings and there was literally nowhere else for the money to go but to the government, who had to borrow it.

But in the process what the government did with that money (which was otherwise effectively withdrawn from active use in the economy, because that’s what saving does) was what no one else would do, which was to spend it. And by spending it they did keep cash in the economy to ensure there was enough to make it go round, as is necessary if any economic well-being is to survive in such a situation.

The interesting article by the finance expert highlights the many ways in which Labour handled the economy in a productive way during a particularly tumultuous period, caused wholly by the private sector.

[F]or the record, this was not Labour’s fault. Of course they did not regulate banks well enough. And of course they should not have believed in neoliberalism. That was their fault, but the Tories would have been worse on both counts. This cannot have been Labour’s fault because Labour did not cause the crash of US banks or banks across Europe, where many did fail. The fault was systemic and inherent in the madness of a banking system almost universally out of control.

-Tax Research


  1. Tax Research UK – Cameron and Osborne: due to be found guilty by a jury of their peers

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