A plethora of articles have already been generated discussing the possible outcomes of the new budget package that George Osborne, the U.K.’s finance minister, will soon reveal this week during his annual update on the state of the nation.\u00a0 Austerity measures have already been tried with minimal success, but will a combination of tax cuts and incentives deliver the economic growth that everyone longs for?<\/p>\n
Similar debates have raged on both sides of the Atlantic as to how to stimulate growth and return to something vaguely resembling previous prosperous times.\u00a0 Austerity proponents are on one side of the issue demanding that deficits be reduced before growth can have a chance. \u00a0Keynesians argue from the opposite side that the public sector must step with stimulus to bridge the \u201cgap\u201d in economic activity in the private sector during a business cycle downturn.<\/p>\n
Both approaches have been tried in various parts of the developed world without producing the desired outcomes.\u00a0 Albert Einstein once defined insanity as the \u201cdoing the same thing over and over again and expecting different results.\u201d\u00a0 Japan has been in a stuck place for two decades.\u00a0 Europe has followed the U.S. example and papered over their present problems, hoping that economic activity will pick up if confidence returns.\u00a0 Fiscal stimulus and low interest and tax rates in the United States have done little to generate a stable recovery, but there are positive signs.<\/p>\n
Are we witnessing a newer version of economic \u201cinsanity\u201d?\u00a0 Economists are agreed that growth is the only solution for our present economic malaise, but none of the \u201cold tricks\u201d seem up to the task.\u00a0 In the meantime, developing markets of the world have been on fire, and Gold, the asset with no visible income stream, has appreciated radically over the past decade as central bankers expanded their respective money supplies.\u00a0 Anyone transferring currencies or trading binary options is fully aware of the dilution effect on a currency\u2019s value when its purchasing power is reduced.<\/p>\n
The major issue is that the old \u201crules\u201d will not work anymore in Western countries.\u00a0 The world economy is so interconnected these days that independent actions taken in a single country cannot operate in a vacuum to produce domestic prosperity.\u00a0 Four decades of outsourcing from the West to emerging markets forced these new markets to re-invent themselves.\u00a0 For some reason, Western countries have plodded along in the same way as before, refusing to believe that they must re-invent themselves to have any chance of competing in this new era of globalization.<\/p>\n
Government officials in the U.K. will get an opportunity to see if they have learned this simple lesson.\u00a0 Retraining and restructuring are required.\u00a0 Everyone must share in the burden, and, as one economist recently suggested, the West must learn to make things again before any real growth can be achieved.\u00a0 At this writing, most believe the new budget will address the high tax rate that applies to 1% of the population, coupled with a variety of programs to help the low and middle-income classes.\u00a0 Britain is barely eking out 1% GDP growth.\u00a0 Deficits are declining moderately, but personal incomes are dropping, while inflation has actually declined a few percentage points.\u00a0 The Pound, as a result, has been within a tight trading range for the past twenty months.\u00a0 More dilution and inflation will lead to a weaker currency.<\/p>\n
Einstein also said to make everything as simple as possible, but not simpler.\u00a0 Let\u2019s hope the new plan is creative and simple, without being as one critic espoused, \u201cnothing more than a modest rearrangement of the fiscal furniture.\u201d<\/p>\n