Anthony Hilton: Uncomfortable reading for George Osborne…31 March 2012
Lunch on Thursday with the economist and Bank of England Monetary Policy Committee member Adam Posen in the Westminster offices of the think-tank Reform.
A couple of days earlier he set things alight with a speech which asked why the US was recovering so much faster than we were, when the scale of the challenge was similar in both countries and we had adopted the same kind of low interest rate and quantitative easing policies to address them.
His answer makes uncomfortable reading for the Chancellor. It is partly that US business is less dependent on banks for its finance, and partly because the UK had a more savage bout of inflation which hit consumer spending hard – but overwhelmingly, it is because of the ferocity of George Osborne's spending squeeze. Obama's tax policies stimulate the economy, Mr Osborne's depress it.
Mr Posen was not saying the Government has got it wrong – that's not his job – and the Government could say we are suffering because we have decided to take the deficit reduction pain now which America will have to take at some point too. When that happens, the Government could argue, we will probably grow faster than them.
But even if you accept that the pain is necessary, Mr Osborne surely does not have to be so inflexible.
The same day as my lunch with Mr Posen, Balfour Beatty, one of our biggest construction companies, warned of savage job losses to come, because once it has finished work on the Olympic site, its order book is running dry.
What on earth is the point of standing back and watching that company crumble, throwing thousands of people on the dole with all the additional burden that will impose on the state, when the Government could so easily borrow money at the current, rock-bottom interest rates and use it to get the construction sector building some more of the infrastructure we so desperately need?
Nothing stimulates the domestic economy as effectively and quickly as construction spending. Why does this Government not get it?