According to Mervyn King and Ben Bernanke the end of the recession may be in prospect. Nobody on the centre-left would wish the crisis to be unnecessarily prolonged, but it seems premature to be confident about the robustness of the recovery. The stimulus policies that have averted a catastrophe are due to come to an end in 2010, bank lending remains subdued, retail sales are weak and unemployment is rising.
Far from being a cause of despair, these continuing challenges reinforce the case for active government and for the sustained use of Keynesian economic policies – if consumer spending and private investment are weak then public spending and borrowing are essential to avoid tipping the economy into a prolonged depression. That is why Gordon Brown was right to emphasise that co-ordinated action by G20 countries remains essential. A policy of masterly inactivity – or immediate deficit cutting as recommended by George Osborne – would be a recipe for disaster. Had the Osborne/Cameron approach been adopted across the globe there is no doubt whatsoever that the world would have been plunged into a profound and destabilising crisis.
The top priority must be to get back to growth. As Robert Reich, President Clinton’s former secretary of labour has pointed out, what matters most about the relationship between debt and national output (GDP) is the size of the economy not the size of the debt. A growing economy makes the debt look manageable and borrowing now, far from being profligate, has to be seen as an investment in the future.
The most important investment of course is to avoid the waste and misery of unemployment, an experience that blights the life chances of young people in particular. But no matter how effective the stimulus policies employed by G20 countries unemployment is still set to rise – probably peaking at just over 3 million. The government is right to have offered those aged under 25 a job guarantee after ten months of unemployment. This is a good policy and a significant advance on anything that was offered by previous Conservative governments.
There is a question, however, whether earlier intervention, say at six months, could identify those young people most likely to find a job on the open labour market. More intensive job search advice and support for this group would mean that those making use of the job guarantee would be those who really need it. Active job search must also be encouraged for those young people working through the job guarantee period. Greater effort must be devoted to managing the transition from the job guarantee to full labour market participation.
These are questions of detailed policy design about which the government has shown a refreshing degree of open-mindedness over the last six months. Young people need to know that the government has an array of policies to minimise the risk of unemployment and provide support for those who lose their jobs. Now is the time to start telling this story with clarity and conviction.