Why should anybody oppose public spending cuts, and how?

18 05 2010

Naturally, nobody welcomes having services they benefit from taken away. The bulk of public spending, about 63% of the total, goes on health, education, pensions and social security. Everybody at some time in their lives will benefit from these services. The problem is that the current  level of government spending can only be sustained either by borrowing more money or increasing taxation.

The government, and most economists, believe that borrowing more money would push the country even deeper in debt, which would worry  those who lend us the money so much that interest rates would soar. Eventually, according to this argument, the loans would dry up and we would be faced with default and have to be bailed out, like Greece, leading to even deeper cuts. While we await the specific details of the new government’s plans to tackle this problem it looks inevitable that it will involve a mixture of higher taxes and some cuts in public spending. (For a full treatment of the background to this approach see Sean Collins)

Given the way that financial markets work, looked at in this way it is quite a plausible scenario. So how should we think about what will be in effect an austerity budget that George Osborne , the Chancellor of the Exchequer, will be producing in  a few weeks time? We could all simply take the view that we do not want our public services to be reduced at all.  It would certainly be a good thing if there was a more general opposition to austerity measures,  to any attempt to take this country backwards in terms of the quality of life.

However, in the absence of an intellectual case against the cuts, any such anti-cuts campaign will almost inevitably take the form of special case arguments, as has happened many times in the past. This can take many forms. A popular one is that management should be cut, not ‘shop floor’ workers. Another is that this or that other part of the state, usually defence or the civil service, should take the brunt of the cuts, rather than health, education or welfare. This approach does not oppose public spending cuts per se, but tries to divert them elsewhere. However this pans out, the result is job losses somewhere along the line and a net increase in human misery.

So is it possible, or even desirable,in the light of the undoubted economic problems facing this country, to make a case against public spending cuts per se?  Before we begin to answer this it is important to grasp one vital truth about public spending. All of it is financed out of the proceeds from private business, whether  industry or services,  through corporate or individual taxation. If these parts of the economy are struggling, as they are today, then the proceeds from taxation will stagnate. The current severe deficit problem was created because tax revenues fell in the past few years, not because public spending rose. While increased borrowing can make up for this increased deficit for a while, eventually the borrowing becomes too much and we are back in the Greece scenario.

So the real question about defending public spending is how to regenerate and revitalise the productive parts of the economy to the point where increased revenue from taxation, and therefore more public spending money, becomes plausible. That is why the most effective way of opposing public spending cuts is to argue for policies which encourage faster economic growth. Here is where we begin to part company with the government concensus about austerity. A key element of pursuing faster economic growth is for the state to invest more public money in science and technology education, in the encouragement of research and innovation and  in new infrastructure. This approach would involve some reorganisation and reprioritisation of public spending, away from consumption and towards investment.

Most importantly, the government must generate enthusiasm for a more dynamic economy and society. This would mean challenging the risk averse, pessimistic and therapeutic aspects of British culture. It would mean rejecting the view that economic growth should be green and sustainable, all code words for slow. It would mean restoring the pursuit of excellence as a goal of society and it would aim to bring out the best in people.

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3 responses

18 05 2010
Mark Rowlinson

“Most importantly, the government must generate enthusiasm for a more dynamic economy and society. This would mean challenging the risk averse, pessimistic and therapeutic aspects of British culture. It would mean rejecting the view that economic growth should be green and sustainable, all code words for slow. It would mean restoring the pursuit of excellence as a goal of society and it would aim to bring out the best in people”

Couldn’t agree more and a lot of this can be done at nil cost by removing red tape.

Unfortunately as I see it a lot of the “progressive” political agendas being bandied around lately (I note even Cameron is calling the Con-Lib coalition a progressive alliance) seem to be advocating the opposite.

The economy will be greener through innovation and market pressures to cut energy costs – not through red tape and “green” taxes. Look at the immense change in aircraft emissions from a plane over the last 20-30 years. This is due purely and simply by the industry’s desire to innovate, expand and cut costs.

The problem with reorganising public expenditure into the areas to promote growth is that the growth comes with a substantial lag so in the short term it leads to the cuts and human misery in the other areas where the money has come from. Until that growth comes we also have increasing debt payments and increased pressure on spending. As I see it we have the options:

Borrow more – can’t really do that – even maintaining for a short while would not be well received by the markets.
Cut spending – disliked and arguably stifles growth if cuts made in wrong areas but little impact of made in the right areas
Increase taxes – disliked and stifles growth and innovation
Reorganise spending – has to lead to cuts in services in other ares that people dislike being cut

There are problems with all of the options so the answer is probably to do some of all of it i.e. a small level of spending cuts, a small increase in taxes and some reorganisation of spending to stimulate longer term growth.

24 05 2010
Austerity is not the answer « Europe not EU

[…] of opposing public spending cuts is to argue for policies which encourage faster economic growth,” he writes. “A key element of pursuing faster economic growth is for the state to invest more public money […]

16 07 2010
lawrence Karat

It requires imagination and knowledge which sadly politicians
do not have.We need to build cottage industry as was the case
in post war Japan and Germany cut taxes and the private sector
and invest in exporting companies and technology. My IP and
granted patents are highly valued globally except in the UK where
innovation runs a poor second to Dunking Doughnuts,buy-to-let
and coffee shops.

The Olympics Games should be a major achievement for my IP
and boost the technology for all major events,however, the way the
games are being organised they will probably be a British disaster .

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