Savage spending cuts as global economy slows is folly, economists say | Business | The Observer .
As the Observer notes:
Massive cuts in spending on public sector staff and services will increase unemployment and risk the economy slipping back into recession, economists warned as the coalition government plans to make an extra £6bn of savings in 2010.
More than 240,000 public servants could lose their jobs over the next year compared to just over 100,000 planned by the previous Labourgovernment as ministers block Whitehall departments from replacing departing staff and quangos are shut down.
Private firms that supply the public sector are also expected to be hit, taking unemployment above 3 million for the first time since the early 1990s.
David Blanchflower, who was one of the few economists to predict the severity of the recession, said the government was pressing ahead with cuts based on dogma and ignoring recent developments that allow it to boost investment.
I have predicted it will eventually be worse that that: I see 4 million as the likely unemployment total.
And none of this is necessary. As was reported yesterday, because Labour's policies were working the budget deficit was £5.5 billion smaller than expected at the end of March - the saving Osborne is looking for by cuitting was, in otrher words, achieved by spendinmg instead.
Yes - I mean that - it was achieved by spending. When there is no private sector demand to take up the slack in the economy - and that is the case now - then only government spending can do the job, create demand, create work, create wealth, and generate government revenue to pay down debt - which is exactly what has been happening - and which works.
This is the virtuous cycle Osborne will destroy.
That's the falw at the heart of the Con Dems economic policy.
It is what will pull their government down.
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Could I politely ask those previous posters who defended themselves as ‘non exploitative wealth generating entrepreneurs’ how they see their peers in the private sector re-mobilising the disenfranchised millions; not forgetting their descendents, especially across the deserted manufacturing base, into becoming a driving force to put ‘Great Britain’ on the map again?
Getting foreign car makers in, or the laughably escaping steel makers, how can anything happen without a massive public sector injection?
It is no wonder why the perceived ‘immigration’ issue is so paramount on those folks’ minds. There is no long term investment by the private sector, only the quick buck.
I just cannot understand this adherence to failed thinking.
It took centuries for the workers, slaving under ruthless industrialists, to get some sort of human rights. In an instant all that democratic history was binned in the name of the ‘wealth generators’.
Funny how we’re struggling, eh? Funny how there are millions of now unskilled potential wealth makers kicking about, doing the black market or descending themselves and their children into the downward spiral towards a once forgotten historical blight.
Yet the rich ‘i do a good job for society’ dreamers think their defence of eighteenth century gentryism IS ABOVE QUESTION?!
My anger is particularly honed from a Guernsey perspective. The false short term bubble of ‘take what we can get before we are caught out’ econo-politics has left the public damning the the system, yet still worshipping the guff that ‘the rich create wealth’. The 30% currently employed in the parasitical booking centre sham will be having children that they expect to follow suit.
Just like the reports a couple of years ago about the stricken north eastern town schools who were basically training children to work in call centres, when the short term becomes yesterday, we will be left with unemployable, disenfranchised and an ultimately anti-establishment generation.
In the US, that has risen up as an uneducated mob-rule led by the nose by big business interests, driven by an irrational fear of social progress. The preference for the whole myriad of the disenfranchised is to let them do what they want.
The breakdown of society to be rebuilt by dictatorship.
Those the argue against the need of a radical solution in the UK, while we still have the generations that remember how communities can work together to form a wider vision, are obviously espousing a future where their ‘wealth generating entrepreneurial superiority’ can exploit mass ignorance.
In Guernsey, there has never been a greater demand for affordable housing, food parcels in Jersey, the US has tens of millions (and rising) that require the same, the UK is blighted by areas of social decay where once there was honest endeavour.
I’m sick of listening to people in social gatherings in my ‘affluent’ jurisdiction telling me how wonderful they are.
These guys, and most of the commentators on here that rubbish proposals for realigning wealth to worth, are blinded by memberships to onanistic and narcissistic sociopathic cults.
“Send them all up the chimneys or tell them they’ll starve like their mothers who refused the brothels”
So fund the public sector with massive debt and get the private sector to pay for it. What happens when the golden goose is gone?
What exactly is the unique demand in the public sector that we don’t see in the private sector?
Paying people to dig a hole so that you can pay other to fill it up?
Nick Clegg was on the Andrew Marr show this morning attacking the last Government for ‘wasting'(spending) millions in it’s last weeks, but of course he failed to mention the little matter of the £5.5 billion that had been shaved off the Budget deficit!
Government spending does not create wealth unless it spent on productive assets. Since most government spending (healthcare – particularly for the elderly, welfare payments, bureaucracy) does not produce any economic return, then all that happens is the government has to borrow increasing amounts of money to pay for them. That is not a virtuous circle.
Osborne is trying to create an economy where there is private sector investment, particularly in industry, which would create real demand, growth and wealth.
@JayPee and @Alex
I always find the naivete of such comments staggering
So we leave 93%v of the population uneducated and the private sector will carry on as before will it and no one will protest?
Likewise we leave 100% of people with no accident and emergency health cover and all will carry on as before?
Or is it we’re just to line the old up and shoot them? Is that what you’re suggesting?
The reality is people willingly pay tax because they wan what the state provides
And as we’ll discover as cuts bite – they will want if much more than they ever realised and will not accept the alternative
There’s good reason – people probably value what the state provides a lot more than much that the private sector supplies
I am mystified how you equate not spending money to create new jobs in the public sector with a nationwide closure of the NHS A&E and 93% of the population without education?
Alex said
“Government spending does not create wealth unless it spent on productive assets”
Are educated people not assets? Is not the security of people’s health provision not an asset? Infrastructure? Social housing? Green space maintenance?
What about all that public money that goes into subsidising the the private sector? Not an asset?
So what exactly was Thatcher doing, following this demented idea, when she shut down industry? That wasn’t providing private sector investment. That was creating wealth for a tiny minority.
So presumably your trump card is the financial services sector? Hmmm…..let me see….oh yeah! They took the p1ss! At the public sector’s expense, and the private sector’s expense too!
How can we possibly inspire ‘wealth generating entrepreneurs’ without a social infrastructure? Follow Tesco? They’ve worked wonders for communities, suppliers and growers haven’t they?
Until the private sector, and pertinently, the finance sector learns to understand the symbiosis between enterprise and social responsibility, any such comments about ‘more breaks for the private sector’ is just a way of crippling the country more. It has proven unsustainable. We cannot afford unsustainable.
By all means lets get the small businesses moving, but who do you reckon controls their aspiration and model? Banks must lend and the public must be able to afford, not by credit, but by sensible inclusion in the real economy.
Without public money the rhetoric fails.
“The reality is people willingly pay tax because they wan what the state provides ”
Not quite. People willingly pay some taxes because they want some of the things the state provides.
Take local councils for example: just about everyone is willing to pay for rubbish collection. There’s a public good element to it, certainly a public health element to it.
The number willing to pay for the outreach diversity department is, I would hazard, rather smaller.
One of the many problems with “the state” as the organising mechanism is that these differential desires for services and differing willingness to pay for them cannot be disaggregated.
And it isn’t necessary that all (I agree some must be, but not all) are paid for purely through take it or leave the country taxation. The provision of clean water and sewage services is a public good, certainly has public health components to it, yet we don’t think it strange that we pay a separate bill, not taxation, to get these things. Or that we subsidise those who could not afford them unsubsidised.
One of the arguments in favour of separate charging for all sorts of things (and again, I emphasise, we cannot do this for everything) is precisely so that we can see what people are in fact willing to pay for and what they’re not.
I have a feeling that those in favour of the big state would get something of a pleasant surprise if this were possible. For example, nearly every country in the world agrees that lifeboats are one of those essentials that the government should fund. We don’t: we have the RNLI. Still gets funded as people are absolutely delighted to fund such a service entirely voluntarily.
@Richard Murphy
“I always find the naivete of such comments staggering
So we leave 93%v of the population uneducated and the private sector will carry on as before will it and no one will protest?”
Nobody is suggesting that, merely refuting your argument that ever increasing spending by government leads to long term economic growth. The evidence from the last 13 years is that increasing government spending without any economic return leads to a perception that the country is less friendly to investment (on the assumption that tax payers including companies will eventually have to pay the bills), so that industry declines.
Paying doctors £125k instead of £75k and building lots of shiny new hospitals may give a short term stimulus and will certainly boost reported GDP in the short term, but the extra cash in the economy will soon be spent on imported goods, while the tax payer will be landed with increased borrowings.
The moral of the tale is that the government should try to spend only what can be afforded through tax receipts (or thereabouts) that if the government wants to increase its spending, it should take steps to facilitate the growth of the private sector, because it is the private sector that ultimately determines what can be afforded, and it is not possible to create sustainable value through excessive government spending.
If it was possible to boost economic growth through government spending, all countries would borrow and spend as much as possible all the time.
@Arnald
“Government spending does not create wealth unless it spent on productive assets”
“Are educated people not assets? Is not the security of people’s health provision not an asset? Infrastructure? Social housing? Green space maintenance?”
Not in isolation. You can spend as much as you like on education, infrastructure and green spaces, but if the means for usind them to create economic growth are not present, then they are not economically valuable assets.
@Arnald
“So what exactly was Thatcher doing, following this demented idea, when she shut down industry? That wasn’t providing private sector investment. That was creating wealth for a tiny minority.”
Well, she didn’t shut down industry. She stopped subsidising coal mining, which had the knock on effect that we reduced our energy costs and developed our offshore gas fields. I had a conversation with the plant manager at a fairly large coal fired plant about 10 years ago who told me how much better and cheaper the South American coal was that he used than the British coal. If you really want to dig for coal in Britain, go ahead, it is mostly still there in pitifully small seams at very low depths.
The truth is that the ratio of industrial production to GDP barely fell under Thatcher, because of inbound investment and productivity improvements, although it did drop from about 23% to 21% under Major. Under Blair and Brown the figure has dropped to 11%.
“The truth is that the ratio of industrial production to GDP barely fell under Thatcher,”
That’s not really the important number. Manufacturing as a percentage of GDP that is. We used to have agriculture as 80% of GDP as well and now it’s more like 1% of GDP. Over the centuries the size of a sector as a portion of the entire economy can change massively.
Perhaps more important is the actual level of manufacturing output. This was higher at the end of the Tatcher years than at the beginning, higher at the end of the Major years than at the beginning of them….in fact, the all time high was in 2005 (maybe 2006, from memory). If manufacturing output is growing, but manufacturing as a percentage of the economy is falling, then what we’re really seeing is that the non-manufacturing sectors of the economy are growing faster than manufacturing.
Doesn’t sound like a problem really.
@Tim Worstall
As ever you reveal your implicit belief that decisions clear instantly in the economy: that in May 1997 all changed and that in May 2010 all will do so again
It is further testament to your failure to understand economic reality: the legacy of Thatcher and Major lasted for years into the Labour era – not helped though – I admit – by labour’s own strategies
Umm, what? I make a claim (backed up by the appropriate statistics) that there are changes in the sectoral composition of the economy over decades and you say that this shows I’m a New Classical, insisting that markets clear instantly?
What?
It’s a simply truth that while manufacturing has been declining as a percentage of the economy that manufacturing output has been growing. This is a simple truth about nearly all OECD economies, nothing to do with just the UK. It’s true of France, the US, Italy…..
“building lots of shiny new hospitals may give a short term stimulus”
Especially if you have funded them through PFI.
“Are educated people not assets?”
Only if there are jobs that match their education. It’s not clear to me what public benefit there is in educating people in media studies to degree level is if the only jobs for them to do are in call centres.
Surely the point is that very few people object to public spending if it brings benefit. But ID cards? Regional development boards for the south-east? It’s not exactly nurses and teachers is it?
@Alex
I don’t argue about the need for a mixed economy
It is vital
I don’t argue that we will not need some rebalancing of the economy – and some cuts in some public sector activities – including the excess waste imposed by using market models in the state sector
BUT I do argue that to make cuts when the private sector shows no willing to create jobs is a recipe for mass unemployment and increasing deficits fuelling a recession / depression
I do argue that the state does some things better than the private sector, and vice versa
I do argue that right now sate spending is the only way t generate the growth that will kick start the private sector
And I do argue that tax cuts for the wealthiest will not achieve that – at all
@Tim Worstall
You are a like a cracked record
I really can’t be bothered to debate a hypothesis as discredited as this one
Suffice to say democracy validates the choice people make
And your argument, as I say often here, is profoundly anti-democratic
I think that’s enough said really
It summarises everything
Tim Worstall
Alex
The numbers are meaningless if you do not factor in the social cost. I’m not sure what England you were living in during those times.
If you don’t think that introducing the virus that broke communities, ran down the health system, crippled education, sold off publically owned utilities at fraudulent prices, the promotion of outsourcing, the wasting of North Sea resources, the destruction of the social housing model, the development of an inherently crooked financial services sector, riots, the complete loss of respect at every social level; from family, to street, to community, to the rule of law, the hopelessness of unemployment and the absurd insanity of the ideology that striving for individual entitlement to wealth can make the country ‘great’, ever happened, then you can only be blind. Blind the experience and blind to the reality of history.
It was savagery. It was a complete contempt for humanity.
Those broken communities were natural breeding grounds for criminality, drug abuse and hate, whereas those symptoms were always tempered by social cohesion.
Some of the coal was too expensive, but permanently closing the vast majority of them was short termist and vindictive. The knock on effect for the public’s pride in the country evaporated.
I grew up with all that. I experienced it. There was absolutely no positives.
mad foetus says why bother educating people if they will only end up in a call centre. A perfectly damning statement of the reality of the fundamentalist, untested socio-economic theory.
The very same nonsense you purport to be absolute has resulted in the situation we are in now. You’re in complete denial.
Ah, I love it when Libertarians co-opt the RNLI as an example of their wonky ideas in action.
Pssst, don’t tell them what the ‘R’ stands for…