Luke Thomas, a cancer research scientist with a fascination for stats and a social conscience, has given me permission to reproduce this blog:
From 2008 to 2009 the world's economies suffered an unprecedented recession whose effects are still being keenly felt in most countries. The shock-waves of this recession have informed and dominated the political debate for half a decade, and will likely do so for a decade or two more.
In the UK, and in many other countries, a prominent response to the contraction of growth has been to introduce massive cuts in public spending - a fiscal strategy known as austerity. In the UK, the ruling coalition government aim to reduce public spending to its lowest level for 70 years, primarily by decimating welfare spending for the country's poorest and most vulnerable.
The argument runs that welfare spending has for many years been extravagant, it was and is unsupportable, and has been a (if not the) primary cause of the economic recession. Austerity is given as the self-evident remedy for this situation.
If this argument were sound, you'd expect to find that countries with higher welfare spending would generally have suffered worse recessions than those with smaller welfare spending. However, if you compare the welfare spending of countries in the year before the recession (2007) with the change in GDP those countries suffered as a consequence of the recession (2009 vs 2008), you find that there is no such association.
Estonia had about half the welfare burden of the UK in 2007, but suffered a recession almost three times greater, while Poland's welfare burden was almost equivalent to the UK but their economy continued to grow.
The welfare bill was not, and is not the problem. Austerity is a con - a political and an ideological cipher. The failings of capitalism have been hijacked to attack social security, and the poison of this lie has already run deep into the national psyche.
PS Luke also sent the following, noting:
I've just added the same kind of analysis but looking at financial liabilities data. As you can see there is also no correlation between a country's debt as a % of GDP and the depth of recession they suffered:
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One could state that you are only explaining 0.13% (1 in 770) of the variation of Change in GDP being related to Welfare Spending (%GDP), the number of samples is about 35 and therefore the connection statistically is indistinguishable from zero (not correlated).
And it’s very probable that it is not a matter of another one or two variables being left out (e.g. the number of skivers or strivers, etc) to explain the connection, it is more likely that there are so many other competing variables that you cannot easily include them all in a model.
Possible
But standard economics draws evidence on much worse data than this
I’m strongly agreeing with Luke’s analysis of OECD data. I was qualifying there is no evidence of a correlation (0.13% = 0 in this case) of ‘Welfare Spending (%GDP)’ to ‘Change in GDP’ and the cause of the depth of crash, its just not there. As a statistician would say “Its in the data, Stupid.”, these are robust methods demonstrating the Coalition’s argument is wrotten. In my experience medical scientists are master statisticians.
I’ve mentioned this a few times before, but after world war II, the war debt was kept and the UK ran a national debt of 250% or we borrowed 2 and a half times more than the country produced. This borrowing occurred when we were broke and owed the US several billion in debts. The country didn’t collapse under the weight of its debts, nor did inflation run out of control. Bombed out cities were rebuilt, hundreds of thousands of council houses built, social security and the NHS founded and free university education for all brought about. Inflation actually stopped relatively low because, for many years, the money was spent on productive activity, so demand pretty much matched supply.
This spending went on to create one of the biggest economic booms in our history. We had full employment and wages rose. This period gives the lie that high government borrowing and spending is a bad thing!
If they are so bothered about public borrowing, then why don’t they introduce a zero deficit? For good reason! The country will lose around £115-120 billion of funding and we will go bankrupt!
It has never been cheaper than now for the government to borrow money. Spend it on things that badly need doing (for example, building 5 million much needed homes) and it is unlikely inflation should present a problem.
And anyway, as the national debt never has (and never will) be paid off, do deficits really matter?
Use the deficit to build up our wealth, THEN worry about the debt, not before!