No one, not least the Tories, expected to form a majority government after the general election. As a result some pretty poor policies were presented to the electorate in the quite hope they would not need to be delivered. But now the Conservatives have to live with what they said.
To summarise the Tory economic promise is easy. As Martin Wolf has put it in the FT the policy means that:
According to the International Monetary Fund, the share of government spending in UK gross domestic product will fall from 41 per cent in 2014 to 36 per cent in 2020.
We all know that this is not necessary: as Paul Krugman and many others have pointed out not only is there no need for austerity, and, as I have often argued, cutting government spending at a time when consumers are not racing to the shops, business is pulling back on investment plans and the trade deficit looks dire, is a simple guarantee that not just the state will shrink but the economy with it.
And there is no evidence that states can get much smaller than the Tories plan. As Martin Wolf, again, notes:
If [cut by this much] this would put the UK's share [of government spending as a proportion of GDP] below Canada's 39 per cent and Australia's 37 per cent and only fractionally above the 35 per cent forecast for the US.
What is more:
Many prosperous economies would be far above UK levels: among them France on 53 per cent, Denmark on 51 per cent, Sweden on 49 per cent and Germany on 44 per cent.
So, three questions.
First, will they try to do it?
Second, will they abandon the effort once they've started?
Third will this result in recession come what may?
The answer to the first is, I am sure, yes they will.
The answer to the second is uncertain, expect that they gave up last time in 2012 when the state was at least the size it is now.
And to the third? I think this is recessionary come what may, especially when coupled with the massive other issues we already face in the coming years.
In which case was the Tory manifesto the shortest political suicide note in history?
Time will tell.
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Rather than seeing the Tory manifesto as a suicide note, I rather see it is a lament for the subjugation of the State as a valid actor in the market economy.
The other thing I’d add is that it is not the Tories who will actually be committing suicide; rather they will be killing us – our jobs, our futures and those of our children.
The Tories are economic necromongers; pedlars of economic ebola.
However, there may be dissent. Those big firms who have seen the results of money being stripped out of the real economy may start to apply pressure if the Tories try to take further money out of an economy that still thrives on sales – and you need money to generate sales! Of course, the credit system will be expected to provide this cash – but I feel that it is overstretched already even with low interest rates as they are. More debt is just not on.
The problem we have now is that money making has largely become a form of ‘profit without production’ so we can still have a very wealthy one percent with no money velocity in the main body of the populace -this is, I think, why the Tories CAN immiserate so many and yet not really affect their true constituency.
Will the external “wall of money” keep flowing in, driving the current account deficit and helping GDP ?
What I’m interested to know is whether the economies of Canada, Australia and USA have suffered as a result of their decision to take the % that low. Is it not the case that it isn’t the % of GDP spent by Government that is the most important factor but how it is spent?
And what is not in gov’t spending e,g. health in USA
“And there is no evidence that states can get much smaller than the Tories plan”
Hmm, I’m not sure about this. There are countries in the world with far lower shares of state spending as a % of GDP – Switzerland 34%, Hong Kong 19%, Singapore 17%. These are hardly terrible places to live; in fact two of the aforementioned are higher up the Human Development Index list than the UK.
Oh come on: let’s get real
Hong Kong and Singapore are gateways: they tax the flows through them
And the standards of living are fundamentally different to the UK
Switzerland has an artificially inflated GDP by the allocation of profits not really earned there: this is data distortion
This may also be a factor in HK and Singapore too. Compare with GNP in these cases or better GVA
Your arguments do not stack
Perhaps you’re right – using the share of GDP as a measure of govt spending is probably not the best way of measuring it if it’s skewed.
How about looking at it per capita instead? So Switzerland (26.5k) spends more than the UK (22.3k), but HK (7.7k) and Singapore (10.1k) spend less than half. All of these countries have a high standard of living (they are all in the top twenty of the Human Development Index).
So there does seem to be evidence that states can spend less than the UK and still have happy citizens.
Have you considered PPP?
Would be interested to have some workings on Hong Kong – after all it taxes on a territorial basis.
But vast amounts flow through it
Maybe you have not noticed?
The result is a massive tax base for a tiny territory
Actually it has a remarkably narrow tax base whose limited width is contracting;
A narrow base in composition as it is heavily reliant upon a limited range of taxes, the only developed tax jurisdiction that does not tax general consumption and has often relied on non-tax revenue.
Non tax revenuE
In other words not comparable
Both Labour and tories ran large deficits in the 1960s and early 70s and their was little screaming about “spending more than we earn”. Why is it such a big deal now?
Why is it never mentioned that we have had a national debt since the 17th century and there is no way we can ever pay it off? Indeed, if we did, there would be nothing backing the money supply?
We have had surpluses before, but the fact that we have always had to go into deficit again proves that a zero deficit is a pipe dream.
There is so much crap talked about national debts. Why is it that most of the countries that run high national debts are among the ones doing the best economically?
High government spending puts money into circulation that is effectively debt free, that is, business and consumers have not had to go into debt in order to circulate this money, meaning that the government makes up more of the money lost due to private borrowing.
Cutting the deficit and public spending simply passes more of the debt from the government to consumers and business.