I have published this video this morning. In it, I argue that although Rachel Reeves seems to think otherwise, it's a simple economic truth that no government can create growth by cutting its spending. That's because, without exception, the government's spending is someone else's income, and so by cutting its own spending, a government always reduces the income in its economy.
The video can be watched here.
The audio version of this video is here:
The transcript is:
You cannot cut your way to growth. That is a simple economic truth. And I have to say to Rachel Reeves, you really need to learn it because right now, what you're doing is completely contrary to your stated ambition for the UK economy, which is that it should grow.
How do I know it won't? Because Rachel Reeves has already said in advance of any budget that she's going to announce in October that she will cut major road schemes, like the tunnel under Stonehenge. She's going to cut hospital building. She's going to cut the amount of rail reinvestment she's going to make. And at the same time, she did, even before she got to office, cut the investment that she planned in the Green New Deal and what she's planning in GB Energy and the British National Wealth Fund, or whatever she calls it, is not going to make up for these things.
Why? Because those are private equity funds that will simply invest in the shares that are highly speculative in nature.
Now, let's take a simple, straightforward statement of fact.
The way in which our economy works is that our national income is not just made up of what we consume, but also what we invest. And if you cut investment, you are therefore going to cut our national income. It is as clear as night is day, that that is the consequence of doing what Rachel Reeves has decided.
She will, in effect, be putting a large number of people out of work. The people who were going to work on those roads, on those railways, on those hospitals and so on, will not be doing so. And we aren't just talking about the builders here, we're talking about all the ancillary trades and all the suppliers and all the investment that the private sector was going to make to provide services to deliver that project as well to deliver those projects. So, it's not just her spending that will be cut, it will be the private sector's too.
Now, if she had a programme for putting those resources to use somewhere else in the economy where she thought they would be of more use, for example, in delivering a Green New Deal - in building better flood defences, and in greening the energy transmission systems of the UK, then I would say, yep, that's a good thing, because we need those things more than we definitely need a road under Stonehenge, or we need some of the other things that she might have thought about cutting, like aspects of HS2.
But, that isn't what she's saying. She's just saying she's going to cut it. And the consequence is that she makes her own goal of delivering growth impossible.
She won't be spending into the economy. The people she would have spent money with will not be spending to fuel consumption. And the private sector won't be investing to deliver the innovations that she would demand if she did these investment programs.
Add that all up, and she's shot herself in the foot when it comes to the policy of delivering growth. She cannot do that by cutting. It is impossible. But, apparently, she doesn't understand that. She seems to think that if she cuts government spending, the private sector will mysteriously come in and fill the void.
It doesn't. It never has. It won't. Because it has no incentive to do so. And the reason why is very simple. The government is the biggest customer in the UK and when the biggest customer in the UK isn't spending then the private sector gets the message that there is no need to invest because there's no one to buy.
That's it. You cannot cut your way to growth.
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Some weeks ago you wrote a piece that was critical of the goal of growth, which as we know, is incompatible with climate and ecological safety, and does not deliver on livelihoods and other social goals.
This new piece appears to assume growth is a legitimate goal of government. Have the previous, welcome, critical words been forgotten for the sake of a merely technical argument?
I am pointing out a fact here
I am simply saying Labour cannot achieve its aim dong what it is
Richard’s arguments here are equally sound for any defensible conception of social well-being.
Climate and ecological safety will require science. technology, engineering and investment – on an unprecedented scale. From where we are that means growth. “Livelihoods” are for many people lives in poverty; lives which do not have the room for cuts; and social goals require investment. That will mean growth. The difficult trick is in the transition. It doesn’t happen just by stopping everything.
Mark
I support Richard’s post 100%. You come across as just point scoring.
‘Growth’ is not just a word. It can be broken down into different forms of outputs.
Having done that, we can assess each output as either having a positive effect or negative effect on our lives.
Even you should know that we have issues in this country that have led to a new government being formed and promises have been made.
All Richard is doing is saying is that Labour wants to change that but does not see how that can be done by sticking to the niggardly budgets of their predecessors which is what Reeves has basically said she will do.
He has also widely criticised Labours pre- election reductions in its commitment to green technology. To go green, initially we might have to see an upsurge in the use of carbon but we must also face the fact that investment is needed to reduce carbon use in production methods too. Producing green technology at scale using new less carbon technology needs money Mark and is where the Government could help to initiate that.
Richard does not see this happening in this government yet and neither do many of us for that matter as long as it keeps pleading poverty and ignoring the facts of money production – money that it effectively owns.
Now cogitate on that if you will.
Labour is shaping up to be even worse than the Tory government. Five more years of austerity, and no one with the intellect to come up with an alternative, is not “Change”.
Reeves is punishing the young and the old merely for having the temerity to exist. She won’t stop at them – the in-betweenies better watch out, Reeves will be coming for them next.
There must be buyers’ remorse, if not now then soon, amongst those who voted for this Labour government.
One wonders how it will express itself…
The point is that aggregate growth in GDP means an expansion in material and energy throughput, and that means, among other things, an increase in environmental damage, not least carbon pollution. The science is indisputable on that point as Richard acknowledged in a previous post: https://www.taxresearch.org.uk/Blog/2024/07/06/labour-is-not-going-to-deliver/
So there has to be a material contraction in the material and energy flows that are used to sustain human life. However, there are two really important caveats: firstly, just because there has to be an aggregate contraction, that doesn’t mean all sectors have to shrink – some, such a s clean energy and collective transport provision, for example, will indeed have to grow. Secondly, the managed contraction has to be done equitably, or rather ‘inequitably’ in the sense that it needs to be redistributive, not a mere sharing of any pain. Sure, there needs to be a change in the government’s fiscal straightjacket rules to allow the investment that will be needed in the things that need to be done, and sure, cutting public expenditure in the aggregate won’t do anything for the goals that I think we mostly share, but the problem goes beyond macroeconomic policy on its own.
In response to Richards quick response above, yes I appreciate that a technical point is being made, but this whole problematic isn’t amenable to solely technical solutions – the fundamental conundrum of the impossibility of decoupling GDP growth from ecological damage has to be a the centre of government policy and of credible responses to it. Economistic thinking has contributed greatly to the existential problem we face – it won’t get us out of it.
I get all you say
I have acknowledged it
But that does not mean I cannot address Reeves’ failed agenda
No of course not – I’m just asking for a bit more nuance and recognition of the biophysical realities (at all times) when discussing macroeconomic facts.
Your behaviour also now looks like classic trolling…
Degrowth involves a complicated web of human and environmental relationships
Increasing production and consumerism drives capitalism, and is evidently unsustainable, so growth economics just needs to cease.
Degrowth does represent an existential debate, as we live on a finite planet whose limits we need to acknowledge, respect and then work within.
It does not necessarily involve shrinking human activity, but a repurposing which first reduces, and then removes absolute resource consumption. Everything in balance.
A circular economy satisfies many degrowth criteria. We can do that now, with the will.
Renewable resources can still be managed, and utlised, but non-renewables need to be substituted with other materials, 100% recycled, or their exploitation ceased completely.
Externalities have to be fully accounted for, and this is where degrowth also involves a change in mindset away from consumerism, and recasting of man’s relations with the wider environment.
Clearly non-exploitative relations as a principle then also has an immediate social imperative as in worker/employer relations.
The social ecology movement integrates the recasting of relations between man and environment and holds that it is human social problems which have led to environmental degradation, so degrowth is basically a human social relationship matter, where the aim is to create a society where humans are connected to and live in harmony with nature.
It is an ecological society.
Degrowth is NOT the pure biocentric return to the Pleistocene dogma of the deepest green adherents, which is fundamentally anti-social.
Nor does degrowth just need a few techno-fixes like cloud seeding, as the exploitative mindset still endures.
So the conundrum then becomes in making the transition from over consumption and waste of earth’s resources to a sustainable society based on reciprocity in human and environmental relations, and in convincing people this is the way forward.
Degrowth is not a revolutionary movement as that merely replaces one elite with another, so some way of supplanting capitalist hegemony needs to be formulated.
And that, pretty much, is where we are.
All transitions have to accept the world as it is, whilst working for systemic change.
Even the 2024 Labour government has a contribution to make to degrowth if it adopted a set of policies that evaluated resource appraisal, and where energy infrastructure, in particular was renewable.
The Green New Deal substantially ticked those boxes, yet was dumped by Reeves in her
adherence to neoliberalism.
Lobbying for a return to that programme is a perfectly acceptable short term goal.
So-called green growth is still growth, so cannot be more than a phase in a transition from consumerism to a sustainable human society, but it still needs to be seen as a meaningful temporary target.
Similarly, the degrowth setting requires recasting political relationships away from centralised monlothic institutions and involves much higher levels of social engagement.
Bookchin’s vision for social ecology included urban villages, (15min cities), federalisation of government and decentralisation of enterprises, with an emphasis on local autonomy that is ecologically sound.
The question of how Labour’s current trajectory (if that is even determinable) might be swerved to fit sustainable development goals is a worthy one, and ought to provide the context by which this government is judged, but they have not remotely articulated sustainability as a primary goal, so we are not even at a starting point where degrowth is even a distant reflection in Starmer’s spectacles.
Mark
As Mr Warren suggests above, time will be needed to change.
Richard has always differentiated growth from the buying of ‘stuff’ with say growth from the need to create the infrastructure to in turn create less impactful ways to deliver growth.
But at the heart of that is demand and out here people are increasingly cash poor so we are not just talking about economic growth on the supply side but also on the demand side. The government has to deliver more money on both sides of demand and supply. New less impactful services and goods maybe too expensive initially. Changing behaviours needs help and incentives.
There seems to be no indication from Labour yet that this is what they are about. Even though they now dominate parliament.
This could be a lost opportunity to gravitate towards sustainability. That is what Richard seems to be getting at to me.
“Your behaviour also now looks like classic trolling… ”
I think that’s rather unfair. I’m just aiming for clarity, but thanks for the acknowledgement of the substantive point, and I do value your contributions otherwise I wouldn’t bother to comment.
Every time you comment you use a different email address and IP address
That is classic trolling…
Thanks for the clarification – the different email addresses are two versions of the same, it’s a historical artefact but I appreciate it could be confusing. I wasn’t aware of the differing IP addresses, so that’s something to look into. It might be my browser security settings or the fact I’m using 2 different devices. No need to authorise this comment or respond but I thought you should know it’s not deliberate.
I’d believe this if your email address worked
It does not….
What identifies them? You might not want to say, of course…
Sorry Bill – but when moderating I cannot see what comment you are responding to and so cannot answer this one…
Oookay – I was wondering how you can identify emails as being from the same sender if the sender’s email address is different in each instance and so are the IP addresses?
In this case it looked lile the same person using the same name wrote all three
Otherwise, hard….
Oh dear why is the Government repeating the same tired, out of date and dangerous policy that was pursued after 2010? Will they never learn? We all know the impact of austerity!
“I’d believe this if your email address worked
It does not…. ”
It should now. it was down most of the morning. It’s a legacy address from the forerunner of phone coop, then transferred to Midland Counties CO-op and then this year to mail.coop. There was a server outage affecting all addresses but it seems to be fixed now. As of14.45, this service update was still posted on the yourcoop website: “We are aware that the email server is down at the moment, the suppliers are looking at resolving this as soon as possible.” https://broadband.yourcoop.coop/help-resources/service-status/
So I’ll leave this there now. thanks for engaging.
Mark
This one was blighted!
“Bill Kruse says:
August 5 2024 at 4:28 pm
Oookay – I was wondering how you can identify emails as being from the same sender if the sender’s email address is different in each instance and so are the IP addresses?”
To set the record straight, if I may – I don’t want to detract from an important conversation but an accusation has been made about me.
1) I used 2 email addresses. They are identical except one ended in .org and the other with .org.uk. They are functionally the same but maybe Richard’s security software noticed a difference. Why did I use 2? one was a legacy from a previous engagement with the site, several years ago. It came as I form-filled for my firstcomment and I accepted the suggestion. I used the shortened version subsequently. A third one is news to me, maybe a typo of mine
2) IP addresses are usually allocated dynamically. They will typically change after a connection is broken.
3) Richard said my email address didn’t work. Three possibilities: a) my provider had an outage this morning.
b) The address got malformed at Richard’s end. c) or maybe it was the mystery third address – if it was a typo, it doesn’t exist, so would bounce. I suspect it’s this,because I did get queued emails from the website for each new comment, when my provider came back online.
My email address can be verified by internet search as it appears in several places online.
I hope that closes this thread and we can get back to the substantive issues. Sorrh for any confusion.
Apologies Mark, but it did all seem odd and set off my warning signals.
No problem. I understand and I’m glad we sorted it out.