Financial Times columnist Stephen Bush has an article out this morning with the headline:
Austerity denial and the mystery of Britain's shrunken state
In it, is suggest that the apparent paradox of a British state that costs more but does less is real.
His suggestion is that since 2010, austerity has removed many services that once helped people before they reached a crisis, including youth provision, employment support, tax credits and assistance for poorer students. The state has consequently become increasingly concentrated on the sick, the retired and those already facing acute hardship.
Public spending has, however, still risen as a share of GDP, but that does not mean the state has become more generous. Weak economic growth has reduced the denominator against which spending is measured, while healthcare, debt interest and the costs of an ageing population have risen. The composition of spending matters as much as its total: more is now spent dealing with the consequences of social and economic failure, while less is spent preventing them.
This, he says, leaves Britain facing an uncomfortable choice. It can accept its present diminished state; rebuild public services and require a much broader section of the population to pay more tax; or shift more healthcare and age-related costs into private insurance, charges and co-payments.
His central claim is that no painless solution exists for the predicament we face. Politicians cannot promise better services, lower taxes and unchanged methods of funding at the same time. The difficulty is not simply the amount the state spends, but what it spends on, why those costs are rising and who is expected to pay.
Insofar as it goes, that sounds reasonable, but I stress the first part of this sentence, which is "insofar as it goes". Like so many journalists who know on which side their bread is buttered, Bush picks a big theme, creates a good headline, and then fails to explain the underpinning problem that he is addressing.
In this case, Bush fails to explain what economists call Baumol's cost disease. This explains why services such as healthcare, education, social care and the arts tend to become more expensive over time, even when their productivity does not improve. The reason should be obvious, but like many things that should be, it is hiding in plain sight.
The reality the so-called disease highlights is that, over time, the manufacturing sector in an economy can become more productive because technology lets each worker produce more. Wages can therefore rise without prices rising by the same amount. So far, so good.
The problem is that many services cannot increase productivity so easily. A teacher still needs time to teach a class, a carer needs time to care, and a string quartet still needs four musicians and almost exactly the same time to perform, or the result might be truly terrible. But, and this is the crucial point, if we still want those services, the workers engaged in them must nevertheless receive wages comparable with those available elsewhere, or they will leave. The cost of providing their services does, therefore, inevitably rise even though their output per hour has changed little.
The crucial point is that in this case rising costs do not necessarily indicate inefficiency. They may instead reflect the inherently labour-intensive nature of valuable services.
There is, in fact, a deep paradox here. As productivity increases elsewhere, society can afford to devote more resources to health, education, care and culture. What is more, as we are sated with material goods, those services might be exactly what we, the government and our well-being require. The only problem is, in relative terms, they become more expensive over time, just as the need for them grows. Baumol's law therefore explains why spending on these services will normally rise as a share of national income.
Our governments have, since 2010, attempted to cut out what they saw as the more peripheral of these expensive activities, which were precisely those that held the whole system together because they sought to prevent breakdown. We now know the consequence: we have broken down. That is the outcome of austerity.
So the choice that Stpehn Bush presents is not true, because it is incomplete. He did not explain why austerity has delivered us a crisis. And, like so many who write about economics, he treats money, and where to find it, as the issue.
He is wrong in the first instance because he thinks tax funds public spending. It does not.
He is wrong in the second instance because he thinks that the money available to the government is constrained. It is not, but resources are.
As a result, he focuses on funding when that is not the real issue. The issue is the failure of society to meet need. If it did that, there would be no funding issue.
The problem is that we are not doing what is required, have large-scale unemployment as a result, are refusing to mobilise those resources to meet the need that they could be used to address, and then wonder why, firstly, the economy is in the doldrums; secondly, why people feel alienated from a failing government; and thirdly, why nothing works anymore.
The answer is that all of this is by choice. The headline makes that clear: there is continuing denial that austerity is the policy, and that we are living in an economy that is suffering the consequences.
Politicians of most parties say that they want ot live in an economy that is growing, delivers well-being and full employment, and meets needs, but they refuse to take any of the actions required to deliver this outcome.
What are those actions? They are not hard to list:
- Determine what is needed.
- Identify the available, largely underused resources that might be used to meet these needs.
- Match the two to deliver the greatest effect when meeting needs within existing resource constraints.
- Deliver the services in question
- Watch the multiplier effects work to deliver additional taxation, and save costs.
- Explain what the investment process in this activity is, and that it will be continuing.
- Explain that deficits increase private well-being
- And that so-called national debt is just a savings facility for the wealth that this programme will create.
In other words, get the story and the actions right, and the outcomes will work.
In other words, we could have real prosperity as measured by meeting need. But whilst we fixate on finance, that is not possible.
We, and especially our politicians, have to decide: do we want to comply with arbitrary, meaningless economic rules, or create well-being for everyone? Stephen Bush's approach is all about appeasing finance. I want well-being.
Bush wants to constrain the delivery of that well-being by imposing arbitrary financial rules to ensure that happens.
I show that without those self-imposed constraints, we can have what we want.
So, why are we siding against what people want and need? That is the question.
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Another effect of austerity is that the various organisations involved in regulation and enforcement have been gutted so that when people report breaches of environmental and planning law little is done which results in criminals getting away with their actions.
“It is difficult to get a person to understand something when their salary depends upon their not understanding it.” (From Upton Sinclair)
Might it be that our seriously flawed democracy, which might be more accurately labelled as a wealth dominated polyarchy, have big money influencing to controlling politics and mass communication to their selfish/anti-social inerests?
While its a bit more complicated than that and its an issue that Richard rightly avoids, its hard to avoid the conclusion that ‘austerity’ is a contributory factor to the two recent ‘head on’ car crash’s in Middlesborough and Ireland.
These are simply the tip of the very expensive iceberg that successive Governments wont pay to melt.
I will not make that link.
I cannot know if it is true.
Good stuff.
“he thinks tax funds public spending”………do you think he is that stupid?
Cos if he is then he should not be writing in the FT. & if he is not that stupid then he is sufficiently badly informed to not be fit to write in the FT.
Of course we could just be seeing Pravda stuff – toeing the party line, writing stuff that keeps his salary flowing and the powers that be – happy.
I think he believes tax funds government spending
I wonder, is there an exception at the FT?
We know there is one apiece at the Guardian and the BBC, but the FT?
If you are correct, then he is unfit to write fore the FT, because he does not understand how govs (with fiat currencies) are funded and the flow of monies and the money options open to gov.
In many ways, quality of life begins at home, so today’s news of more social housing to be built may seem like good news. But as usual, it is tinkering around the edges, a total failure to recognise how big the problem is.
70,000 social and affordable homes will be built in England over the next 10 years as part of an initial allocation of almost £10bn…
https://www.bbc.co.uk/news/articles/cnvly73jrrdo
This article also shows the racist card now being played in housing policy as the Tories, Reform, and Restore are all playing the far-right game of homes for British people. I fear this may appeal to many people, although since when has the right wing of British politics ever addressed the issue of affordable housing? It would only get worse if they got power again.
All the points you make can and should be used in those areas of need like housing (and many others, of course). It is an investment in the future that will pay itself back many times over in terms of the quality of life it would provide for people, and the wealth it would create from that. It may seem simplistic to say it but when people feel more secure and happy in their lives, they are more productive! Society, the economy, we all benefit. What we have now is just depressing, has no answers, and quite frankly, not worth saving.
We made hundreds of thousands a year in the 50s
Now we might do 7,000
That is pathetic
Much to agree with in wat you say
Its misleading to quote how many houses were built in the 50s – much of that was rebuilding after war damage and replacing buildings destroyed in demolition schemes.
That is totally untrue.
We built vast numbers of homes; that is a fact.
You are confusing motive and outcome in a deeply misleading way. Please do not. If comments here are to be useful stick to what is true, or explain your position better.
Because we are obsessed with money as the output? There seems to be no other form of measurement of success except some sort of growth from the input that is cash. I’m not saying that this is the only phenomenon at work here, but seems like a big one to me. The profit motive is king at the moment, but there are limitations as to where market ideas can solve issues, where it just does not work, because the profit is chased over the importance of the function.
My local authority has a procurement process that is centrally governed by faceless people who set it up and tell us – the doers – to use it. What we’ve got is a system designed to get the lowest bid for everything. There is nothing qualitative in it at all – asking project managers what they actually need ( we need good customer service and communication for example, and diligence) but we do not always get that. So what you get actually for lower cost is more risk. The system also does not reward contractors who do a good job, so it flies in the face of how human relations are important in order to ‘get things done’.
No one wants to pay for anything anymore do they? We are so twisted that we even justify giving more money to those who already have more than enough and then wonder we go without. It’s 2 + 2 = Fish. ‘Having’ money is considered more important than what one uses it for.
Thank you. Much to agree with
Amartya Sen created the Human Development Index (HDI) which is nowhere near replacing Kuznet’s GDP. Shame we haven’t moved quicker towards seeing Economics as a discipline whose greatest use could be in understanding and fostering individuals’ capabilities. Maybe the decline of the dollar regime extractive architecture opens up possibilities for a better democratic settlement (ie a redistributive one)?
You express it so well and it becomes so maddeningly simple that it should be tattooed on Andy Burnham’s eyeballs!
I wouldn’t go that far!
Haha ok, maybe just his screensaver then.
I think we now urgently need to focus national effort on mitigating the impacts of climate change and achieving net zero as soon as possible. That means that most of us will have to accept giving up, or cutting back on, many of the things we have come to believe give us a better quality of life. In doing all this, we need to make sure that everyone’s standard of living remains reasonable. In turn, that means a massive shift in priorities and Government getting its hands on many of the levers of control over our economy and well-being. The fiscal rules need to be set aside. There needs to be a new relationship between Government and private capital and business. I don’t think there’s a realistic alternative, other than accepting suffering and misery in the coming decades.
I am not sure that the Baumol effect fully explains what has happened in the UK. For much of the 2010s there were public sector pay freases. Many jobs had a real cut in pay of upto 20% between 2010 and 2022. The turnover of civil servants has increased. And the government solution to all of this is to cut even more jobs. Yet government spending still goes up. There is wide spread fraud in MoD. It has an extremely poor record of recovering funds from known fraud. Politicans give the MoD the benefit of the doubt while it doesn’t for education or welfare.
I note what you say, but I think your claims of widespread fraud may be unjustified.
I also think you may be missing my argument.
And few jobs (except junior doctors) had the cuts that you claim.
Can we stick to facts?
I cannot find any evidence of widespread fraud in the MOD. There is undoubtedly a widespread lack of joined up thinking, and a marked inability to control bloat in very big programmes, but no obvious fraud.
What Bush will not say:-
We cannot prevent global warming destroying the world, we do not have the money to do so.
We cannot fight a war against a superior nation, we do not have the money to do so.
This is nonsensical and in the future will be seen as such. Survival is an existential condition, money is a social construct.
My point was clear, more houses were built for a particular reason, not explaining why is misleading. Much of that was rebuilding after war damage and replacing buildings destroyed in demolition schemes. I did not dispute that a vast numbers of homes were built. But comparing then and now without explaining the different reason is not of much use.
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I disagree. I thought your comment misleading.
I have been a subscriber to The New Statesman for many years. Stephen Bush was the political editor of the NS for some while and I can attest to his abilities as an astute commentator on the political scene from a centreish left perspective. I regretted his move to the FT but even there his work is admirable even in an organ like the Financial Times. It is not surprising that he does not understand how the UK government finances its operations, not only is he immured by the thinking of his colleagues but his wife, Felicity Slater, was Chief of Staff to Darren Jones when he was Chief Secretary to the Treasury until a few weeks ago.
We haven’t broken through yet with enough force to change the paradigm, though goodness knows, Richard, it’s not for want of effort on your part. Until we do we’re going to have to cope with constant casual economic illiteracy.
I / we must keep trying