We can’t go on like this. Cut the deficit obsession, not the deficit.
There have been a number of mash ups of the David Cameron “We can’t go on like this” poster. Possibly the most entertaining is this:
There has been, however, a concerted campaign by the political right to exploit the current recession for their longer term aims. The Conservative party, backed by the Taxpayers’ Alliance and other right-wing think tanks has been very quick to focus debate on the budget deficit. Their solution is to radically cut public spending.
The inevitable outcome of cutting public spending will be a reduction in jobs. Of course this doesn’t matter to the Conservatives or their paymasters in big business. The more unemployment there is the more pressure to keep the minimum wage low, the more unequal society becomes, and the greater the advantage enjoyed by the rich.
The need to cut the deficit seems to be based on concern about the credit rating enjoyed by Sterling. The logic is that losing a ‘triple-A’ rating will make borrowing more expensive in future. We have to question though, the wisdom of slavishly following what credit rating agencies dictate. Paul Mason, BBC Newsnight’s economics editor, suggests that, in fact, many in the markets believe that UK debt is undervalued, and that even the loss of a ‘triple-A rating’ would make little difference to the government’s ability to borrow.
There’s a particular irony in economic collapse caused by the financial services industry being exacerbated by the financial services industry at the cost of everyone outside the financial services industry.
The government is hampered here by its policy of pampering the ultra-rich. Running an economy that benefits a tiny number of very wealthy people (bankers in short) makes it difficult to share the benefits of growth through taxation. People so wealthy they can easily relocate cannot easily be taxed. Had the economy been focused on high value jobs paying medium to high salaries the solution to these problems would be easy: raise taxes.
Furthermore, what’s lost in this debate is the very substantial damage that cuts in public spending will do to the country. Public spending allows us to invest in education, which in turn increases employability. In order to cut public spending Peter Mandelson is proposing swinging cuts to bring Universities to their knees.
Public spending allows investment in preventative health. This would cut health service costs in future. It will, no doubt, face cuts.
Investment in crime prevention, debt advice, mental health services and pre school care all have long lasting beneficial effects on individuals. These beneficial effects are also economic. Not having to pay for prison, bankruptcy and anti-depressants, and enabling women to work, reduces the burden on state expenditure.
This is a much more real threat than that posed by the credit agencies. The cuts in short term public spending will definitely lead to increases in long terms spending. Much of the money spent by the current government went on repairing the damage caused by the Thatcher government’s policy of mass, structural unemployment.
So, what is to be done?
The debate needs to be reframed. We must resist the idea that cuts are necessary. The way out of this situation is to invest in both physical and social infrastructure. Rather than finding new and innovative ways to cut public services, we need to fight for public services. As Patrick Harvie rightly points out, we must oppose right wing attacks on public spending.
This investment will pay dividends over the coming 20 or 30 years. The Green New Deal proposes a growth in mid to high income skilled jobs creating low carbon, sustainable infrastructure. This will be effective both in tackling inequality and in dealing with climate change. For those who are worried about deficits, it will also create the tax base that will, in the long term, repay the national debt. This will leave the country with a legacy of greater equality delivered in a sustainable way.
The alternative is a legacy of more imprisonment, lower social satisfaction, greater inequality and a structurally unfair society. We really couldn’t go on like that.
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The Keynesian argument is well rehearsed. And yes, we are a party of the left, but that doesn’t mean we follow the mantra of unsustainable borrowing practiced by many on the far left. For me it’s all about changing the priorities followed so monotonously by mainstream parties. As I say, quality of life is the measure we should use, not GDP.
Casual reader or not, Peter is suggesting higher spending – for very sound economic reasons. In a recession, consumers spend less. That makes perfect sense for every family and they’re right to do so.
But the combined effect of those kitchen-table decisions is to collapse total spending and this leads to a downward spiral of unemployment and recession, unless the government steps in to replace some of that economic activity.
This is why all but economic illiterates like the Tories realise that you do not cut in a recession. Even Alistair Darling knows this, he’s just too politically timid to say so because he thinks the electorate are so bewitched by Cameron that they could never possibly believe he’s got it wrong.
Peter is not necessarily proposing higher taxes. Borrowing is not inherently unsustainable, and our public borrowing is still not even that high by historic standards. Take into consideration that a huge portion of that borrowing is not revenue loans for intangible spending – like teachers’ pay – but in fact a mortgage on bank equity which has a substantial and rising market value of its own, and you start to see that news of our fiscal demise has been greatly exaggerated.
You may be right to say that surpluses ought to have been run higher during more successful years, but cutting to deal with that now would be like installing fire alarms in the ashes of your house. And the failure to run up surpluses has been in no way severe enough to preclude a sensible, stimulus-based response to this recession.
One final point, which may be my most contentious – the Greens are a party of the left. Pretending otherwise is not only intellectually dishonest but also, in a country with no other viable party of the left, a massive wasted opportunity.
All very well but a tad simplistic, Peter. We increased spending on education – and it went into increasing teachers’ pay (albeit back to 1976 levels in real terms); we increased spending in NHS (with NIC rise) and it went on financial consultants, not medical ones. we also need to be aware that long term borrowing is unsustainable, and sustainability is what we’re all about, isn’t it?
Rather than sounding like tax ‘n’ spend lefties (which is what a casual reader would take from your article), I would concentrate on changing priorities. Let’s cut spending … on foreign wars, Trident, non-renewables. Let’s invest for the future in renewables, loft insulation and affordable council housing. Quality of life is what we aim to improve and spending priorities must reflect that and not get caught up in a right/left spat.
My real grouse with Brown was he spent, and went on spending when we were not in recession but were booming. Sustainable? At that time we should have been repaying debt, though not many on the left were saying that.
Tom, yeah, I know. The ‘household economics’ language is one of those things that really annoys me about all of this. And yes, it is quite difficult to talk about. But when you make the debate about public spending cuts, people get that. And when you say cutting spending will lead to unemployment and so deepen the recession, people sort of get that, so I think it is possible for people to get the broader ideas, if we can find the right language…
All good stuff, but getting that message across is incredibly difficult. Arguing that the deficit isn’t that disastrous is complicated, for example:
People much prefer to think of government finances like household finances. You want to get rid of your debts pronto, and any more spending will just make stuff worse.
Darren Johnson wrote a piece for CiF recently about London’s economy, and got harangued by comments focused on his proposals for spending:
Getting the argument across quickly, and in a way that makes sense to the average person who isn’t going to spend a lot of time thinking your argument through – now that’s a challenge. I can almost see why Labour and the Lib Dems jumped on the bandwagon.
Thanks Peter, this is a really excellent piece. We need to get the message out that, in a time of recession (and often the rest of the time too), public spending pays for itself.
As well as the reasons that you give – investment in the future (both shirt term and long term) it’s also important to explain the multiplier effect to people. I may write a blog post on this, hmmm…