Conservative economic policy is drivel

Here’s a timely reminder from Alex Little that it seems the government is trying to fool us all – yet again.

He writes: A lot of the commentary around the recent Autumn Statement has been around how the plans to move the government’s budget from deficit to surplus over the next five years will involve cuts and a rolling back of the state to 1930s levels of expenditure.

This doesn’t make a lot of sense to me, however, because lower government spending as a proportion of GDP does not mean the deficit would be lower. You can just as easily have a five per cent deficit with the government spending 50 per cent of GDP as you could if they were only spending 35 per cent. The two just aren’t related. For example, Denmark’s government spends about 57 per cent of GDP, but has a budget deficit below one per cent. The US government on the other hand spends about 40 per cent of GDP, but has a deficit of over five per cent.

Absolutely correct. And in the case of the UK, lower government spending will necessarily lead to a lower GDP anyway. George Osborne won’t tell you, but restricting the amount of money circulating through the national economy makes it much, much harder to turn a profit, therefore taxes shrink, therefore government spending has to increase – not just in relation to a lowered GDP but to cover for what they imply for the British people.

It’s probably not possible (even if it were desirable to do so) for the UK to reduce its deficit for the foreseeable future. It has a large trade deficit because countries like Germany, China and Japan have based their economic strategy on exports, so to really cut its deficit, the UK would have to rely on the private sector (households and businesses) taking on more debt. This could work for a while, but as recent history shows us, it’s not really a sustainable economic model. We would probably crash again before the budget was balanced.

This is exactly what the government is doing, though. If nobody has seen the relevant graph, here it is:

141207financial-balances

As you can see, households go from a surplus of nearly five per cent of GDP during 2009-10 to debt of almost the same amount by 2019-20.

So what is this talk of massive cuts all about if it’s not about the deficit? It’s already transparent to many, but it seems to be about ideology. Proponents of a smaller state have given up trying to argue for this on its merits and are instead trying to frighten people into accepting cuts. Will this work? I think not because even if the public did accept further cuts, it’s not a strategy that’s likely to create a smaller state, rather one with worse public services with the cracks being covered by expensive sticking plaster solutions.

We’re already seeing worse public services everywhere – most notably (or indeed, not ably) last week with the revelations about the Border Force.

What are we to conclude?

Simply that the smaller state envisioned by George Osborne means worse public services, households deeply mired in debt, and a national deficit no nearer to being cleared.

Conservative economic policy is drivel.

Follow me on Twitter: @MidWalesMike

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One Comment

  1. Lawrence Roper December 7, 2014 at 5:01 pm - Reply

    They knew after 2007-8 that another crash was coming, our banks never declared the true size of their debts, the bailouts have continued in all but name to keep the system going while the rich, with the ever willing assistance of the Tories have been on a five year smash and grab. They have plundered this nations wealth, exterminated the sick and disabled and driven the poorest into poverty in order that they can emerge from the next crash with their wealth intact.

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