Destroying the state is no accident – Mainly Macro

Last Updated: December 2, 2014By
This is how George Osborne probably looked after the fire in his pants caused by his incessant lying about the EU's £1.7bn bill burned away the rest of his suit. Note that his briefcase is still empty of policies and all he has to offer us is the carrot of false promises.

In this case, the carrot is the promise of tax cuts, and the empty box is the threat of what it means – cuts to public services.

In a discussion of George Osborne’s plans for the deficit, I suggested that – if we were to take them seriously – they could only be rationalised as an attempt to fundamentally reduce the size of the state, writes Professor Simon Wren-Lewis.

Chris Dillow, following Rick and Giles, seems to prefer the cock-up theory, whereby the destruction of the state is an accidental result of an obsession with the deficit. I’m afraid they are wrong – this is no accident.

I suspect we would not be having this discussion if we were talking about the US. Indeed, Brad DeLong, in commenting on a different post where I ask why some academics so dislike fiscal stimulus, says I’m trying so hard to be fair that I lose sight of the ball. He asks “how can you not think it is all ideology on the other side ..”. That was a discussion about academics, who you might hope were more objective and less politically strategic than politicians.
So why do I think the sharp reduction in the size of the state in the UK is no accident? The most obvious piece of evidence is how the deficit has been reduced. Osborne originally planned an 80/20 split between cuts in spending and increases in taxes. In practice, as Giles pointed out at the Resolution Foundation’s meeting, deficit reduction has almost all been about spending cuts, with almost nothing net on taxation (largely because of the LibDem inspired increases in the personal allowance). If it really is all just about the deficit, why the imbalance? As one time European Commissioner Olli Rehn put it, in complaining that (initially) France was trying to comply with Eurozone deficit rules by putting up taxes: “Budgetary discipline must come from a reduction in public spending and not from new taxes”.

The argument I use in my earlier post is that there is no sound macroeconomic case for a rapid reduction in the share of debt to GDP at a time when interest rates are still at or near their lower bound and there are risks to the recovery. So, if the macroeconomic argument for deficit reduction is unsound, there has to be another motive.

Here on Vox Political we call it ‘Starving the Beast’, an old George W Bush policy in which he cut taxes in order to worsen his administration’s fiscal position, necessitating spending cuts. He turned a surplus of millions into a deficit of billions, if memory serves. Read the rest of this article on Mainly Macro.

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2 Comments

  1. marcusdemowbray December 2, 2014 at 8:40 am - Reply

    The other fact is that the Tories are obsessed with their own dogma on Outsourcing and Privatisation. No matter how often this is proven to be a bad policy (for instance railways) they stick rigidly to it and ignore all problems it creates. The latest Outsourcing plan in discussion is getting squadrons of US Marine pilots and crews s in to operate on our new Aircraft Carriers. Seriously.

    • @neiallswheel December 3, 2014 at 11:22 am - Reply

      True.
      I’m off to search for
      ”cost cutting measures”
      This is a keyword it seems for
      WASTE MONEY
      Atos/bedroom tax/top-down NHS
      Etc..

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