Wednesday, 24 April 2013

Austerity and government spending

Austerity is back in the news. Not that it ever went away, I guess. But it's back, the IMF has told us that we're too austere (thereby contradicting what it said the previous time and the time before that) and the masses hordes of pseudo-economics experts has leapt on the collected words of a few luminaries to say that the government needs to do something different.

They are, however, studiously vague about what that "something different" might look like. One day it sounds like printing loads of lovely pounds and scattering them like confetti across the nation. Later the same folk suggest - in the manner of business snuggling up to government - that we should "invest in infrastructure" with that freshly created and unearned cash.

Mostly though the cries of pain around "austerity" are about government spending rather than economic growth. Sometimes this is wrapped up in barely understood, quasi-Keynesian comments about aggregate demand thereby providing cover for a message that tries to tell us that the answer lies in borrowing more money to spend on (variously) higher benefits, new trains, tunnels under London, "boosting the housing market" and any number of special appeals from health and welfare lobbyists.

The central argument is that the problem is that we (consumers) aren't spending enough. Which is a bit rich when the government insists on taking round-a-bout half of all we earn so it can squander it inefficiently on heaven knows what. Plus of course the rest of the government's strategy - cheered on by the austerity worriers - is to inflate our way out of debt. For sure, we pretend that the high inflation of the past four years has been brought about by special factors but the truth is that the Bank of England, charged with controlling inflation, has been allowed to ignore its responsibilities by allowing that inflation to run well above the target level month in and month out.

Since the government hasn't really cut spending then we have to ask where the austerity comes from? It's a real fact that there are people out there who are more-or-less destitute - the latest reports from those food banks (for all their selective nature) tell us this is so. But are those people destitute because of government spending cuts - spending cuts that, in aggregate, haven't happened? Or are they destitute for some other reason - policy, regulatory or just plain bad luck?

It seems to me that, by focusing on the misguided view that the cure to economic problems lies with government (and central bank) action, we condemn many people to a much deeper 'austerity' that would have been the case had we focused instead on the things that do make people better off, that do end recession and that do prevent "austerity".

Growth comes from adding value - taking or doing things that make lives better, that allow us more time or that give us access to things we didn't have before. It doesn't come from taking money off Fred and giving it to Susan. It doesn't come from regulation, from controls or from the deranged view that a few suited masters in the Treasury can "run the economy". Every day I see exciting, creative people doing things to make the world better and brighter - sometimes just because they care but mostly because they can turn that value into money and that money into nice cars, foreign holidays, fancy clothes and a big house.

That's what will end austerity not government spending.



Barman said...

Excellent post!

People are not spending because taxes and bills (energy, etc.) spiral ever higher...

Employers are not employing because taxes and bills - well, you get the idea I'm sure...

Anonymous said...

Seconded, Barman.

It does seem bizarre that a government with a party that was renowned for its low-tax philosophy should be looking at ever more ways to filch yet more tax out of us – which is what the “minimum price” on alcohol is really all about; which is what the surcharge on soft drinks is all about; which is what the speed cameras have always been about; which is … well, you get the drift.

Radical Rodent

Anonymous said...

Dear Mr Cooke

"Since the government hasn't really cut spending then we have to ask where the austerity comes from?"

That's precisely where the austerity lies - government spending our money on things we don't want. You cannot get more austere than that, save all out war.

"Growth comes from adding value - ".

Government far from adds value - it subtracts value, and therein lies the austerity of government.

Get government out of our pockets: problem solved.

How to do that? Answers on a postcard to ...