British austerity open thread

by Chris Bertram on October 20, 2010

490,000 public sector jobs to go, and just wait for the multiplier effects.

Here’s Joe Stiglitz :

Thanks to the IMF, multiple experiments have been conducted – for instance, in east Asia in 1997-98 and a little later in Argentina – and almost all come to the same conclusion: the Keynesian prescription works. Austerity converts downturns into recessions, recessions into depressions. The confidence fairy that the austerity advocates claim will appear never does, partly perhaps because the downturns mean that the deficit reductions are always smaller than was hoped. Consumers and investors, knowing this and seeing the deteriorating competitive position, the depreciation of human capital and infrastructure, the country’s worsening balance sheet, increasing social tensions, and recognising the inevitability of future tax increases to make up for losses as the economy stagnates, may even cut back on their consumption and investment, worsening the downward spiral.

{ 76 comments }

1

christian h. 10.20.10 at 2:37 pm

If British workers don’t take the brilliant French example to heart over these insane cuts (I mean that literally even within the most neoliberal ideological context these cuts are an act of insanity) they will be in trouble. If ever a general strike was the answer, it is now.

2

JulesLt 10.20.10 at 2:43 pm

I’ve taken note of the 35 individuals who signed the letter to the Telegraph yesterday; if – as I suspect, the private sector fails to generate growth at a pace to match the loss of public sector spending, I hope they will be held to account by the hundreds of thousands of people affected.

(The cynical part of me wonders whether the Conservatives actually want to engineer higher unemployment in order for them to then justify the removal of the minimum wage, and other legislation that is ‘preventing’ the private sector from creating jobs).

3

Phil Ruse 10.20.10 at 3:10 pm

Yet people only advocate Keynes when times are tough; funny that. Had the Labour government actually practiced Keynes through the ‘good times’ rather than continually spend in excess we would at least have the option.

4

Steve LaBonne 10.20.10 at 3:13 pm

Yet people only advocate Keynes when times are tough; funny that.

Maybe UK people- I don’t know- but in the US the last time we had a Democratic president in prosperous times he ran a surplus, which his conservatard successor quickly turned into a huge deficit.

5

nick s 10.20.10 at 3:23 pm

Quoting Sunder Katwala: “Boisterous cheers on Tory benches, which seem full of jolly young men who did very well from the long boom & don’t fear cuts personally.”

(I can’t help thinking that collective punishment on the Daily Mail’s readership would be more in order.)

The cynical part of me wonders whether the Conservatives actually want to engineer higher unemployment in order for them to then justify the removal of the minimum wage

You’re overthinking it: the Tories want to engineer higher unemployment because they deeply enjoy fucking over the working class, plus they remember how good it was for Tarquin and Pippa in the mid-80s.

6

ejh 10.20.10 at 3:33 pm

The confidence fairy that the austerity advocates claim will appear never does, partly perhaps because the downturns mean that the deficit reductions are always smaller than was hoped

and partly because what actually improves business confidence is selling more stuff which you can’t do if people have less money to spend.

7

Paddy Matthews 10.20.10 at 4:14 pm

multiple experiments have been conducted

All they need do is look next door, where ever-more swingeing cuts continue to depress the economy and push up unemployment and emigration, without producing the deficit reduction that is meant to be the whole point of the exercise (and that deficit is continuing to increase even without taking into account our bank bailouts).

http://www.irisheconomy.ie/index.php/2010/10/20/are-the-gdp-numbers-surprising/

It’s a teachable moment, I suppose, but some of us have to live with the after-effects.

8

rageahol 10.20.10 at 5:01 pm

It doesn’t get much press here, but I know that in the US there are currently people studying the macroeconomic effects of the 1% of our population we have in prison. I’m not an economist, but this leads me to believe that the effect is significant.

The UK govt has proposed to lay off almost 2% of their working age population, in order to save money; does it appear that they have given any consideration to potential macro effects from such a huge move?

9

Steve LaBonne 10.20.10 at 5:23 pm

It’s a teachable moment, I suppose, but some of us have to live with the after-effects.

It’s not even that. The usual suspects will never learn, no matter what. Their ideology has the force of a religion and is impervious to experience.

10

Keith 10.20.10 at 5:29 pm

Part of me is beginning to think that our leaders are doing this on purpose, trying to starve the poor and middle class into submission. They look at third world countries and see that the upper class has an easier job of ruling things, because everyone else is too distracted by the search for work and food to get uppity and start demanding inconvenient things like health care and infrastructure that works. But then, this sort of neo-feudalist agenda would require someone competent to be in power and that’s where the whole conspiracy theory falls apart.

11

praisegod barebones 10.20.10 at 5:38 pm

The cynical part of me wonders whether the Conservatives actually want to engineer higher unemployment in order for them to then justify the removal of the minimum wage, and other legislation that is ‘preventing’ the private sector from creating jobs

Of course they do.

12

Trevor 10.20.10 at 5:50 pm

Q: So can now people admit capitalism is failing and really and truly start endorsing various interpretations of Marx once again with complete legitimacy? Are there really people who think this situation is to be ‘reformed’?

Fukuyama, eat your heart out!

13

Uncle Kvetch 10.20.10 at 5:57 pm

My fear is that Obama is watching this unfold and taking careful notes…a nice austerity budget would prove his Grown-up Serious Person bona fides once and for all, bring lavish praise from the Beltway centrists, and get the wingnuts to finally stop calling him a Marxist.

OK, scratch the last part, never gonna happen. But the rest of it…

14

Map Maker 10.20.10 at 6:00 pm

What’s the difference between the Greece and the UK? Nicer weather and 4 years.

4 years hence, with a debt to gdp closer to where Greece is today, the choices the UK will face will be more between Zimbabwe-level devaluation or more likely, selling expensive debt to the russians or chinese to continue to pay for a state which the country neither wants nor can afford.

15

christian h. 10.20.10 at 6:35 pm

Yes Map Maker, why deal with reality if you can just as well invent it?

16

Stephenois 10.20.10 at 7:35 pm

I guess a lot of us will be dusting off our copies of Capital some time soon…

17

matt 10.20.10 at 7:41 pm

Wait a bit, the UK is still a parliamentary state, is it not? If enough M’sP would vote against this proposal, it might then cause the government to fall and a new one made or be elected?

18

Alan 10.20.10 at 7:45 pm

The cost of gardeners, nannies and teachers goes down. What’s wrong with that?

19

Steve LaBonne 10.20.10 at 7:55 pm

Be very afraid, Uncle Kvetch. Recently he’s again been talking about the government having to “tighten its belt” in “a sensible way”. And of course he may soon be wanting to capitulate to “compromise” with John Boehner to make sure that there will be no nasty outbreaks of (Democratic) partisanship..

20

SamChevre 10.20.10 at 8:02 pm

Well, if government tightening its belt in a sensible way includes pushing the retirement age up and cutting military spending (the two biggest components of the British plan as best as I can tell), it might actually be sensible.

21

Steve LaBonne 10.20.10 at 8:06 pm

Raising the retirement age in the teeth of the current job market is anything but sensible.
Neither is cutting overall spending when there’s a huge deficiency of aggregate demand. Even cuts to military spending right now should be done only if more than offset by new civilian infrastructure investment.

22

Stephenois 10.20.10 at 8:08 pm

SamChevre, by anybody’s reckoning those are not the two biggest elements of the ‘British plan’. They pale in comparison to the £7billion cuts in welfare spending, or indeed the total of 28% cuts in council spending over the next four years. The retirement age rise won’t even happen until 2020 and we’re still keeping our Aircraft Carriers and nuclear missile system, for Christ’s sake!

23

novakant 10.20.10 at 8:08 pm

They look at third world countries and see that the upper class has an easier job of ruling things, because everyone else is too distracted by the search for work and food to get uppity and start demanding inconvenient things like health care and infrastructure that works.

I would argue that this is the case in most “first world” countries as well, if on a different level.

24

Davis X. Machina 10.20.10 at 8:17 pm

“Wait a bit, the UK is still a parliamentary state, is it not? If enough M’sP would vote against this proposal, it might then cause the government to fall and a new one made or be elected?

Depends on whether legislation to make Parliaments fixed-term, five year entities passesor not. There’s supposed to still be votes of no-confidence possible, but who really knows?

25

Stuart 10.20.10 at 8:33 pm

Surely the plan is that only for a short while do the Conservatives have a mandate to bring in cuts of any significance, so they are pushing the boat out while they can, cutting faster and harder than would make any economic sense. This is likely to cause a strong recession, no doubt to leading to lots of union activism sooner or later, which will feed into their long term project of weakening and breaking up unions – which has the dual effect of being very popular with a number of their most important funders, as well as cutting off funds to Labour if they are successful.

26

Charlie 10.20.10 at 8:36 pm

It’s reported that disability benefit is to be limited to one year for those disabled people who have savings or a partner with a job. This is extremely harsh. Perhaps the idea is that a lot of disability benefit claimants are shirkers who need to be shaken out of their complacency. Well, even if you were justified in thinking so, the disabled would still be disabled: the idea is to compensate them for that. After all, it’s not hard to imagine how much more difficult your own life would become were you to suffer a disabling injury or illness; what’s more, this is something that could very well happen without anything that could be described as delinquency on your part. I think the rights and wrongs here are so obvious, and room for doubt so extensive, that most would put disability benefit cuts a long way down the list, such that really bad things would have to happen before it went. The coalition has made it national policy to cut it now.

27

mpowell 10.20.10 at 8:48 pm

What is inflation in the UK looking like right now? I thought contra the $/Euro, they were actually seeing some inflation and maybe expansionary fiscal policy actually had some downside. Of course, if you have inflation and high unemployment eventually you get to run a trade surplus, right?

28

Substance McGravitas 10.20.10 at 9:15 pm

Perhaps they should cancel the Olympics. Big waste, right?

29

Phil 10.20.10 at 10:28 pm

JulesLt – the hundreds of thousands of people affected have no mechanism for holding those people to account. This is not accidental.

30

Tom M 10.20.10 at 11:42 pm

Map Maker selling expensive debt to the russians or chinese to continue to pay for a state which the country neither wants nor can afford.
Watched Spooks have we?

31

jon livesey 10.21.10 at 12:23 am

It’s an interesting pickle, isn’t it. 490,000 jobs you don’t want to get rid of because it risks shrinking the GDP – and it does. 490,000 jobs you do want to get rid of because they are basically worthless activities that do little or nothing to create wealth – and they don’t. 490,000 jobs you may want to defend because Tories want to abolish them. 490,000 jobs you shouldn’t defend because they are the outcome of a decade of Labour creating a client state. 490,000 jobs the Tories may want to get rid of because secretly they have ideological reasons for doing so, and care about those reasons a lot more than they care about the economy. 490,000 jobs Labour want to rescue with the excuse that they care about the economy, but secretly they just don’t want to have to go to the trouble of creating that client state all over again.

32

sg 10.21.10 at 12:35 am

Isn’t there going to be a 60% cut in social housing funding, with a lot of people expected to “take the choice” of living in new apartments built to lower standards, at 80% of market wage? In combination with the welfare cuts and the viciousness of the cut to disability benefits, that is going to create a very large pool of extremely poor people.

And where are they going to get jobs from to make up for this cut in their income?

In addition to the long-term damage these cuts going to do to the British economy, my guess is they’re also going to a) eviscerate British science, b) eviscerate the lib dems and c) be the nail in the coffin of any actual meaningful attempts to reform UK government spending in future. Any future Tory criticisms of govt spending will be compared to this austerity drive, and laughed at, no matter how good they are.

33

Davis X. Machina 10.21.10 at 12:55 am

A proper Viking funeral for Baroness Thatcher seems to be in the works.

34

engels 10.21.10 at 1:10 am

‘No mechanism for holding those people to account’ – to be fair there are quite a few mechanisms for doing this, just not ones I could personally advise using. I don’t know if any of the growing number of British people with no jobs and no entitlement to benefits will feel differently.

35

bxg 10.21.10 at 2:34 am

I don’t know the U.K. so well . But it seems to me entirely possible that a country might end up offering – temporarily – vastly greater socialized benefits than it can afford. For sure, there are real (long-term) affordability limits for everyone: e.g 3rd world countries cannot offer the same safety net that a west-European country can, no matter how compelling the case or strong the wish. Less for sure, but plausible to me, is that vagaries of the business and credit cycle might allow a country to live well beyond its means for an extended period of time.
No commenter beside @32 seems to give the faintest credit to the idea that these actions might be response to a real problem in terms of what the U.K can actually afford. But more surprisingly, no one else commenting gives any credence to the idea that the Conservatives/LibDems might even _believe_ there is an urgent affordability problem (even if they are wrong); the blog seems to be competing to discover the basest “real” motives for this.
From afar, this seems peculiar. Is there just no economic case that could make what they are doing appear (to them) to be a _necessary_ evil? Is there no reasonable benefit of the doubt that is pertinent?

36

JG 10.21.10 at 2:48 am

There is an (incorrect) economic case, but there is no reasonable benefit of the doubt that is pertinent.

37

rageahol 10.21.10 at 2:54 am

At a fundamental level, saying “we can’t afford social spending” is functionally equivalent to saying “poor people’s lives are less important than our desire to not tax rich people.” You can natter about the debt, etc, but that can convievably be dealt with by taxing the wealthy and redistributing income so that there’s less of a wealth disparity.

Or at least that’s how it is in the US.

Next step: debtor’s prisons.

38

bxg 10.21.10 at 3:13 am

JG: Do you mean that any economic case that might be made is so silly that we can assume that the coalition members are aware of its falsity?

That’s what I’m trying to get at: are these actions so obviously wrong that we must immediately assume dishonourable motives, or is it somewaht plausible that those supporting them truly believe that they are doing the responsible thing in the face of (in their opinion) dire circumstances?

I am struggling to see enough context whereby the second option is clearly inconceivable (as it is to most commenters).

39

ScentOfViolets 10.21.10 at 3:24 am

That’s what I’m trying to get at: are these actions so obviously wrong that we must immediately assume dishonourable motives, or is it somewaht plausible that those supporting them truly believe that they are doing the responsible thing in the face of (in their opinion) dire circumstances?

Turn this around: what would convince you that these people really had dishonorable motives? Or are you suggesting that they’re just hopelessly deluded, but honest?

Admittedly, this is a judgment call, that point at which you throw up your hands and you realize that apparently no amount of information to the contrary will get these people to drop their wrong-headed notions. But it seems that either you’re saying the call should never be made, or you have a pretty good idea of where to draw the line (at least in this instance), in which case maybe you should tell us where you think that line should be.

40

sg 10.21.10 at 3:58 am

I was willing to believe that David Cameron genuinely thought his economic policies would help the poor, but to continue to believe it in the face of these policies you need to credit him with an awesome truckload of stupidity, because that’s the only charitable interpretation of them. Occam’s razor seems to suggest that he’s just a bastard. I’m disappointed, actually, because his “big society” ravings implied that he might actually have some ideas (however silly) in his head that were conservative but different to “fuck the poor.” Oh well.

I for one believe that UK government spending needs significant reform but not necessarily reduction. I don’t think a government should be able to spend that much money – particularly with social housing and welfare such as it is in the UK – and still have so much inequality. So there seems to be a case for better targeting, more effective programs, etc. But a country can sustain a much higher debt than the UK and still be doing perfectly fine, so I don’t see why welfare reform needs to be related to cutting spending at all – particularly at this stage in the economic cycle.

41

Davis X. Machina 10.21.10 at 4:13 am

“…I don’t see why welfare reform needs to be related to cutting spending at all – particularly at this stage in the economic cycle.”

It has to do with virtue. And righteousness. Both will increase dramatically under the proposed Osbourne budget. And after all, isn’t that what really matters?

42

praisegod barebones 10.21.10 at 5:02 am

From afar, this seems peculiar. Is there just no economic case that could make what they are doing appear (to them) to be a necessary evil? Is there no reasonable benefit of the doubt that is pertinent?

No. This government believes that public sector workers are ‘the enemy within’. We’ve been here before.

These are the actions that deminstrate that they are no longer entitled to the benefit of the doubt.

43

Charlie 10.21.10 at 6:04 am

36:

But more surprisingly, no one else commenting gives any credence to the idea that the Conservatives/LibDems might even believe there is an urgent affordability problem (even if they are wrong); the blog seems to be competing to discover the basest “real” motives for this.

They may believe this, in some sense of ‘believe’. But there are three debates here.

One is whether or not it’s fiscally prudent to withdraw £n bn from the economy in the short term.

The second concerns taxation and total spending: if you believe that fiscal policy needs to change, what is the fairest way to adjust the balance of revenue and expenditure?

The third debate is about the cuts themselves, if you believe that cuts are justified. It turns out that the coalition has leaned heavily on the knife that cuts welfare for the unemployed, the disabled; people of working age with low incomes. They’ll get less (or nothing) and their rents will go up (if they live in local authority housing). The rent increase in particular gives the game away. Even those who believe that Labour created a ‘clientele’ could see their way to a different sort of settlement: for example, you could demand that doctors take a pay cut. It’s obvious that the coalition is being moralistic about this: in their view, if you’re without a job, it’s because you’ve chosen to be without a job, disability or no disability. And you should get a job, and pay your way.

44

Anonymous 10.21.10 at 7:35 am

The process by which decisions about cuts have been made, in the small area of Government that I am aware of, has been intellectually threadbare. It is not that the evaluation of evidence has been inadequate, or the judgement of effects has been hasty. There has been no evaluation or judgement. There hasn’t been any attempt to manage the process in a rational way. I was expecting to disagree with the results, but I was shocked by the gleeful disregard for rational judgement: ‘We are the masters now’ – as if that were the end point, not the start of a difficult job of work.

Furthermore, when a question about costs and savings associated with this change was asked in the House, the Treasury intervened to override the figures that we provided to make it seem as if the savings were twice as high as they actually were. The impact of this tiny change on overall budget is minimal, and I don’t know if other ‘savings’ figures have been massaged.

It makes me wonder whether the overall budget balancing is based on massaged fake figures. Do they believe their own propaganda? What is the plan?

(PS I am going anon for this)

45

engels 10.21.10 at 7:56 am

To be fair, the policy of using the state to attack an already disadvantaged, stigmatised minority in times of general economic hardship is not entirely original to Cameron.

46

sg 10.21.10 at 8:09 am

True engels, but doing it in a way calculated to maximally piss off your coalition partners (and their voters) and wreck the economy super quick – that surely has to be a novel idea of Dave’s.

47

Chris Bertram 10.21.10 at 8:19 am

@46 they don’t seem pissed off at all.

Clegg: LD values written through the spending plans “like the message in a stick of rock”

A quote that will, I hope, come back to haunt him.

48

Charlie 10.21.10 at 8:21 am

I’ve just managed to skim read the government’s distributional analysis of the spending review (it’s one of the appendices to the Treasury spending review report). It looks as though this is what Osborne is using to back up his claims of today and yesterday that the spending review (or, more charitably, government policy in toto) will impact the richest quintile / decile hardest. I’ll have a proper read of it later today. But have a look. Is he right?

49

sg 10.21.10 at 8:24 am

The party or the voters, Chris? I suspect (and hope!) that the lib dems are going to suffer horribly at the next election once the reality of this sinks in.

50

Chris Bertram 10.21.10 at 8:46 am

@48 – “is he right?”

the IFS will tell us the answer to that.

51

Alex 10.21.10 at 8:51 am

I think the bit that does the work in the distribution analysis is that it’s all about “benefits in kind” and the cuts are concentrated on benefits in cash, like housing benefit, disability benefit etc. I’ve not done any calculations, but I have read it, and the thing that springs out as the answer to the question “what is the unstated assumption here?” is that.

52

ajay 10.21.10 at 9:08 am

But a country can sustain a much higher debt than the UK and still be doing perfectly fine, so I don’t see why welfare reform needs to be related to cutting spending at all – particularly at this stage in the economic cycle.

As a percentage of GDP, the UK’s debt interest payments are lower now than they were for most of the last century, and the national debt is smaller now than the average for the last century.
So, yes, you’re right.

53

Tim Worstall 10.21.10 at 9:09 am

The reactions do seem just a tad over the top. The declared aim is to get govt as a percentage of GDP back to about 40%. Just over the post WWII average. Somewhere around OECD average I think.

This may not be the right time to do this for macro reasons but it’s hardly the slaughter of the innocents that some seem to be claiming it is.

54

Alex 10.21.10 at 9:11 am

Thank God we saved those £5bn in interest payments. It only cost £80bn…another of these victories and we’re fucked.

55

sg 10.21.10 at 9:12 am

Yeah Tim, if you discount the massive inequality in British life, and the (purported) role of the state in reducing it or preventing it from getting worse.

56

Phil 10.21.10 at 9:25 am

Is it possible they’re acting in good faith? On reflection I’m not sure I understand the question. Mrs Thatcher quite genuinely and sincerely believed that trade unions should have no influence on government, that white people were right to worry about being ‘rather swamped’ by immigrants, that Agosto Pinochet was a great statesman, and so on. (Conviction does tend to be an asset for right-wingers, if only because left-wingers in power are perpetually looking over their shoulder and trying to keep the Right sweet. I think this was a large part of the appeal of Tony Blair – at last, a Labour leader who has convictions and doesn’t keep apologising for them! Just a shame about what the convictions were.)

Anyway, I’m sure Cameron and Clegg genuinely and sincerely believe that they’re doing what needs to be done, because they’re doing what they’ve always believed needs to be done – they’ve both been quite open about this (intermittently in Clegg’s case, admittedly). Whether people who don’t already believe in destroying public services can be persuaded that the current situation objectively requires measures involving the destruction of public services – well, not many have been. Even the IMF says that cutting in a downturn makes matters worse 99 times out of 100.

engels – I don’t think we disagree (insurrection is not a mechanism).

57

bunbury 10.21.10 at 9:47 am

I can’t stand the “lump of government” argument. It handily moves thngs away from questions of people’s jobs, pensions, education, anything that really matters basically while not addressing actual government intrusions. It falls apart in the US where tea party protestersdemand that government keep its hands off Medicare. Even admitting that there is a useful one number measure worth reducing, doing it when the macro conditions are wrong really is nasty. It means lots of unemployment on a scale that will be intrinsically damaging and worse because Cameron, Osborne and Clegg are manifestly not in it together with the half a million people they are sacking. It is all vomit inducingly reminiscent of post Bullingdon Club vandalism.

That said, the Evening Standard is claiming that making the cuts smaller than Labour was supposed to be committed to is a political triumph. It’s surprising, but surely they can only be making such small cuts if things aren’t as bad as they have been saying. It’s probably true but surely not a point they really want to make until they can take some credit for it.

58

Tim Worstall 10.21.10 at 11:04 am

“As a percentage of GDP, the UK’s debt interest payments are lower now than they were for most of the last century, and the national debt is smaller now than the average for the last century.”

The first part….yes, because interest rates are low. And isn’t one theory about how we ended up with a massive financial bubble because….interest rates were too low?

As to the second, yes, but then we did spend most of last century trying to pay for having fought two world wars. What’s the excuse now?

59

Chris Bertram 10.21.10 at 11:12 am

_The declared aim is to get govt as a percentage of GDP back to about 40%._

A policy that fails to increase GDP won’t help that, a policy that ends up shrinking it will make things worse.

60

engels 10.21.10 at 11:15 am

Phil, I’m sure we agree: I was being facetious. Another reason that conviction comes easily to right-wingers is that they are often very stupid.

Shorter Worstall: Calm down everybody – I’m going to be fine!

61

paul hebden 10.21.10 at 11:38 am

50
The IFS has alluded to the fact that, unlike budgetary measures, it is difficult to judge how specific changes to public service provision affect different socio-economic groups. The difficulty of providing this sort of information is one reason why the IFS (and the Treasury?) has apparently shied away from this sort of analysis in the past. The fact that the Treasury HAS decided to include this information this time around could reflect its willingness to be transparent??? (Personally I doubt it)
I predict a dispute between the Treasury and IFS on how correctly to reify this kind of information.

62

engels 10.21.10 at 11:58 am

63

Earnest O'Nest 10.21.10 at 12:03 pm

Tim Worstall is right: it is about getting us back to the post-WW II society.

64

Tim Worstall 10.21.10 at 12:25 pm

“Shorter Worstall: Calm down everybody – I’m going to be fine!”

Of course I will. I don’t either live or work in the UK.

Like, umm, most of the people here commenting.

65

ajay 10.21.10 at 12:38 pm

As to the second, yes, but then we did spend most of last century trying to pay for having fought two world wars. What’s the excuse now?

Who needs an excuse? Good grief, we’re not having some sort of moral debate here. I’m pointing out that if having debt at current levels is a crisis, then most of the last century was spent in a state of crisis; and that wasn’t used then as a justification for this sort of action.

66

belle le triste 10.21.10 at 12:56 pm

The “excuse now” is of course that “we” have spent the last four decades battling to demonstrate that capitalism as an overall system doesn’t solely benefit the upper smaller tranche of humanity, and beggar the rest. The bill for this lie is now due, and upper tranchers like Worstall are entirely happy that the rest pay it. Silly sad poor, for ever trusting the robber elites when they promised that yes, the system CAN be tweaked to benefit all!

67

sg 10.21.10 at 12:56 pm

It’s worth pointing out that lots of countries have higher debt than the UK. The idea that it’s going to go bankrupt in its current state is just silly. You don’t see the Japanese government embarking on this kind of slash-and-burn policy, and their debt is much higher (50%?). They also don’t have a “demographic bulge” who they can expect to keep paying it off in the future.

It’s all feeble excuses for the time-honoured conservative schtick, their one and only solution to all problems: Fuck the Poor.

68

Chris Bertram 10.21.10 at 1:41 pm

And here’s what IFS say about the distributive impact …..

http://www.ifs.org.uk/publications/5313

69

Richard J 10.21.10 at 1:53 pm

Thanks for that, Chris. Depressing reading.

70

Uncle Kvetch 10.21.10 at 2:12 pm

The bankers went on a 5-year bender, and as a result the rest of us get to spend the next 30 to 50 years picking up broken champagne bottles and mopping up puddles of puke. But as the Sullivans and McArdles are quick to point out, it’s the bankers who deserve sympathy — they have terrible headaches from all that champagne, the poor dears.

71

Steve LaBonne 10.21.10 at 2:14 pm

No, Uncle Kvetch, even that isn’t enough- we also have to let them steal our houses.

72

Paul 10.21.10 at 8:56 pm

Martin Wolf’s Free Exchange July 12 debate over the Land Valuation Tax has really got me thinking about the idea of how land value is created and the many problems inherent in the Neo-Classical idea of the economic effects of social welfare.

As an undergrad in a basically “freshwater” US university, professors have drilled into my head the idea that public services and goods provided by the govt are inherently wasteful because they are inexcludable. People who can’t pay for them will still use them because it’s more costly to prevent their access.

This analysis seems logical at first, but misses one huge factor: land/location are finite.
Public goods are excludable, because to use them requires access, which is a finite resource.

Access to public goods and the quality of those goods are both reflected in the price of the land. If you believe in markets, you better damn well believe that they can accurately price in the desirability of local public goods.

In this context, I don’t understand how the proposed cuts could be desirable for ANYONE in the UK. Land owners will see further falls in already over-leveraged land values; labor will feel the effects of govt austerity directly through public payroll downsizing and indirectly from the effects of decreased land values; businesses will see a sharp contraction in demand in direct govt purchases, increased unemployment and decreased land values.

I would really appreciate it if someone could point out any flaws in my reasoning.

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Akshay 10.22.10 at 10:21 pm

Paul@73: While no economist, I believe you are quite right that land or housing prices can be used to put a ‘market value’ to public goods. It is the basis of the ‘hedonic pricing’ method in cost-benefit analysis. However it appears your professors are making moral errors which are rather more fundamental and on which I dare make some non-economic comments. In no particular order:

1. Do they really think we should design levees (a public good) which protect only the rich who can pay for them, but will drown the poor who can not, thus enhancing efficiency through excludability? Do they have any sense that the lives of the poor are worth as much as those of the rich? Do they realize that the market will value the lives of the rich more? Is this morally right?

2. Does it make any empirical sense to say defense spending is wasteful because the military protects the undeserving poor as well as the rich? Defense spending is wasteful because of the might of the military-industrial complex and its rich rulers. The poor do most of the fighting and dying.

3. How can a good be “inherently” wasteful? A means of reaching a goal can be wasteful relative to some other means, but if the goal in question can only be reached through government action, what physically impossible non-government means are they comparing the government action to?

4. Have they heard about ‘value pluralism’? Non-monetary values? Community? Citizenship? Responsibility for future generations not present in the market? Is it clear that the ability to value everything in money is an assumption, not a conclusion of micro-economic theory (derived from “the well-ordering of preferences”) ? That you can drop this assumption and still do brilliant ethics and political theory? That cost-benefit analysis is not a metaphysical necessity?

Seriously, IMHO the problem with freshwater economics isn’t the deductions, it’s the assumptions. If you want to undrill them from your head you can read non-freshwater economists like, you know, Adam Smith or Marx or Keynes or Schumpeter or Amartya Sen for a contemporary example. Even better, follow a course in the history of philosophy, or political science or sociology or psychology or cultural anthropology or literature or…[NB: the great thinkers are often better reads than your textbooks]. Or higher math, which will make the assumptions of market liberalism glaringly obvious.

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Tim Worstall 10.23.10 at 1:04 pm

“As an undergrad in a basically “freshwater” US university, professors have drilled into my head the idea that public services and goods provided by the govt are inherently wasteful because they are inexcludable.”

One way out of this tangle is to be clear about what actually is a public good.

Unfortunately there are at least two meanings which get tangled in with each other.

The precise, economic, meaning is a good (or service) which is non rivalrous and non excludable. In the usual exposition this leads to the observation that such goods will be under provided in a pure market system and that thus there is a valid argument for their being State subsidy to, possibly State provision of directly, this good or service.

That State subsidy or provision to be paid for from general taxation as it’s the only way to get around the freerider problem: precisely because we can’t exclude anyone from using it once it exists, and the non-rivalrous nature means that we don’t deplete it by its use, then there’s no real way for the private sector producer to profit from having produced it. Thus we don’t get enough of it, thus pay for the supply through taxation.

However, public goods and services also, in the minds of many, mean goods that the public think would be good for them, even simply goods provided to the public. There might be other, political, reasons why these should be State financed or provided, but it’s not the actual “public goods” argument.

As an example of the distinction, consider vaccinations and health care.

Vaccinations are a “proper” public good in that there is this herd immunity. Even those who haven’t had the vaccination benefit from the fact that 80%, 90% of the rest of the population has. There aren’t enough potentially infectable people around for the disease to really get going in an epidemic. Thus a good argument for charging everyone a tax, one they can’t wrigle out of, so as to fund vaccinations fotr the population in general.

Hip replacements are medical care, highly desirable such as well. However, they’re both rivalrous and excludable. We might well say that even so it’s the mark of a humane or just society that we all pay our taxes so that those who need hip replacements get them. Or possibly that we have a government run insurance system with the same end in mind. Or even bugger it, the poor can hobble.

The criticism that your professors are giving seems to be about the second, the hip replacement, types of public goods. If they’re supplied by govt, then although they’re not public goods in the “real” sense, they are by virtue of being govt provded, becoming so: non-excludable, as you report they say.

But as an argument against State provision or subsidy of real public goods complaining about excludability seems very strange indeed. For that’s already built into the very definition of a public good in the first place. That whoever provides it it isn’t excludable, which is the very reason we think that the State should.

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engels 10.23.10 at 3:10 pm

Also to consider alongside the IFS report, which shows the reduction in income for each section of the population, are the TUC’s calculations which also include the effect of reductions in public services on each group.

Economists Howard Reed and Tim Horton have calculated that the poorest 10% of households will be hit 15 times harder by the cuts than the richest 10% and will suffer from reductions in spending on services equivalent on average to 29.5% of their income.

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engels 10.23.10 at 11:35 pm

Councils plan for exodus of poor families from London

• Benefit cuts force officials to book up B&B accommodation
More than 200,000 may leave capital in ‘social cleansing’

…Councils in the capital are warning that 82,000 families – more than 200,000 people – face losing their homes because private landlords, enjoying a healthy rental market buoyed by young professionals who cannot afford to buy, will not cut their rents to the level of caps imposed by ministers.

The controversy follows comment last week by Iain Duncan Smith, the work and pensions secretary, who said the unemployed should “get on the bus” and look for work. Another unnamed minister said the benefit changes would usher in a phenomenon similar to the Highland Clearances in the late 18th and early 19th centuries, when landlords evicted thousands of tenants from their homes in the north of Scotland.

In a sign that housing benefit cuts are fast becoming the most sensitive political issue for the coalition, Jon Cruddas, the Labour MP for Dagenham, last night accused the government of deliberate social engineering.

“It is an exercise in social and economic cleansing,” he said, claiming that families would be thrown into turmoil, with children having to move school and those in work having to travel long distances to their jobs. “It is tantamount to cleansing the poor out of rich areas – a brutal and shocking piece of social engineering,” Cruddas added.

The National Housing Federation’s chief executive, David Orr, described the housing benefit cuts as “truly shocking”. He said: “Unless ministers urgently reconsider these punitive cuts, we could see more people sleeping rough than at any stage during the last 30 years.”…

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