British austerity open thread

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).

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.

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.

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?

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.

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!

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.

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

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

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.

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!

“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?

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.

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

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?

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.

‘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.

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

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).

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.

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.

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)

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.

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?

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.

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

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).

“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?

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!

James Meek on Osborne’s kidney cuts:

http://www.lrb.co.uk/blog/2010/10/20/james-meek/osbornes-kidney-cuts/

“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.

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!

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.

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.

“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.

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.”…