Sunday, 21 January 2018

The Austerity Myth

Afternoon - in political terms, my 'formative years' were probably the New Labour era that really started at the turn of the millenium (they were on a sort of probation period between 1997 and 1999) and ended when the Coalition was left to clean up the mess in 2010. There's a certain clarity that we're all inclined to have about formative or significant periods of time in our lives, and one of my most striking memories was of a popular desire for ever-increasing levels of public spending. This was matched by the political parties who invariably engaged in a strange sort of Dutch auction over who could spend the most of other people's money. It was the zeitgeist of a curious time.

Generally speaking, the thread would go something like:- Labour promise to increase spending on Department XYZ by 5 per cent next year. Faced with the challenge of either competing with their opponents or sticking to their guns, the Conservatives would typically propose smaller increases than the government was offering (say 3 per cent in this example). Come the next election, that more modest rise in spending on Department XYZ is presented not as a smaller increase, but a real terms cut equivalent to the closure of schools and hospitals, the sacking of doctors, surgeons, teachers and classroom assistants. It worked, the election results of the period are testament to this.

That 'Tory Cuts' poster with the scissors for the letter T remains etched on my brain even now, as does the billboard with Margaret Thatcher's hair meshed onto the top of William Hague's head (apologies to anyone trying to enjoy their dinner). Suddenly it became conventional wisdom that Thatcher had savagely cut public services to the bone, closed some down completely and significantly reduced spending on others. In 1990, Britain was apparently a Minarchist tax haven akin to Hong Kong or Singapore, but this was simply untrue. Thatcher ran a 40+ per cent state in ten of her eleven years in office - and it was 39 per cent in the year 1989-90.

Supporting ever-increasing levels of public spending was associated with kindness, compassion and being forward-thinking while if you were a 'small-state low tax kinda guy' then this clearly denoted a sort of scrooge-like meanness, a wish to return to the days of Dickensian squalor, of sending young boys up chimneys and what have you. When the government started borrowing to fund their latest round of electoral bribes, sorry I meant spending increases in 2004, the Tory MP Howard Flight dared to suggest out loud that this was a rather unwise move, that his party should go into the next election promising to reverse those increases and balance the books.

Flight was slaughtered mercilessly and hung out to dry by his own side - alas, he has of course been proved right by the events of the years that followed but it really was that crazy in the mid-2000s.

Speaking of the years that followed, the crisis of 2008 and beyond was undeniably compounded in the Uk by the steady but very real creep towards Socialism that had occurred in the preceding eight or nine years. Indeed, by the time Gordon Brown was booted out of Downing Street in 2010, State spending represented a whacking 48 per cent of GDP. In parts of the North of England, Scotland and Wales this was actually significantly higher and the sort of figure you'd expect to have seen in Eastern Europe immediately before the collapse of the Berlin Wall. Yes, this was artificially raised by the running of deficits but 48 per cent represented a de facto Socialist State nonetheless.

It's worth pointing out that we are still running deficits, albeit more modest ones, and the books have not yet been balanced. This is often forgotten when the word 'austerity' is used to describe attempts by the Coalition and now the Tories to gradually reduce that negative figure to zero while causing minimal levels of disruption and, perhaps crucially, remaining electable. Just rattling off a dictionary definition of the word austere (severe or strict in manner or attitude) is enough to blow this characterisation out of the water. What the Irish did, namely taking an axe to State spending and insisting on balancing within a few years, was austerity. And it has done them good in the long run.

Gradually working down from negative £125 billion a year to break even over the length of about a decade cannot be described as 'austerity' in this lifetime or the next.

One of the massive problems that I alluded to earlier is the scale of electoral bribery that has greatly increased the size and scope of the welfare state, dragging millions more people into some form of welfare dependency than was the case circa 15 years ago. Once people 'need' handouts to sustain their standard of living, it becomes safer from a political angle to cut legitimate functions of government like law and order, defence or education than it is to (say) reform tax credits and/or limit the 'free stuff' being offered to affluent pensioners. Throw in the 'sacred cow' status of the NHS and we've seen some mad, mad choices in terms of where to cut and by how much.

So what people are watching is a 'slash and burn' approach towards the military and police in particular which gives the impression of some sort of ideologically-driven move towards austerity. However, it's worth pointing out that as recently as 2016, a nominally Conservative government was spending 42 per cent of GDP, with most of that expenditure heading in the general direction of the Welfare State. Given that many frontline services have indeed been cut, it's worth asking exactly where this 42 per cent as going - as well as to consider whether or not the regular increases of the Labour years were used efficiently. Perhaps some really tough choices are needed?

And...let's nail this 'ideology' thing while we're here. It's been argued that cuts to public spending due to a recession represent some sort of power grab along the lines of "never let a crisis go to waste", but there's a significant slice of 'if only' in this. Let's use nice round numbers in the scenario I'm outlining to avoid confusion. Say you have an economy generating £1 billion a year and public spending totaling £400 million (so a 40 per cent share of GDP). Due to horrendous economic circumstances this economy shrinks by 20 per cent back to £800 million just before you call your next budget. This leaves you with two 'gardens of options' and a very important decision to make.

One choice (and predictably enough, the one that I would make) is to cut public spending in such a way as isolated the 'needs' and slashed all the 'wants' (i.e anything non-essential) until we get to the £320 million figure needed to sustain the 40% slice of the cake - I accept that anything beyond that could be construed as ideolgical, but I'm not arguing for that. Alternatively, you could keep the absolute level of £400 million intact and either tax or borrow the additional cash to pay for it (given that we've already established your economy is in trouble you would most likely be borrowing the money). This would of course raise the State's spend relative to GDP from 40 to 50 per cent.

It's quite apparent from over here that the ideological choice in that scenario is that of not cutting spending in absolute terms, especially when we factor in the truism that Statists do not argue for or even truly accept the need for reducing public spending, at any time or for any reason. It's actually the advocate of Socialism or big government who is refusing to let the crisis in our hypothetical scenario go to waste, while reducing spending in line with what we understand is the type of State that can be afforded is not 'austerity' at all, but simply a fiscally responsible approach to the reality we happen to be confronted with. Precisely nobody appears to be making this point with any conviction.

Look, I'm a pretty small state and low tax kinda guy myself, and wish we had taken inspiration from the Irish approach to the crisis of circa 2008. However, that's precisely the point - nothing on anything vaguely resembling the same scale has happened with regard to public spending in the Uk and I wish people would stop using the word 'austerity' to describe some rather tame, modest and gradualist spending reductions over what will end up being about ten years. A 42 per cent State is not 'austerity', unless you aspire towards the Scandinavian model and are comparing what we have to that - by all means argue for what you want, but let's also be honest about who's being ideological here.

I have an uneasy feeling that only 'allowing' Momentum to crash and burn the Uk economy will restore some sanity to the conversation. I sincerely hope I'm wrong.

Anyway I'll be back midweek so thanks again for reading. I'll leave you with some music and catch up with you all next time.

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