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the coming storm

Are The Public Service Cuts Really Needed?

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Class rule hiding behind austerity

We live, we are constantly told, in a liberal pluralist society. Unlike the totalitarian states of Nazi Germany and Stalinist Russia, information and ideas aren’t monolithically controlled from above in these societies.

Well, sometimes it feels thoroughly totalitarian here. In the run-up to the emergency budget, you can’t switch on a news programme without being subjected to a lecture about the necessity of swingeing cuts in public services.

Anyone who suggests the mildest social improvement is sternly instructed by the interviewer that there’s no money. David Cameron’s speech—saying that cutting the budget deficit will change “our whole way of life”—has given the green light for endless discussions about which public services we can “do without”.

The G20 finance ministers sanctioned austerity at a meeting a fortnight ago. Abandoning their earlier support for extra public spending to prevent a repeat of the Great Depression of the 1930s, they declared: “Those countries with serious fiscal challenges need to accelerate the pace of consolidation.

“We welcome the recent announcements by some countries to reduce their deficits in 2010 and strengthen their fiscal frameworks and institutions.”

Understandably George Osborne, who, the Financial Times newspaper reported, “claimed credit for this shift in tone”, was delighted.

What is striking is the scepticism expressed about this programme by many highly respectable establishment economists. Take, for example, Sir Samuel Brittan, doyen of Financial Times columnists.

Brittan helped to invent monetarism back in the 1970s. A co-inventor, Peter Jay, also now a sceptic about austerity, said that explaining monetarism to Margaret Thatcher was like showing Genghis Khan a map of the world.

Crisis

Brittan wrote recently that he doubts “the conventional view that there is a specifically UK fiscal crisis”.

He points out that, according to the International Monetary Fund (IMF), British state borrowing needs, at 20 percent of national income, “are well below those of France, at 25.1 percent... let alone the US (32.2 percent) or Japan (64 percent)”.

Britain’s gross government debt is 68.2 per cent of national income, “not merely below the US but below many other countries including Germany and Canada”. Moreover, most of this debt is long-term, maturing “at 12.8 years, while nearly every other country listed has a maturity in low single figures, such as 4.4 years for the US.

“The IMF analysts believe that the bulk of fiscal deterioration in most advanced countries comes neither from irresponsible spending nor fiscal stimuli, but from the automatic effects of the recession” in reducing tax revenues and increasing spending on unemployment benefits and the like.

This is a completely different picture from the lurid portrait of a country living beyond its means. Cameron, Osborne, and their pathetic Lib Dem flunkies are using the brutal cuts in public spending mounted by the Canadian Liberal government during the 1990s as a model.

Neoliberal Financial Times columnist, Martin Wolf, and Larry Elliott, the Keynesian economics editor of the Guardian, have pointed out the flaw in this analogy.

Canadian finance minister Paul Martin started slashing his budget deficit as the US economy was beginning its speculation-driven expansion.

As the public sector was being brutally squeezed (provoking a general strike in Toronto in 1996), Canadian private firms could find markets in their giant booming neighbour. But austerity today is being implemented right across Europe.

Where are the markets going to come from for British firms if Osborne takes a huge chunk of public spending out of the economy?

The lurch towards austerity could tip Britain and the rest of Europe into the much-feared double-dip recession. This is why Barack Obama’s treasury secretary, Tim Geithner, expressed reservations about the G20 decision.

Austerity is not supported by a serious economic case. It is an exercise in class power.

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Wiolf Elliot et al simply say the structural deficit is not as bad as Osborne is implying

May be true. This is not the same as saying there must be no cuts.

Furthermore, Obama has the benefits of the global reserve currency as well as better demographics to support the US holding off a little.

One final nail in the coffin of your desperate thesis - the Economist magazine nicely and wizely points out that whilst european governments make a song and a dance about cuts - to appease the markets, they have to - the sum affect of the looming cuts is not that deep, not that co-ordinated, and quite spread out

in other words they a talking the tough talk to appease the markets, but walking more like ballerinas.

It was never a debate about whether or not there needs to be pain - which you seem to have morphed it into - rather than a debate about how much, when, how it is announced to keep the markets sweet, and how spread out.

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Why cant we borrow money on the open market at a rate we can afford then? Why do we have to print it instead?

The fact is almost all the 'growth' (bringing demand foward) since 2001 has been fraudulent. Between 2000-2007 it was the private sector doing it (and to a smaller extent the public sector) and since then the public sector has taken its place. The private sector has shrunk, so logically the public sector should shrink accordingly. Yes, if we had built up surpluses doing the period 2000-2007 maybe things would be different, but we didnt.

To take it to its most basic point, surely its not sustainable to have the money supply growing at ~15% YoY whilst earnings are only growing at 0-5%. The only way to see just how much 'austerity' is needed is to repudiate all the debts that would have defaulted had government not assumed liability for them IMO. My guess is GDP and govt spending would have to return to levels of the mid-late 1990s.

Any other path just hides cuts in peoples spending powers being destroyed.

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  • 152 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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