This John Lanchester article is a must-read, but a wearing one as it bears no route to salvation. Summary: the coalition’s austerity programme has failed and the cuts promised are impossible to deliver.
What I really don’t understand is why I don’t hear of any UK journalist or any campaigning organisation going after the coalition using the facts set out. [Update: one person is, sort of.]
Tidbits I didn’t know or hadn’t fully realised.
- The structural defict will be higher after three years of Osborne’s structural-deficit-cutting budgets (pace some creative accounting).
- That GDP measures the velocity of money, which doesn’t feel much like product.
- Governments are not households: they need to keep money moving around to create GDP.
- The multiplier: the difference between earning Â£10 and saving it and putting it into the economy where there could be a chain of six further transactions before the Â£10 is saved, thus creating Â£60 of GDP. This ratio and process is the multiplier.
- The IMF has discovered that its recommended multiplier has been wrong:
In the October edition of its regular World Economic Outlook, the IMF studied the question and announced that governments had been basing their calculations on the effects of austerity using a multiplier of 0.5. So for every Â£1 billion removed from government spending, GDP would contract by Â£500 million. The IMF looked at the relevant historical data, and concluded that the real multiplier for austerity-related cuts was higher, in the range of 0.9 to 1.7. So that same package of Â£1 billion in fact removes as much as Â£1.7 billion of output.
- The 30% cuts needed in unprotected, unringfenced departments are impossible:
â€˜for the Ministry of Defence an 18 per cent cut means something on the scale of no longer employing the army.â€™ Upgrade the level of cuts to 30 per cent and the cuts are, I suggest, politically and practically unachievable. To truly cut public spending, the coalition will have to go after targets which it has explicitly ruled out cutting: health and schools.
- Government spending is increasing, even in real terms, despite all the austerity and cuts talk.
- Two-thirds of the welfare budget is spent on pensioners, not on ‘dole scroungers’. Politicians have managed to make many of us feel that it is the other way round, and that benefit fraud is the most important issue.