Cuts won’t reduce the deficit – investment will

RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

RT @leftfootfwd: Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

RT @leftfootfwd: Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

Yes. RT @leftfootfwd: Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

RT @leftfootfwd: Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

We've got a couple of great articles on spending cuts and the deficit on @leftfootfwd today:- http://bit.ly/9MMz52 & http://bit.ly/aEQUWA

RT @leftfootfwd: Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

At last an injection of common sense into the public debt argument. There are arguments for government savings but the lesson should be clear that these savings should be channeled into investment. Government budgets don’t equate to household budgets. That’s the mistake all politicians make.

RT @leftfootfwd: Cuts won't reduce the deficit – investment will http://bit.ly/aEQUWA > spot on article at last!

To suggest that cuts wont decrease the deficit is not a credible position.

You may disagree with the cuts but please stop trying to mislead people into believing that reducing expenditure will not reduce the deficit – it obviously will.

I personally favour a combination of cuts and investment but not investments made by an unelected member of the last government, Peter Mandelson.

RT @leftfootfwd: Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

@StarSparkle_UK why are the huge cuts unavoidable? this is a good article showing why they are avoidable http://bit.ly/aEQUWA

Nelson Pang read, Cuts won't reduce the deficit – investment will | Left Foot Forward http://bit.ly/9l0ukx

Cuts won't reduce the deficit – investment will | Left Foot Forward http://bit.ly/cKIvbz

RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA <– oxymoronic socialist clap trap

Interesting article .@JaneWatkinson why are huge cuts unavoidable? this is good article showing why they are avoidable http://bit.ly/aEQUWA

RT @torybear RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA <– oxymoronic socialist clap trap /yes!

RT @torybear: RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA <– oxymoronic socialist clap trap

Interesting article re Cuts: http://bit.ly/aEQUWA Note photo- Osborne clearly revelling in announcing the Cuts- Alexander looks like crying

I see the Labour party's issue of Gordonomics re ""investment"" vs cuts still hasn't been sorted out… http://bit.ly/aEQUWA

Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA via @leftfootfwd

RT @OtherTPA: RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

From 'economics for dummies' dont think george has it RT @leftfootfwd: Cuts won't reduce the deficit – investment will http://bit.ly/cKIvbz

“From a strictly economic perspective it makes no sense to opt for slower or fairer cuts, outside of areas which have a multiplier less than zero…”

Is there any analysis in the public domain of what those areas are?

Mr Mouse, the Office for Budget Responsibility said in its report that the economy will grow 0.3% slower under this budget than it would have done under Labour.

What’s more, things like the VAT increase and throwing 3 quarters of a million people on the dole won’t cut the deficit, and ending things like the lone to Sheffield Forgemasters won’t help employers to take people on.

BTW, I see that Parliament voted on the budget last night:
http://www.publications.parliament.uk/pa/cm201011/cmhansrd/cm100628/debtext/100628-0022.htm#1006293000001

And, out of all the Lib Dems who expressed concerns about the budget, I believe only Bob Russel voted against the budget.

Oh and something I forgot.

The OBR said, before the budget, that the deficit was not as bad as Darling thought.

Osborne and his supporters might like to deny that, but that is the finding of a body he set up.

Economist Michael Burke on why cuts won't cut the deficit.
http://bit.ly/csIINC

Well worth a read – RT @ns_mehdihasan: Economist Michael Burke on why cuts won't cut the deficit. http://bit.ly/csIINC

RT @ns_mehdihasan: Economist Michael Burke on why cuts won't cut the deficit.
http://bit.ly/csIINC

RT @ns_mehdihasan: Economist Michael Burke on why cuts won't cut the deficit. http://bit.ly/csIINC

RT @ns_mehdihasan Economist Michael Burke on why cuts won't cut the deficit.
http://bit.ly/csIINC

RT: @notesonthefront: Cuts won't work in the UK just as they haven't worked here: http://short.ie/dhy5ke

RT @ns_mehdihasan: Economist Michael Burke on why cuts won't cut the deficit.
http://bit.ly/csIINC

RT @irishleftreview: RT: @notesonthefront: Cuts won't work in the UK just as they haven't worked here: http://short.ie/dhy5ke

My brain hurts. Any chance of a similar, carefully-argued statement of the case for the opposing view? (That is, the view that cuts – fast or slow, fair or unfair – would or could help to bring down the deficit.)

That second view seems to be taken for granted almost universally, and is certainly held by respectable left-of-centre thinkers who know their stuff on economics, but I’ve not really heard anyone argue for it. I would like someone to explain why they think Burke is wrong – why his numbers don’t tell the real story and more spending wouldn’t actually bring the deficit down. (Burke’s view sounds too good to be true, which is reason enough to be cautious of it but not to dismiss it.)

…to follow up on that: if these are official Government figures Burke is quoting, how come the Government’s number-crunchers have come out with a different bottom line? If the Government accepts, officially, that spending swells the coffers & cutting contracts them (because of the impact of the quoted ‘multipliers’), how have the OBR (& others, presumably) come up with the bizarre forecast that the deficit will fall if spending is cut?

RT @ns_mehdihasan: Economist Michael Burke on why cuts won't cut the deficit.
http://bit.ly/csIINC

RT @ns_mehdihasan: Economist Michael Burke on why cuts won't cut the deficit.
http://bit.ly/csIINC

Spending cuts won't reduce the deficit.

http://www.leftfootforward.org/2010/06/cuts-wont-reduce-the-deficit-investment-will/

Why spending cuts won't reduce the deficit.

http://www.leftfootforward.org/2010/06/cuts-wont-reduce-the-deficit-investment-will/

RT @OtherTPA: RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

RT @torybear: RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA <– oxymoronic socialist clap trap

RT @northerntuc: Why spending cuts won't reduce the deficit.

http://www.leftfootforward.org/2010/06/cuts-wont-reduce-the-deficit-invest …

Ash

you ask the key question(s). They are related.

The data used in the piece is all official. Although some of it has become somewhat less well-publicised over the years, especially re multipliers.

How come the OBR can come up with bizarre forecasts? (In fact, even the OBR specifies multipliers in the Budget doc. just declines to say what they are on these, relevant areas).

The answer is that they assume that the private sector will fill the gap left by the withdrawn public spending and so reduce the deficit. But this assumption is false for 3 reasons:

1. The ‘multiplied’ effect of the cuts to government spending will amount to 18% of GDP in this and the following 5 years. The total contribution to GDP from all production, construction and service sectors of the economy has amounted to just 3.5% over the last five years. The scale of the cuts is likely to overwhelm the private sector’s capacity without a substantial increase in government-directed investment.

2. Historical experience, not econometric asumption, shows that the private sector does not fill the gap. For the first 5 years of Thatcher investment fell absolutely and as a proportion of GDP, which is actually the more logical response to falling demand. http://www.statistics.gov.uk/statbase/TSDdownload2.asp

3. But, even if the private sector were able to respond with an heroic increase in investment, way beyond any experience in the British economy, this would not directly address the issue of the deficit, although it would certainly make some positive contribution. Closing the deficit would require either government investment on its own account, or increased taxation or probably both.

RT @AdamRamsay: RT @leftfootfwd Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

Michael

Thanks for your reply.

“How come the OBR can come up with bizarre forecasts?… The answer is that they assume that the private sector will fill the gap left by the withdrawn public spending and so reduce the deficit.”

…in which case, if I’m following this correctly, they think the assumptions built into the multipliers you refer to are false; they *don’t*, that is, accept that cutting spending will actually cost them money in the medium term, because they think the private sector will create jobs & get the taxes rolling in of its own accord. OK.

So the debate, ultimately, is about whether those multipliers are right – whether cutting spending tends to reduce or increase levels of government borrowing.

You make a persuasive case, but unless everyone from George Osborne to Ed Balls is simply wearing ideological blinkers & ignoring the plain facts of the matter, presumably there is also a case to be made for the opposing view. I’d just be curious to hear what that case is – to hear someone not up to their neck in Thatcherist dogma argue against you.

RT @leftfootfwd: Cuts won't reduce the deficit – investment will: http://bit.ly/aEQUWA

Mr.Sensible – You never did tell me: since the banks are now funded by the taxpayer and the instruction is to lend (the money we have given them) to UK business why on earth can Forge Masters not just go to the bank for the money?

If the deal is as good as they say then the banks will surely back them – if not then Mandelson had no business spending money that wasn’t his…

These cuts are nothing to do with the deficit. They are just part o0f the agenda to transfer services from the public sector to the private sector.

Look at what Lansley is doing in an area where we have been promised that there will be no cuts: the NHS. Lansley’s plans are to hand over £80bn of public money to unaccountable private companies to commission NHS treatments, and these unaccountable private companies will have the ability to commission themselves to do some or all of that work. Does that sound fair, or even honest?

I am talking about Lansley’s plans to hand over commissioning to GPs (these are private companies and you, the patient and taxpayer have no control about how your GP spends his money).

As an example at the moment my local PCT 49% of its budget goes to acute care (NHS hospitals) and just 9% goes to GPs. That 49% figure will decrease under Lansley’s plans. Some of it will go to GPs as they commission themselves to do the work (I still cannot get over the concept of that – how can anyone commission themselves?) and some of it will go to private hospitals. Since GPs will not employ specialists, this means that if the GP commissions themselves then patients will not get specialist care.

The “commissioning guidelines” (to my knowledge) have not been published, but there are reams of policy documents on the Conservative website that simply say “private = good; NHS = bad”, so expect that the “commissioning guidelines” to mandate that private sector get more contracts regardless of price (they will not mandate competitive tendering because private healthcare is more expensive than NHS providers).

This will mean that private hospitals will get the bulk of commissions for acute care (oh and expect kickbacks to GPs as “thank yous” for the contracts). NHS providers will be left with A&E and expensive, difficult operations.

Take a look at your local NHS hospital. It will be closed down within the next five years. No one voted for that.

Mr Mouse, the fact is this lone would have helped create jobs in Sheffield.

And, Richard Blogger, what do you think this declaration of war on targets says about accountability?

Trouble is some people daren’t start a business in case it goes wrong. If a business folds up the proprietor will not be able to claim Jobseeker’s Allowance due to not contributing the right sort of N I. Would it have been better for the former business person to have carried on with JSA – rather than make a go of things?

Michael Burke; cuts won't reduce the deficit http://www.leftfootforward.org/2010/06/cuts-wont-reduce-the-deficit-investment-will/

MB

Good article, great on detail and the bit of history really shows up the nonesense that has been talked about regarding the deficit and the need for cuts.

One final question would be your thoughts on the figures provided for the structural deficit and the output gap? I have written that I think the figure has been overstated on the structural side while the otput gap, currently given as 4% does not begin to accurately describe the current state of the economy.

Any thoughts on this?

FBoT,

In this instance, the ‘structural deficit’ was alighted on because the actual deficit was already falling, from £178bn to $156bn on the basis of Labour’s modestly stimulative 2009 Budget. So Osborne had to use a measure less amenable to dispute, hence the ‘structural deficit’.

SDs have to be based on an estimate of an unknown; the output gap. We know how much output has fallen, but we don’t know how much capacity has been scrapped. It is argued, for example that the tax revenues from banks will ‘never’ return; but they already are returning. And, with 1 in 5 of the working population not economically active, it’s hard to believe there’s only limited spare capacity in the economy. The Bank of England survey of May puts capciy utilisation much closer to it early 2009 trough than the mid-2007 peak. So there is very likely a great deal of overestimation about both the size of the SD and the narrowness of the output gap.

However, even if the OBR’s estimates are true, and they do seem to be at an extreme, it is also possible to add to capacity, and widen the output gap- by investment in infrasructure, transport, housing, etc. All of which have their own returns to government.

sorry,

BoE link is here

http://www.bankofengland.co.uk/publications/agentssummary/

[...] The job losses in the public sector will result from the 25% inflation-adjusted reduction in Whitehall spending over the next five years, while the private sector will be affected both through the loss of government contracts and from the knock-on impact of lower public spending.” Responding to the revelations, shadow chancellor Alistair Darling said: “Far from being open and honest, as George Osborne put it, he failed to tell the country there would be very substantial job losses as a result of his budget. The Tories did not have to take these measures. They chose to take them. They are not only a real risk to the recovery, but hundreds of thousands of people will pay the price for the poor judgment of the Conservatives, fully supported by the Liberal Democrats.” Yesterday Left Foot Forward reported on the Chancellor’s false “trade-off” between cuts to welfare spending and cuts to departmental budgets and explained how investment – not cuts – will reduce the deficit. [...]

Do cuts save money. They didn't under Thatcher according to @Leftfootforward http://bit.ly/aGFIz9

[...] More… [...]

RT @leftfootfwd: Cuts won't reduce the deficit – investment will http://bit.ly/cKIvbz

Some proper economics that explain how the cuts will make the deficit worse (like they did for Thatcher) http://bit.ly/bqhF8q