The perversity of Dan Hannan and the “there are no cuts” brigade

Daniel Hannan was at it again in the Daily Telegraph on Wednesday insisting that only the ignorant, willfully or otherwise, could insist that there were no cuts. He proclaimed:

“Total government spending has risen in every month since the Coalition was formed, and now stands five per cent above where it was in the final demented weeks of Gordon Brown’s splurge. Borrowing, too, has risen: the government will write IOUs worth £127 billion this year.”

We can argue out on the statistics – that Hannan has not taken into account inflation, or the rising healthcare costs of an ageing population.

Daniel-Hannan But the real problem with Hannan and the rest of the ‘there’s no cuts’ brigade’s framing is that we could, in theory, enter into an economic downward spiral landing us somewhere in the stone age, and they could declare victory. How so?

What Hannan and company are skipping over is that no Government decides to ‘cut total spending’. Governments decide to cut discretionary spending – spending on the stuff we want to spend on like healthcare, education, parks and so on. Such spending is due to be cut from 27% of GDP in 2010 to just 20% of GDP in 2014-15.

But there’s also mandatory spending, like unemployment benefit and debt repayment, that government doesn’t get to decide whether it pours money into – events force it to do so.

You can argue until the cows come home that total spending is not coming down. But its discretionary spending that the public policy argument centres on, and what voters feel.

Crudely put, the right-wing analysis of the situation is that the government is just like a household, and the deficit is an irreducible problem – its primary cause is spending more than you tax. So if you cut discretionary spending, hey presto, the deficit is closed. (Logically there is another option – raising taxes – but the right tend to find their inner stimulater when the dread T-word is mentioned.)

Equally crudely put, the Keynesian analysis is that the state is so huge – currently government spending makes up 46 per cent of GDP – that it has far more symbiotic relationship with the economy as a whole.

If you cut discretionary spending, by lets say sacking public sector workers, then mandatory spending – in the form of unemployment benefit for example – goes up. Furthermore as demand is sucked out of the economy, tax receipts fall, and as the government is forced to borrow more to make up the shortfall, so do interest payments on debt.

To put it another way, a government deficit is not an irreducible problem but a symptom of a bigger problem – a contracting or slow-growth economy caused by lack of demand.

If demand is low, growth fails and the state ends up in deficit. If the economy grows fast enough, the government will end up in surplus.

The right characterise Keynesians as arguing for greater spending. This is not quite true. Keynesians argue that you have less of a choice on spending that you think you do, and that as you cut discretionary spending, mandatory spending goes up.

The stronger you believe that what we face is a demand crisis, the greater you believe the trade off to be. That is why Arch-Keynesian Lord Robert Skidelsky made such a savage attack on much of the thinking behind the ‘There is no such thing as cuts’ brigade on Tuesday.

To be fair to Hannan, he does give ammunition to this Keynesian view in his collumn, while also side swiping at his pet peeves – the EU, foreign aid, and the NHS:

“[Osborne] has made reductions in various departmental budgets, but these savings have been more than offset by rises elsewhere – higher benefits claims, debt interest payments, increased spending on healthcare and foreign aid and, not least, much larger contributions to the EU.”

He even quotes a graph from the Spectator’s Coffee House blog that can make the Keynesian case:

“ I draw particularly to the attention of any teachers and LEA officials who joined today’s strike: by the end of this parliament, we’ll be spending more on debt interest than on the entire education budget (hat-tip, Peter Hoskin):

At best the “There are no cuts brigade” can say that we are spending less on what we want to spend on and more on what we have to spend on. To most people in the country those are cuts to the public services that affect their lives, and to claim there are no cuts is fairly callous.

It is in effect saying “Yes, we realise that your Sure Start Centre has had to shut down, but because there’s a whole bunch of people now in the dole, there are no cuts’

At the very worst, we are tackling a demand crisis by cutting demand. This will lock us in to a downward economic spiral of ever increasing debt. We will all end up much poorer, but because we are spending billions on jobseekers allowance and debt repayment, instead of schools and hospitals and so on, Daniel Hannan, John Redwood et al will be able to claim vindication. And it will be utterly miserable.

See also:

• Lebanese politicians hurl glasses and chairs at each other on live TV - Alex Hern, November 25th 2011

• The case for spending to save has been made and won, so do it already - Joe Randall, November 23rd 2011

• What has Europe ever done for us? Well… - Tony Burke, November 5th 2011

• Toby Young is wrong about the cuts and wrong about the march - Nicola Smith, March 29th 2011

• Exposé of Daniel Hannan’s “Ten reasons to leave the EU” - Shamik Das, December 22nd 2009

http://twitter.com/greenleftie/status/142891688308908032 Michael Bater

RT @leftfootfwd: The perversity of Dan Hannan and the “there are no cuts” brigade http://t.co/LoQpJA43
http://twitter.com/therightarticle/status/142895011778932736 Michael

The perversity of Dan Hannan and the “there are no cuts” brigade l Left Foot Forward – http://t.co/bh8keJUe
http://twitter.com/christyquinn/status/142896520361029632 Christy Quinn

The perversity of @DanHannanMEP and the “there are no cuts” brigade: http://t.co/k4MQO5lg by @danielelton #publicsectorcuts #N30
http://twitter.com/ermintrude2/status/142897075011596289 Moo

RT @leftfootfwd: The perversity of Dan Hannan and the “there are no cuts” brigade http://t.co/nDiZGTd4
http://twitter.com/Shinsei1967 Nick Reid

You keep saying that Hannan said “there are no cuts” and yet if you go to Hannan’s actual article he writes quite specifically “there are no NET cuts”.
http://twitter.com/labour_dave/status/142900693026619392 David Marsden

The perversity of Dan Hannan and the “there are no cuts” brigade l Left Foot Forward – http://t.co/bh8keJUe
Little Angussie

OPEN your eyes chum – in case you havent noticed we are in the eye of a storm and have never recovered from the 2008 crash – it is going to get much worse for everyone so the best thing you can do is stop grousing and grumbling about cust that have still to happen.

make no mistake – we will ALL be much poorer off before this finishes. We know Brown’s recklessness played a large part of this economic downward rush to the bottom – we dont know the damage it will cause in the future but by god it is going to be grim.

Waken up man
http://twitter.com/jkolmmurray/status/142919502504529920 John Kolm-Murray

The perversity of @DanHannanMEP and the “there are no cuts” brigade: http://t.co/k4MQO5lg by @danielelton #publicsectorcuts #N30
Anonymous

What Hannan and company are skipping over is that no Government decides to ‘cut total spending’.
================

Twaddle. Labour planned to cut total spending because it planned to halve the deficit.

================
We can argue out on the statistics
================

No you can’t. Either its true or its not. It is true. Total levels of spending have risen.

================
Hannan has not taken into account inflation, or the rising healthcare costs of an ageing population.
================

Inflation – irrelevant. Most of it is caused by government keeping interest rates too low. The BoE has repeatedly had to write a grovelling letter saying it hasn’t controlled inflation, please please let me have another go.

Meanwhile, in the biggest insider trading scam, Mervyn King and his mates have moved their pensions into inflation linked gilts, betting that they won’t succeed their prime aim, controlling inflation. The reason is that they have no intention of controlling inflation.

So what cuts are there? There are cuts in some areas, and increases in other areas, and net spending is up.

An investment either results in lower spending, or it produces an income. In the case of the NHS, its the first. You’ve spent billions. Now its the pay off. That investment will result in lower NHS spending. The Tories are just doing what was Labour’s plan.
http://twitter.com/riprap007/status/142920636602388481 Nicholas Ripley

The perversity of Dan Hannan and the “there are no cuts” brigade /by @danielelton http://t.co/IjrZ5g8s
http://twitter.com/politicalplanet/status/142921380487364609 Political Planet

The perversity of Dan Hannan and the “there are no cuts” brigade: Daniel Hannan and that 'there are no public se… http://t.co/XFXWTh3M
http://twitter.com/wildey2/status/142921577523183616 Wildey

The perversity of Dan Hannan and the “there are no cuts” brigade /by @danielelton http://t.co/IjrZ5g8s
chris

So only discretionary spending boosts aggregate demand? Why doesn’t mandatory spending boost the economy? A business doesn’t care if their customer pays with money they got from a job or jsa, there is no distinction. The point is that from a macro economic view total spending has increased and yet the economy continues to flatten. The last few years have shown that boosting aggregate demand via government spending does not work. This just goes to show that those who argue for increasing or maintaining government spending do so out of ideological reasons rather than through genuine economic concerns. When Hannan admits the government is increasing spending in many ways, he not giving ammunition to the Keynesians. Its quite the opposite, he is showing that increased spending as Keynesians ask for is simply not working. Once more are you seriously saying that for every £1 the government spends it can raise more than £1 in tax? How does that work?
http://twitter.com/marat1789/status/142932761785794560 Marat1789

The perversity of Dan Hannan and the “there are no cuts” brigade /by @danielelton http://t.co/IjrZ5g8s
http://twitter.com/whistlingfroggy/status/142933141307396097 Pete Drummond

The perversity of @DanHannanMEP and the “there are no cuts” brigade: http://t.co/k4MQO5lg by @danielelton #publicsectorcuts #N30
http://twitter.com/denise_ddb/status/142938026035773440 Denise Davis-Boreham

@AnnaSPeters @RushtonJake “@TheRightArticle: The perversity of Dan Hannan and the “there are no cuts” brigade http://t.co/68AbdOYb”
http://twitter.com/anguavonuber/status/142938696059068417 E’Liza Gedrych

The perversity of @DanHannanMEP and the “there are no cuts” brigade: http://t.co/k4MQO5lg by @danielelton #publicsectorcuts #N30
http://twitter.com/extraditiongame/status/142961460023275520 Extradition Game

RT @leftfootfwd: Ignore @toadmeister and @danhannanMP: Cuts in public services are the cuts that matter.
http://t.co/S3UiuO7v #NewsClub
http://twitter.com/luna17activist/status/142962852385402880 Alex Snowdon

Ignore @toadmeister and @danhannanMP: Cuts in public services are the cuts that matter.
http://t.co/T75BR5uD
http://twitter.com/carolyngmb/status/142963806602133504 carolyn

Ignore @toadmeister and @danhannanMP: Cuts in public services are the cuts that matter.
http://t.co/T75BR5uD
http://twitter.com/creativecrip/status/142965156937334784 TheCreativeCrip

The perversity of Dan Hannan and the “there are no cuts” brigade l Left Foot Forward – http://t.co/bh8keJUe
http://twitter.com/pcs_gonw_branch/status/142966080133005314 Rep in the Regions

Ignore @toadmeister and @DanHannanMEP: Cuts in public services are the cuts that matter. http://t.co/T75BR5uD
http://twitter.com/itscreativecafe/status/142967926918619136 Jill Goble

The perversity of Dan Hannan and the “there are no cuts” brigade l Left Foot Forward – http://t.co/bh8keJUe
http://twitter.com/maxblunt/status/142968063019581441 Max Blunt

Ignore @toadmeister and @DanHannanMEP: Cuts in public services are the cuts that matter. http://t.co/T75BR5uD
http://twitter.com/christhegoth/status/142971804087107584 Christian Wilcox

When the debt interest is this bad why did your party cut the Bankers Bonus Tax @GavinBarwellMP?: http://t.co/ICx84OTn. #Croydon #Labour
Richard

I agree with Nick! When this site refers to “evidence based” political blogging, it actually means edited, misrepresented evidence.
Stephen Wigmore

This is a pretty daft article. If what you’re concerned about is general demand then obviously it doesn’t matter what particularly the spending is on, whether discretionary or mandatory. As Keynes said even paying people to dig big holes and fill them up again would do the trick more or less.

In that case Hannan is entirely right. If you’re complaint is that the government has damaged the recovery by aggressively cutting demand. It is the total amount of spending each month that matters and that amount has gone strongly up, even accounting for inflation it has risen. Even if we strip out EU contributions, foreign aid and debt contributions that are mostly spent abroad then it is about flat in real terms. Government demand is the same now as it was a year ahgo.

If you say that still isn’t enough then what is? If we’re increasing government spending by 6% a year forever to achieve 2% growth then isn’t that just the same as saying the private sector is just totally dead, in which case we’ve got a far bigger problem than even the ones we’ve owned up to so far.
http://twitter.com/toadmeister Toby Young

“Logically there is another option – raising taxes – but the right tend to find their inner stimulater when the dread T-word is mentioned.”

Osborne has raised taxes. Of the total savings planned for in 2011/12, I believe 59% will be accounted for by cuts in Departmental Expenditure Limits and 41% by tax increases.
http://twitter.com/ligomersall/status/143067491868999680 liane gomersall

RT @leftfootfwd: The perversity of Dan Hannan and the “there are no cuts” brigade http://t.co/gjWzRRvi
http://twitter.com/creativecrip/status/143081639348678660 TheCreativeCrip

Forget deficit deniers – meet the cuts deniers:
http://t.co/T75BR5uD
http://twitter.com/mcmlxxvi_ad/status/143094555682668544 Jamie

The perversity of Daniel Hannan and the “there are no cuts” brigade http://t.co/nLypTOqM #EU #Osborne #Cameron
http://twitter.com/hens4freedom/status/143120833269866497 Hens4Freedom

RT @leftfootfwd: "There are no cuts." Really? REALLY?!
http://t.co/6bXOJcRF #NewsClub
http://twitter.com/Newsbot9 Newsbot9

Oh right, it’s “daft” to complain that people are short of food and turning utilities off this winter because of cuts. Nice world you live in.
http://twitter.com/Newsbot9 Newsbot9

Oh yes, the debt…er…wait, say, was that HIGHER debt under the Tories? Oh, right wreck-what?
Stephen Wigmore

Try not to be a complete ass. The whole point of this article is to claim that Dan Hannan is wrong to say there are no net cuts. The article is wrong even on its own keynesian terms.

I never claimed that it was daft to worry about people running short of food or heat. Don’t try to win an argument by just changing the subject. I care about people running short or food or heat as much as you do. Perpetuating nonsense economics doesn’t help feed or clothe anyone though.
http://twitter.com/cor_tynewear/status/143275936157147136 CoR Tyne&Wear

Cuts in public services are the cuts that matter.
http://t.co/uAe97Ljj
http://twitter.com/rowllypowlly/status/143293529572118528 Rowland Paul Hill

Forget deficit deniers – meet the cuts deniers:
http://t.co/T75BR5uD
http://twitter.com/robertcp/status/143315975868137472 Robert CP

Forget deficit deniers – meet the cuts deniers:
http://t.co/T75BR5uD
http://twitter.com/Newsbot9 Newsbot9

Net? NET? No, wrong to say THERE ARE NOT CUTS. THERE ARE MASSIVE CUTS.

You haven’t read the article, keep promoting your master’s policies to starve and freeze people. Don’t claim you’re ANYTHING like me.
http://twitter.com/Newsbot9 Newsbot9

Leverage. The films industry tax cut returns £11 in revenue for every £1 spent on it, for instance. (It *was* £13, before the assualt on the film industry by this government)

Other tax “cuts” like that are obvious beneficial, but this government cancelled the one for the games industry, which has cost this country about 2.6 billion and counting.
http://twitter.com/mustberead/status/143423911852392449 MustBeRead

Daniel Elton at @LeftFootFwd: Spending is being maintained but it's going on unemployment benefit, not hospitals http://t.co/EJYUW9Jq
http://twitter.com/abelardinelli/status/143425382614450176 Alex Belardinelli

RT @MustBeRead: Daniel Elton at @LeftFootFwd: Spending being maintained but it's going on u'ment benefit, not hospitals http://t.co/TjsK810k
Anonymous

If HM Government does not cut total spending, then the debt will just continue to grow, and the cuts to government spending on services/transfers (that will have to come eventually) will be bigger due to the increases in debt servicing cost.

Tax receipts suggest a maximum HMG spending ceiling of 38% of UK GDP.

http://www.demos.co.uk/blog/guestessay1

Currently HMG is spending 50% of GDP.
http://twitter.com/polittiscribe/status/143432501266890752 Polittiscribe

Just like 'it's the wrong type of snow', @leftfootfwd: claim it's the wrong type of borrowing…
http://t.co/5Arqu5f5
Anonymous

Mark Bathgate wrote a good piece on HMG spending the other day.

“The European Commission estimates that the UK is likely to have the second largest growth in government spending of any of the EU’s 27 members this year, clocking in at a robust 1.5 per cent increase for the year.”

http://www.spectator.co.uk/coffeehouse/7400808/some-context-for-the-ongoing-growth-debate.thtml
Anonymous

Above the growth rate.

Same is true for the last two years.

Increases in total government spending.

Increases above the rate of inflation.

More government spending = shrinking economy.

Given the debts, we are going to get more government spending on debt, very little on anything that generates growth.

So what are they going to do?

Invest in HS2 which has a negative return. Ticket prices won’t cover the interest or the running costs.
Anonymous

So why not cut tax for all give the return?

Ah yes – too much debt
Mr Nonny Mouse

So Labour want to give more money to the bond traders. Curios.
http://atoryblog.blogspot.com Man in a Shed

The problem is the Keynsian spending is just the snake eating itself.
http://twitter.com/falseecon/status/143649376802308096 False Economy

Forget deficit deniers – meet the cuts deniers:
http://t.co/H7GVovPi (via @leftfootfwd) #falseeconomy
http://twitter.com/occupyintnews/status/143649484834996225 Occupy International

Forget deficit deniers – meet the cuts deniers:
http://t.co/H7GVovPi (via @leftfootfwd) #falseeconomy
http://twitter.com/electroedd/status/143650507536347136 Edd Shipton

RT @FalseEcon: Forget deficit deniers – meet the cuts deniers: http://t.co/c1eT32d4 (via @leftfootfwd) #falseeconomy
http://twitter.com/reimurasame/status/143651562072444929 Rei Murasame

RT from the weekend #2: "There are no cuts." Really? REALLY?!
http://t.co/T75BR5uD
http://twitter.com/thatmattrogers/status/143653287466504193 Matt Rogers

There's a really clear explanation of what Keynes was on about in this article. Jolly good #makingsenseofthecutsdebate
http://t.co/2B0m1UK1
http://twitter.com/ucu_robcrowther/status/143657598787399680 Rob Crowther

Forget deficit deniers – meet the cuts deniers:
http://t.co/H7GVovPi (via @leftfootfwd) #falseeconomy
http://twitter.com/bigagh/status/143660804879818754 AGH

RT @FalseEcon: Forget deficit deniers – meet the cuts deniers:
http://t.co/lhbilcfm #falseeconomy
http://twitter.com/hopbin/status/143661614292414464 James Maddison

Forget deficit deniers – meet the cuts deniers:
http://t.co/H7GVovPi (via @leftfootfwd) #falseeconomy
http://twitter.com/jackbailey88/status/143771909400702976 Jack Bailey

@sunny_hundal hope this is on the right track http://t.co/eFD3qACZ
http://twitter.com/sunny_hundal/status/143782106303168512 sunny hundal

@tomjdalton @shorttemperuk @old_holborn no cuts eh? the facts might hurt http://t.co/Y5qPmsHV
http://twitter.com/Newsbot9 Newsbot9

Ban evading now I see.
http://twitter.com/Newsbot9 Newsbot9

Strangely enough, you can’t get that kind of ratio everywhere. But doing it where you can is sensible. The Tory’s slamming of the films and games industry is purely ideological.
Anonymous

I’m not sure its ideological.

Here is my take.

1. The government shouldn’t be offering perks to particular groups. They can’t pick winners.

2. Given that you say a 1 pound tax cuts generates 11, why not cut lots of tax from all companies, so they can generate more? [I'm not sure your figure is accurate by the way, I think its industry puffery]

3. The reason they can’t is that they are so desperate for money because of their debts, the government can’t cut taxation, and is increasing it.
http://twitter.com/wtbdavidg/status/144085343019347968 David Gillon

Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN
http://twitter.com/labour_dave/status/144101726457303040 David Marsden

Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN
http://twitter.com/pcs_gonw_branch/status/144104269287657472 Rep in the Regions

Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN
http://twitter.com/adpucci/status/144119530988388353 Pucci D

Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN
http://twitter.com/creativecrip/status/144134852499865600 TheCreativeCrip

Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN
http://twitter.com/Mr_Roshan Mr Roshan

Wrong. Healthcare spending is not being cut (give or take losses from inflation), but being maintained.

I didn’t read the rest as you were wrong on one of your first assertions.
http://twitter.com/Mr_Roshan Mr Roshan

Highlights: Hannan: there have BEEN no cuts
LFF: <>

So, no cuts. But the author has established a fiddle factor which he can use as he wish to claim any non-increase is actually a cut.

<>

So, no cuts, but a strawman argument.

<>

By that logic, unless we are all employed by the government, no-one would have a job. The above is autistic and simplified nonsense. If we regulated migration, got out of the EU and cut red tape, stopped bank bailouts, we may still have a recession, but it would be shorter and cheaper.
http://www.leftfootforward.org/2011/12/look-left-09-12-11/ Look Left – Europe 26-1 Cameron: Britain isolated like never before | Left Foot Forward

[...] week’s most read: 1. The perversity of Dan Hannan and the “there are no cuts” brigade – Daniel [...]
http://twitter.com/sunny_hundal/status/147278971468382208 sunny hundal

However, it's amusing that Fraser Nelson still keeps misrepresenting extent of govt cuts http://t.co/O85evphN (NOT 1%) http://t.co/wwoLD46Q
http://twitter.com/michaelh14/status/147280340141080576 Michael H.

RT @leftfootfwd: The perversity of Dan Hannan and the “there are no cuts” brigade http://t.co/JiCcLj4s
http://twitter.com/alanfry1/status/147285159484456961 Alan Fry

However, it's amusing that Fraser Nelson still keeps misrepresenting extent of govt cuts http://t.co/O85evphN (NOT 1%) http://t.co/wwoLD46Q
http://twitter.com/byrnetoff/status/151327929362690049 Thomas Byrne

http://t.co/yXL8W5v2 “We realise that your Sure Start Centre has shut down, but because there’s a bunch now on the dole, there are no cuts’
http://twitter.com/abiwilks/status/151328158921134080 Abi

http://t.co/yXL8W5v2 “We realise that your Sure Start Centre has shut down, but because there’s a bunch now on the dole, there are no cuts’
http://twitter.com/pete_spence/status/151328168358322176 Peter Spence

http://t.co/yXL8W5v2 “We realise that your Sure Start Centre has shut down, but because there’s a bunch now on the dole, there are no cuts’
http://twitter.com/steveakehurst/status/151330174116429824 Steve Akehurst

RT @leftfootfwd: The perversity of Dan Hannan and the “there are no cuts” brigade http://t.co/2NbIcVjX
http://www.leftfootforward.org/2012/01/george-osborne-deficit-calculator/ Introducing George’s Marvellous Deficit Calculator | Left Foot Forward

[...] as right-wing commentators have helpfully pointed out “there are no cuts” – or at least there is a relatively small fall in overall [...]
http://twitter.com/byrnetoff/status/171984595972132865 Thomas Byrne

@S8mB I don't agree there doesn't need to be cuts, but Left Foot Forward hit the nail on the head http://t.co/eCq6eUeI