It;s the wonderful thing about Ritchie, he just doesn’t “get” economics

The argument runs that welfare spending has for many years been extravagant, it was and is unsupportable, and has been a (if not the) primary cause of the economic recession. Austerity is given as the self-evident remedy for this situation.

If this argument were sound, you’d expect to find that countries with higher welfare spending would generally have suffered worse recessions than those with smaller welfare spending. However, if you compare the welfare spending of countries in the year before the recession (2007) with the change in GDP those countries suffered as a consequence of the recession (2009 vs 2008), you find that there is no such association.

Well, no, you wouldn’t. In fact, you’d expect those countries with larger welfare states to have smaller drops in GDP.

This is straight Keynes, of course, not a drop of neoliberalism in sight here. The standard response to a recession is that there should be fiscal stimulus. We’d like the gap between what the government spends and what it collects in taxes to rise. With a larger welfare state this happens on its own. More people out of work leads to less tax being collected and more being spent on welfare. This is so obvious that we even have a name for it: automatic stabilisers. And given that the thinking about fiscal stimulus is that it reduces the severity and timespan of the recession, those places with more automatic stabilisers in the form of a larger welfare state will have shallower and shorter recessions.

And this is the thing about Ritchie. The above is a comment he’s received from someone else. And Ritchie simply doesn’t get economics well enough to understand that the original set up is garbled.

9 thoughts on “It;s the wonderful thing about Ritchie, he just doesn’t “get” economics”

  1. The number 1 economics blogger in the UK doesn’t understand economics and neither do his followers, his sponsors and his parliamentary puppets.

    The lunatics are on the streets and knocking on the asylum director’s door.

  2. Of course he can understand that level of elementary economics if he can get into, and get a degree from a thi9rd-class university like Southampton. He just doesn’t want to admit that the previous government blithely set up an unsupportable economic/financial system to create a p0ro-labour voting block – hence his invention of a mythical “tax gap” to help him deny that Brown ran a 14% structural deficit after Labour’s Alastair Darling pointed this out.

  3. Has anyone actually said that the cause of the recession was too high welfare payments? Because I’ve never read anything to that effect.

    Stuff along the lines of ‘The level of welfare spending is unsustainable based on the level underlying economic activity, rather than that of the debt fueled boom of 2002-7’ maybe, but not the actual cause.

  4. What makes anyone think Ritchie’s talking about economics? As usual, he’s banging on about his version of national socialism.

  5. Hmmm.

    So Sir Murphalot of Claptrap is now telling us that the “recession” was only from 2008 to 2009, because that was when the impact occurred.

    Fascinating.

    All of those claims about the coalition fly out of the window with the last remaining brain cell.

  6. Jim

    No. No one (I can think of) has suggested that welfare caused the recession. Pretty much everyone agrees that we spend too much on government/welfare relative to what is taken in tax. Some people say we should tax more, most think we should spend less on welfare. Some crazy people think we should just keep increasing borrowing (even more than has happened under this government).

  7. @ Jim
    A financial crisis occurs when one debtor failing to repay triggers a domino effect. So, prima facie, UK welfare payments were not a cause of the financial crisis which was triggered by American borrowers defaulting on their debts.
    However, most of the UK current problems (especially housing) are due to Brown’s “welfare” system which makes the lower-paid worse-off in work than on the dole. Marginal tax rates for the poor are around 80%*, ignoring travelling costs, so many guys are/would be (depending on how much they are willing to pay for the bit of self-respect related to earning their living) worse off working in London/Manchester/Leeds/Edinburgh/whatever than having a lie-in and watching daytime TV. Anyone who blames them should join Harry’s trip to the South Pole. One result is 3 million immigrants to take the jobs that natives cannot afford to do.
    I have worked for nearly 50 years so I can say that work should not be an end in itself and it is stupid to ask someone to work for less than he would get by not working – although I have met quite a few guys who did, starting with our window-cleaner in the 1950s.
    * with one child at school and one at university it can be over 100%, easier with three kids.

  8. It’s now a popular trope from the Left that because “austerity” had impacted those on benefits that therefore they are being “blamed” for the crisis which was really the fault of bankers/neoliberals/Bullingdonboys etc.

    This is the standard argument from likes of Owen Jones.

    That public spending is too high compared to tax revenues, and that spending cuts invariably impact those most in receipt of that spending, seems a point of logic lost on most of the left.

  9. Murphy is a modern day snake oil salesman.

    While a doctor might advise you that your gangrenous leg needs cutting off, the snake oil salesman will tell you all you need is some of his magic snake oil and your leg will get better.

    It’s human nature to want to believe the snake oil salesman so you tell the doctor to bugger off and down the snake oil. By the time the gangrene spreads, it’s too late.

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