I have published this video this morning. In it, I argue that although Rachel Reeves seems to think otherwise, it’s a simple economic truth that no government can create growth by cutting its spending. That’s because, without exception, the government’s spending is someone else’s income, and so by cutting its own spending, a government always reduces the income in its economy.
So, what happened in 1930s Britain? The government cut spending and reduced the budget deficit. The economy boomed.
No, really, the UK experience was nothing at all like the US one. We got back to higher than starting point GDP within about 18 months.
So, what happened? Well, back then people were aware that there are two sets of economic policy that can be used. Fiscal and monetary. And if the stimulatory effect of your monetary policy – coming off the gold standard say – is greater than the contractionary effect of cutting spending and the deficit then the overall policy position is expansionary.
Which is what happened. Expansionary fiscal austerity.
When the man’s not being ridiculous he’s being ignorant, right?
But my spending is also someone else’s income. So why not let me do the spending directly on what I want? I think we know the answer to that one.
Take a PA from the private sector earning 50 and seeing 50 a week.
That PA sees an advert for better pay in the NHS, closes the practice and takes that public sector role earning 60 and seeing 40 a week.
Hooray, spending is up.
There’s a well meaning ‘advocate’ on the ASI blog who will tell anyone who will listen that Scottish Water spends more on investment. Whether it actually gets more investment for that isn’t considered. cf ScotGov spends more investment on ferries.
@Bongo: there are ferries at the bottom of my garden.
Talking of Caledonia, has the wee besom been jailed yet?
@ Bongo
Scottish Water that has the worst pollution record of any water authority in the UK?
If the government spending on pointless over-regulation is cut then thousands of people in the private sector who were required to spend much (or even all) of their time filling in the pointless forms are free to do something useful (or play soccer in the park, which is a definite improvement over filling in forms even if it doesn’t add to GDP).
His argument is a piece of cake to refute, isn’t it? If the government isn’t spending, then somebody else must be spending. And that spending must be somebody else’s income.
That is logical, if you stick to the model of the economy he professes to believe in.
Of course, in reality government isn’t spending at all. It doesn’t create value, can be exchanged for goods or services. All it’s doing is changing who gets to consume the goods & services are being produced..
@John77 – isn’t that because the Scots (as a nation, and particularly their politicians) spout loads of shit?
Tim, surely he’s right that government spending is someone else’s income? But what he hasn’t mentioned is that those are exactly the sort of bastards who deserve to have no income at all!
That’s a given Witchie. All he wants to do is divert consumption from the private sector to his pals in the public sector. Who he thinks produces the goods or services that are consumption I haven’t a clue. Don’t suppose he has. And why they should continue producing goods or services without the incentive of consumption, I don’t suppose he considers either.
@Tim
Murphy isn’t just ignorant of 1930s UK history, he’s forgotten what happened around him in the 1990s.
The post-ERM Ken Clarke stance was just the same mix of tight fiscal and expansionary monetary policy, and it worked then as it had done for Chamberlain in the 1930s.
Almost all* govt activity destroys wealth, govt spending is especially wealth destroying. Govt doing less, spending less, destroys less wealth. So it makes for a better outcome.
*theoretically there might be some govt activity that doesn’t destroy wealth but it’s rarer than rocking horse dung.