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February 16, 2011 11:49 am

A message (and a plea) from Britain: don’t believe the hype.

avatar by Gabriel Martindale

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British Prime Minister David Cameron. Photo: World Economic Forum.

Love ’em or hate ’em, Her Majesty’s Government of Great Britain and Northern Ireland are making bold and radical spending cuts. On that, at least, everyone is agreed.  That quintessential organ of self-consciously moderate opinion, The Economist , has described the Conservative-Liberal Democrat coalition as “searingly ambitious in taming the state”; domestic critics are usually less measured in talking about “the most extremist British government since the war” or, by some lights,  “the most destructive administration since Pol Pot”. Way to the other side of the political spectrum, Pat Buchanan has enthused about the “Tea Party Tory” now in Number 10 Downing Street. So, with that settled, we can get down discussing whether these radical cuts will be good or bad for the economy,  what their ethical status is, whether the timing is right and, perhaps, the nitty gritty of whether the axe is falling in quite the right places.

Naturally, since everyone is in agreement, everyone is totally wrong. Here are the total spending figures outlined by the British government for the next few years.

2009-2010 £600 billion
2010-2011 £637 billion
2011-2012 £651 billion
2012-2013 £664 billion
2013-2014 £679 billion                                                                                                                                    2014-2015 £693 billion

Savage! Now, no doubt the sharper among you will have a ready prepared response involving the words ‘inflation’ and ‘real terms’. If inflation were to stay at 2% over the period, which is the target set for the Bank of England, those figures would still equate to a small overall growth. At the more likely rate of 4% it will equate to a drastic cutback in state expenditure all the way back to ….. 2005. You can check this, should you so wish, for yourself, but I can assure you that the streets of this blessed isle five years ago were not filled with starving orphans begging for medical treatment.

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Indeed, not only has spending on the key areas of welfare, education and health been ‘ringfenced’, but the amounts being poured into international aid and our contributions to the EU are set to balloon. Aside from that, the government’s policy remains a perfect exemplar of the Keynesian approach to recession busting. The interest rate is still 0.5% and, two years on, Quantitative Easing (roughly defined as printing money without having to go to the bother of printing it) is still proceeding apace, despite inflation pushing above 4% and nary a trace of the ‘deflationary spiral’ originally used to justify the policy. On top of that, any hope of meaningful economic liberalisation has been firmly dashed by the government’s firm commitment to new measures to combat climate change, of the sort that even a thriving economy would have trouble coping with.  Meanwhile, absurd figures of 25% budget cuts are arrived at simply by comparing actual spending figures to expected increases of >3%, which had become the norm during the fake boom years, and most people swallow it whole.

Everyone benefits by participating in this silly charade. The Labour and Conservative parties, who have become ever more indistinguishable, get to pretend to be locked in vigorous ideological warfare, thus shoring up their respective voter bases. Public sector propagandists get to prance around the capital protesting about an assault on public services, thus safeguarding themselves from any real cuts in the future, whilst the media have something exciting to report to disguise the extreme dullness and vacuity of contemporary British politics.

The problems facing the country are stark: more than half of the total GDP in an allegedly laissez-faire, Thatcherite economy is spent by the state, but the economy is not capable of relinquishing more than about 40% of its output in taxation without collapsing. The gap is currently made up by debt, but a government can’t maintain deficits of that size for long before entering into the sort of tailspin that, with private persons, results in a call to a friendly company offering to ‘consolidate your monthly payments’ and, with countries, ends up in 1980’s Argentina.  The government’s plans don’t even begin to address this problem, effectively hoping that economic growth will do the job for it. Its cuts are designed rather to keep its credit rating at a level where borrowing is still affordable in the short term. That is to say they are designed to prop up the status quo, not transform it.

You might think that no bad thing, perhaps it is exactly what any ‘conservative’ government should do, but the big problem is that it is being sold as much, much more and, moreover, pretty much everyone at home and abroad has accepted this. That means Britain is being set up as a laboratory experiment for an ideology that is no actually being applied. If, as is very likely, for reasons I want to use this blog to discuss, the economy doesn’t quickly bounce back to rude health, it will be generally taken as evidence that the fiscally conservative response to global recession has been tried and failed. At best, that’s simply unfair, at worst, it’s a veritable disaster for the whole western world. The belief that Herbert Hoover’s disastrous administration pursued laissez-faire policies probably had as much influence on the history of the U.S.A. and the rest of the west as any ideological principle; a ‘failure’ in Britain could prove similarly influential. Unlike the 1930s, though, this time, though, governments simply do not have the option of doubling the size of the state. In Britain, at least, it would be mathematically impossible.

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  • Rossy Dunbar

    The title says Britain, yet the tags say Scotland. Why?

  • Mark M.

    Excellent piece!!

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