progress is not the elimination of struggle, but rather a change in its terms’ - Aneurin Bevan

the thinking deficit

Since the election, the Tory/Lib-Dem coalition have set about cutting public expenditure under the guise of reducing the spending deficit. Now, it might be worth remembering why there is a spending deficit - there was a recession.

The coalition have repeated the mantra "All Labour's Fault". But the recession resulted from a fall in private investment in the economy stemming from the financial crisis. Government spending did not get out of control - a deficit had to open up because the recession had to be countered with public investment and the banks had to be rescued from a collapse which would have wiped out the savings of individuals and organisations.

So, the ALF argument is wrong, what about TINA: there is no alternative? Well, that shows a remarkable lack of imagination - but will deficit reduction through spending cuts actually work?

Ann Pettifor and Professor Victora Chick have published a study of previous attempts by governments to cut deficits by cutting spending and found that
During the early years of the Great Depression (1931-1933), expenditure fell to 510 million pounds from 580 million and government debt increased to 183 percent of GDP from 173 percent. Conversely, from 1934, the government began to expand expenditure and the public debt fell.

From 1947 to 1975, when government spent freely on the National Health Service, public housing and education, the public debt fell each year. The first increase in debt coincides with the 1976 fiscal consolidation.


Increases in public expenditure are associated with reductions in public debt. Very roughly, so long as there is unemployment, for every percentage rise in government expenditure, the public debt falls by half a percent, and vice-versa.
In other words, it is the jobs deficit that needs to be closed if public debt is to be reduced - and that means spending, not cutting. This could be done by an investment bank "owned by the public but controlled by an independent, commercially-orientated board tasked with delivering long term returns" which would "facilitate investment for vital infrastructure, to support good small businesses and to accelerate our transition to a low carbon economy".

This Tory/Lib-Dem coalition is surviving despite the Lib-Dems experiencing negative feedback from people who voted for them at the last election. The banking minister Vince Cable has issued a Green Paper with no tough proposals for getting the banks (which we own!) to make credit available to firms, and energy minister Chris Huhne is cutting away at Labour's Green Investment Bank, Carbon Trust, and commercial loans to firms in low-carbon manufacturing. The private sector is expected to make up for the cuts to public spending - but why would banks lend if demand is falling for goods and services as people lose their jobs?

Returning to the excuses given for the cuts, the "Big Society" is what comes once ALF and TINA have been exhausted. As the Tory backbencher David Davis has been quoted as saying
"The corollary of the big society is the smaller state. If you talk about the small state, people think you're Attila the Hun. If you talk about the big society, people think you're Mother Teresa."
It is perfectly natural that the Tories, as the traditional party of the ruling class, would want to cut the social wage. But as Pettifor and Chick show, it does not make economic sense. And next years' local elections are likely to show, it does not make electoral sense for the Lib-Dems.

In the coming weeks and months the nature of 25% spending cuts will become apparent. Opinion polls show that although a majority of people say they believe the cuts are intended to "balance the books", a majority also think that they will be affected. Approval for the coalition has slumped - and that's before the full extent of cuts is announced. And before next year's VAT rise.

Across the country, groups are forming to resist the cuts agenda. Where I live, Darlington Against Cuts is being set up to defend local services. The Tory/Lib-Dem coalition's cuts should be met with huge protests - so, join your local anti-cuts campaign. Don't mourn, organise!

1 comment:

  1. This is why they attack disabled people first with the double whammy of ESA and DLA "reforms" - disabled people are without a voice and the least able to fight back.