Never mind the buzzwords - cuts are both necessary and desirable

‘Support for UK cuts plummets’ screams a hyperbolic headline in today’s Financial Times. It relates to a poll carried out by the FT and Harris. Let us put aside the question as to whether a 14 per cent drop – from 69 per cent to 55 per cent – counts as a ‘plummet’ for a second, and instead focus on the way the question was phrased.

'Are public spending cuts necessary for economic recovery in Europe or are they harmful to growth?', it reads, rendering a complex debate into a simple binary choice. Yes/No. In favour or not.

As anyone with even a mild grasp of economics would surely understand, it is possible simultaneously to believe the cuts are necessary and that they will affect growth. Of course they will. GDP, when measured, includes government expenditure at cost; remove some of that and then, in the short term at least, GDP will inevitably be affected. But just because GDP will be affected in the short-term, does this mean that the cuts are not necessary or, whisper it, desirable? Absolutely not.

By far the biggest factor that will hamper long-term growth prospects is the crippling level of taxation that must be levied in order to fund such gargantuan spending. The Institute of Economic Affairs is set to release a report tomorrow detailing a comprehensive review of government spending, suggesting large reductions in the size and scope of government activity, and allowing for correspondingly large tax cuts. In combination, these measures provide for accelerated GDP growth in the UK across the medium- and long-term.

What is interesting about the polling conducted for the FT is that it actually shows a majority in support of the cuts (not that the headline would lead you to that conclusion).

Yes, public spending cuts will affect GDP (probably negatively in the short-term) but they are both necessary and desirable if we are to live in a free and prosperous society. Let us not let skewed headlines get us down.

Watch this space for the results of an exciting new poll commissioned by the IEA to coincide with the release of tomorrow's report ...

With respect to ‘public spending cuts will affect GDP ... negatively in the short term’, R.W. Rahn, senior fellow at the Cato Institute, quoting the British Economic Policy Journal, writes: ‘Empirical evidence from a sample of [OECD] countries in the 1960-2000 period suggests that, on average, creation of 100 public jobs may have eliminated 150 private sector jobs.’ This suggests that public spending cuts will be negative in the very short short-term and very beneficial in the long run. It’s hard to see the upside in support for Keynesian-inspired statist programmes.
It's clear that the adage about the FT 'read by capitalists, written by communists' is truer than ever. It's certainly very Keynesian in its position.
"As anyone with even a mild grasp of economics would surely understand, it is possible simultaneously to believe the cuts are necessary and that they will affect growth. Of course they will. GDP, when measured, includes government expenditure at cost; remove some of that and then, in the short term at least, GDP will inevitably be affected." Thankyou. This hardly ever gets mentioned. Most culpable here are the Tories who propose the cuts agenda and yet seem to sidestep these questions. I guess this is because they are afraid of seeming too pro free market for fear of the Thathcerite tag Labour and so much of the media would dress them in.

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