Public spending: the difficulty of being rational

Like most people interested in politics I have been following the financial crisis and the manner in which politicians have tried to deal with it. I quite agree that deep cuts are needed in public spending, and needed now, and that some rebalancing is needed between the public and private sectors. So, for instance, when I read items on the IEA blog about the need to increase student tuition fees I heartily agree.

But then I hear a little voice nagging away in the back of my head. It reminds me that I have two children aged 17 and 15 and so wouldn’t it better if serious reform was put off for, say, 6 years? But also as a university lecturer, I also would like my job to be there, if only so I can afford to fund my kids through their still partially subsidised higher education. So, to misquote St Augustine: “Make me economically liberal, but not yet, Lord!”

I don’t think I’m being particularly selfish here, and nor do I think that I am guilty of being a fair weather economic liberal. Instead, I think this points to a very serious problem about the manner in which governments have to face up to difficult and unpopular decisions on public spending. Speaking rationally, and in general terms, it eminently possible to show that spending needs to be cut and this applies to the university sector as well as anywhere else. But, each student and lecturer is an individual, with a family and friends, all of whom have feelings and a vote. For them, being specific and subjective, it is more rational to argue against cuts that might adversely affect them.

What this shows is the economics and the politics of deficit reduction need to be brought together. If they clash, I think that it is inevitable that the politics will win. When Nigel Lawson was asked in the mid 1980s why, as Chancellor of the Exchequer, he didn’t introduce a more stringent form of monetarism into the UK, he apparently responded, “We can’t use water cannon”. What this means is that the coalition has to take the voters with them and so use arguments that many of us – when we forget we are parents of children with expensive tastes – might find to be mealy mouthed and lacking in rigour. In other words, we have to make sure that dealing with the deficit is seen as a political and cultural problem rather than just an economic one.

When the government spends more than half the national income, significant cuts in government spending are bound to have important political, as well as economic, effects. Hence it does seem to make sense to argue, as the coalition government does, that ‘we’re all in this together’. Hence too the attempt to convince the public that the cuts are ‘fair’, or, at least, that everyone is sharing in the pain to some extent.In other words, there is much to be said for a ‘big bang’ PLAN to cut spending over five years. Otherwise, taking a tiny step at a time is asking for obstruction and objection from vested interests. (The same general approach applies to tax reform too.)

Prof. Myddelton, I quite agree: a big bang approach makes it much harder to plead the special case.

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