I am reading the Economist and Financial Times 2013 book of the year, Stephen D. King's When the Money Runs Out: The End of Western Affluence. From its pages I can certainly see what the latest fashion in economic policy has become. This, from page 54, sums it up:
‘With poorly performing asset markets and much lower prospective economic growth, our entitlements are about to take a hammering. On current plans, only wishful thinking on economic growth stops government debt from spiralling out of control in the decades ahead. If the wishful thinking proves to be wrong, we will be in serious trouble.’
And in case there is any doubt about what the point of the book is, this is from the publisher’s notice:
‘It’s not just the end of an age of affluence, he shows. We have made promises to ourselves that are achievable only through ongoing economic expansion. The future benefits we expect - pensions, healthcare, and social security, for example - may be larger than tomorrow’s resources. And if we reach that point, which promises will be broken and who will lose out? The lessons of history offer compelling evidence that political and social upheaval are often born of economic stagnation. King addresses these lessons with a multifaceted plan that involves painful - but necessary - steps toward a stable and just economic future.’
I am the last person in the world to argue that wasteful and unproductive spending can go on forever. Cut waste. Live within your means. Do what is required to cut non-value-adding expenditure. But this book is half the story of what needs doing or possibly even less.
In my reading, I have not come across a single sentence that indicates the importance of the ‘private sector’, ‘the role of business’ or ‘entrepreneurial activity’. The words don't show up in the index and nothing in the contents goes anywhere near these issues. It is all about government policy, the financial system and the level of entitlements; nothing about what is needed for growth. As the subtitle suggests, ‘The End of Western Affluence’, the book is entirely pessimistic about our economic possibilities.
And if you follow the guidelines found in the book, you would have to agree. We can no longer afford our way of life, our living standards must contract and therefore the only thing governments can do is cut various entitlement programmes but strangely leave public sector infrastructure spending more or less as it is. No discussion of cuts to public waste, those useless money-losing operations that are everywhere absorbing our scarce savings for a negative return. Encouraging business investment, cost containment, reducing government regulation - of these there's not a word.
What is therefore left out is the message that if you want economic growth and full employment, you must first cut back on the government’s take-up of resources. I therefore love the headline on this story I picked up recently because of its cluelessness: ‘UK Austerity to Stay Despite Growth Pick-Up’.
This is re-stated in the first paragraph:
‘Austerity will remain the UK government's mantra, Treasury chief George Osborne said Wednesday - even as he lauded the stronger than expected economic recovery.’
The people who write such stories think ‘austerity’, the name its enemies give to cutting back on public sector waste, is bad for the economy, and, because of their Keynesian mindset, can only be harmful. They have no idea it is the austerity itself that has led to the higher than expected growth. They cannot even understand what possible connection there could be.
The lesson that ought to be learned is that non-value-adding outlays slow an economy down. Reducing those outlays allows the economy to re-adjust towards faster growth. Already the Chancellor is hinting at personal tax cuts in the lead-up to the next UK election. That is the growth dividend that only ‘austerity’ can deliver.