Tuesday, July 28, 2009

The politics of austerity

It is now well entrenched in the public debate that the state needs to cut its spending as soon as the economy recovers. Well, that gives us a bit of time to think about how to do it... No sign of recovery yet. But what is interesting is the notion that it is now beyond question that the solution to the failures of finance is to slim down the state. Heads I win, tails you lose.

The alternative - accepting a stably higher level of tax revenue for the state - is clearly an idea so ridiculous as to be ignored completely. But why? After all, we are told that excessive consumption is at the root of our economy's imbalances, and we need to save more. How does cutting state spending (much of which, especially if channeled through state pensions, is effectively saving) in order to keep taxes low achieve that?

Here's another way of looking at it. The British have decided they want better health and education, and have decided to provide it collectively. But it's turned out more expensive than we anticipated. So, either we decide to go with cheaper and poorer quality provision, or we stump up the extra cash. Both options are completely feasible, but only the first is being talked about at present. I think we know which the future Conservative government is likely to go for.