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What is it with all the economic flat-earthers?

I have to admit I’m a little confused I’m sure that everyone agreed that after the Credit Crunch the UK economy was in a horrid state and it was unsustainable for us to carry on as we were. That we would have to find a way to fix the economy, balance the books and make sure that we didn’t break our country and force it into bankruptcy.

And I’m fairly sure I listened to politicians of all parties saying that spending cuts would have to be made and taxes increased to pay for the over consumption of the previous years. I’m fairly sure that going into the general election both parties admitted that some sort of cuts would have to be made but they just differed on when, how and where. Not on the idea of cuts.

Except now I’m reading the papers and watching the news and seeing people demonstrating against the mere fact that there are spending cuts.

And not campaigning that we should perhaps be more focused on where the cuts are made to ensure that the parts of society that need state support most receive it but instead marching to say that all cuts are bad and that they shouldn’t be happening at all.

The papers are filled with rage from members of the public demanding that the cuts go away and that one or other political party please promise that they won’t back any cut back in consumption.

I read article after article saying that the banks and bankers should be taxed more and yet article after article and comment after comment seem to miss the point.

Person after person seems to be the economic equivalent of a flat-earther. The bottom line is that just taxing the highest earners more won’t create all that much in tax revenue terms because there are fewer of them proportionally and if you tax them too hard they just leave the country and take their taxes elsewhere. And the same goes for businesses. Tax them to a point where the UK is no longer a competitive place to stay and they’ll take their ball away.

And we can’t just not cut back.

The country has been spending too much and for each extra pound that we spend over above the income coming in we end up borrowing money. And at the moment the interest we are paying on the debt we have accumulated is more than the public transportation annual budget. Surely its madness to effectively waste all those billions on servicing a debt we shouldn’t have built up anyway.

What happened to Mr Micawber and the idea of living within your means.

Yes there should be debate about where the cuts should be and how to protect those that need protecting but the bottom line is that unless we do something, unless we fix this, we have a big problem and one that is effectively causing us to waste money on interest payments. Fix the level of debt and we will free up money to be spent where its needed.

Nobody is saying that austerity is forever but they are saying that if we leave things as they are we will be looking at economic peril and a longer period of tough times.

Or alternatively I’ve got it all very wrong and in fact the earth is flat.

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8 comments to What is it with all the economic flat-earthers?

  • Troy

    Welcome to the Earth Is Round Club! More members needed! Last Saturday we saw anarchists demanding more government as well as Socialist Workers who most likely have never worked – you couldn’t make it up!
    Labour are treading a very dangerous line pretending there is some magic alternative whereby we can keep spending more than we earn. Thank God for the coalition and that Clegg, if not his grass-roots, has woken up and smelt the coffee. The fact is that many individuals, as well as the nation as a whole, have been kidding themselves about their standard of living over the last five years.

  • nikhk

    I am by no means an expert, but my take on this is that yes, we need to make cuts but that the cuts being made are too deep and will affect vulnerable people the most. I fear that we are swinging from one extreme to the other, and that cutting public spending too drastically will be counter-productive. I accept that it’s a fine line to tread, but from what I see, the government is well wide of the mark.

  • Did you know the “cuts” aren’t actual cuts? They’re a reduction in increase. Gov spending will actually be increasing over the next few years.

    The issue I have isn’t with a reduction in spending, it’s how it’s executed. We allow companies to channel their operations through off shore tax havens and save billions in corporation tax, we allow a not fit for purpose benefit system to incorrectly give a billion pounds away a year in incorrect working family tax credits, we spend billions on projects like the Eurofighter (which will be retired in 2018 without most of the aircraft ever having flown) but the gov choose to save a few quid here and there by letting libraries close, taking child benefit payments from families where one parent is a higher rate tax payer whilst allowing couples with a joint income £40,000 higher to keep their child beneift, or slashing funding to national museums.

    t just doesn’t make sense, it is perverse.

  • Sophia

    The argument against cuts is Keynsian, isn’t it? Not an especially fashionable approach but not ‘flat earth’ either. You talk about cuts and higher taxes but miss out the vital factor (to both Keynsians and Monetarists)- growth. Neither cuts nor taxes will solve the country’s problems on their own, or even together. The issue is to find the right balance so as to increase growth and the argument against cuts is pretty respectable (although I don’t agree with it myself). Dismissing its proponents as ‘flat earthers’ is missing the point.

  • I have to respectfully disagree with the premise here. Sophia is right regarding the issue of growth and this government just doesn’t seem to have a strategy for it. It’s all very well cutting budgets but when this involves mass redundancies, as these cuts do, then you are increasing the overall welfare burden. And how about the private sector taking up the slack and re-employing the Public sector unemployed? Well they need to be confident that there is demand to justify their increase in production or services, and with so many forced onto the breadline how can they be? The forecast for the economy is so miserable for the next few years that consumers are persuaded to delay spending until the storm has passed. If consumer demand is killed stone dead then we’re in the double-dip territory that Gordon Brown, our much maligned ex-PM and scapegoat, warned of.

    Before I get carried away further with rudimentary Economics I’ll just say that I haven’t seen any arguments for NO cuts whatsoever, just the argument to take it slower (raking in the £25bn from lost tax-dodger revenues, Mr Osborne, might help there…) This might extinguish the deficit inferno as quickly but it might just keep a few embers of growth glowing.

  • I agree that the protests are at least portrayed to be just anti cuts without much alternative suggestions behind them. This may just be the way they are portrayed, not sure.

    Picking up on previous comments, can I throw in that the whole concept of growth is fraught. I worry that our growth – the be all and end all – is not sustainable. So a budget for growth is bound to fail. I hope I’m wrong, but as far as I can see, our growth so far was based on cheap oil, oil is running out and we don’t have anything to replace it just now. Things will change. Food prices will continue to increase, personal cars run on petrol will become unaffordable etc.

    Now, as to the cuts – the UK has, in European comparison, the greatest social divide. It’s even got a more unequal distribution of wealth than the US. This in my view is wrong and it doesn’t take a socialist to say this. Taxing the higher end earners more is necessary but as you say not enough. A living wage is needed but also a re-evaluation of worth of jobs. A car mechanic should not earn more than a nursery teacher – or do we value cars more than children?

    One example of a cut that I don’t agree with is that breastfeeding support – provided by volunteers – is being discontinued. This will contribute to increased health inequalities and eventually cost the state more in health costs. So it’s short sighted as many other cuts are too.

    Reducing fuel duty on the other hand is madness. Fuel WILL continue to get more expensive, better get used to it sooner rather than later. A tax on sugar would be good too, or on salt, to make unhealthy food more expensive rather than the affordable option. I could go on …

  • Regarding portrayal in the media, perhaps. There certainly is a movement for ‘no cuts’ but I think for the most part the protest was made up of lots of groups who were keen to argue for different parts of the public sector, such as hospitals, welfare, and so on. Everyone is fighting their own corner, but it was intended to send a message that cutting back the public sector to such a massive extent isn’t the answer.

    Carter, you make some good points regarding the weath inequalities within the UK and it’s hard to argue with the examples you gave. Something is very wrong indeed. I also think it’s a crying shame about the breastfeeding support – just like so many other ‘vital’ services.

    I don’t think you can say though that any growth is fuelled merely by cheap oil. Perhaps the global economy as a whole has benefitted in the past, but we’ve seen the service sector leapfrog the manufacturing and construction sectors in the last few decades. Indeed the growth of the financial sector and London as the financial capital of the world (arguably) has been responsible for a large part of our prosperity, though pharmaceutical and aerospace (both requiring oil, yes) have remained strong of course.

    I’ve read lots of commentary on whether or not we’ll do a Japan, and there certainly are worrying parralells – too many to get into here. But the problems of our debt, our aging population who pay less tax, don’t spend as much and require much more in the way of public services, and of course draw a pension, don’t help. That’s why the rise in retirement age has to happen (bummer). We also have a stupidly inflated housing market (demand outstripping supply) and the worrying threat of deflation (again, see Japan) if the low interest rates aren’t doing their job. Then growth will really be in trouble as consumers and industry alike lose confidence.

    In other words, it’s so complicated. There are no easy answers – cutting the deficit savagely without taking building in growth strategies is dangerous, but if you look at the many polls conducted on the cuts you won’t find many in favour of ‘no cuts’ whatsoever. I wouldn’t want to be George Osborne, but he needs to really think about what will get our economy moving again without destroying it in the short term, and resist the urge to opportunistically use the situation to cut public services right back to satisfy party Friedman-worshipping ideology (not that I’m a cynic) 🙂

    Yikes, I thought I was done writing shoddy Economics essays post uni! Time to do the laundry…

  • *Cartside I meant, not Carter – sorry 🙂

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