Two factoids prompt the question:

1. The claim that 93% of households in Scotland take out more from the public purse than they contribute; as I've no particular reason to think Scotland's case is in any way extraordinary, then presumably broadly similarish stats would apply to other European nations;

2. The stats that the unemployment rate in the most troubled Euro nations, Greece and now Spain, is now around the 25% mark.

If these economies need to recover, how can they, if a quarter of the population is jobless (and as we all know the actual figure will therefore be higher) and if hardly any households are net contributors into the national pot?

This is a genuine question, not a speech, I'm asking what it is that the organisations that prescribe the medicine believe will drive the economic recoveries needed, and where governments with plainly no pot to pis=#FFFFFF[size=5.[/sizes in wil get the money to repay the "loans" etc currently being handed out by the trillion.

"How do cutbacks save economies?"

They can't.

Even the IMF (hardly a bastion of leftyism) agrees. It has stated (IIRC the data correctly, off the top of my head) that, of 170 examples where austerity polices were enacted in countries, not a single one produced growth.

That isn't surprising to me, but I suppose what I'm asking for is a potted explanation of the basic theory behind austerity measures as I can't find it anywhere and can't imagine what it might be.

On the basis that if somewhere (like Greece) must, above all, apply strict austerity measures, that surely should only be on the basis of a firm and public theory as to how and why this is likely to work?

If the gov don't cut back on their expense, and are low on funds, where does the money to pay that expense come from?

Oy! [iI'm[/i asking the questions!

That's the answer though! In a question

Basic economics say you either cut the expenses OR increase the income.

I'd like to see how the figures staked up and what definitions they were using, also taxes on the person are only a part of a governments income.

Supposedly based on figures from the Office of National Statistics.

I've found this:
[urlhttp://www.cps.org.uk/files/reports/original/121005151233-TheprogressivityofUKtaxesandtransfers.pdf[/url

There are particular issues in Greece (around a culture of large-scale tax avoidance) that make that a specific case.

But the point is that austerity economics are a con.

The great idea (if you want to call it that) as propounded (certainly in the UK) is that cuts are essential in order to tackle the deficit. You stop spending as much – and use it to pay of the debt.

The flaw in this reasoning is simple. If you put more people out of work, you decrease revenues and increase expenditure (unless you have absolutely no welfare available for those who are out of work). So in reality, the debt increases.

There is an argument that, if you want to make cuts to public spending, then the best time to do so is during the economic good times – in other words, when the job market is such that people who are made redundant will have little difficult finding alternate jobs of a comparable nature (in wage terms at least).

It is absolute economic illiteracy to pretend that, without those jobs available, cuts will do anything more than increase a deficit.

The problem in the UK, however, is that the simplistic (and incorrect) equation is being used by the government as an excuse for cuts that have nothing to do with the economy/deficit and everything to do with pursuing a small state ideology, and finding ways for themselves and their friends in big business to make increased profits.

But while many people do not find the idea of cuts and austerity palatable, it seems intuitively correct, because it effectively treats the national economy as though it were the same as a household budget. And that, while understandable, is wrong.

I'm sure I saw something in one of the weekend papers that UK household figures were roughly 50/50 or 60/40 - with 60% receiving more than they gave. I don't have the paper anymore and don't pay the online subs, so it's only on memory.

yep, and that's the difference in philosophy, which also includes the debate on big vs small state and state vs private provision, hence the difference between the two parties.

OK, so here's the idea, and my economics knowledge doesn't go as far as nation states

Gov expense is more than revenues and can't be sustained.

If the gov wants to cut expense and fthere are a bunch of public employees (whether police, armed forces, civil servants, anyone paid by the gov) and they're paid e.g. £40K a year (of which £10K might come back in tax so making a £30K net cost) then if those roles are removed and each one is now only paid £6K a year in benefits, then the gov has saved £24K for each of those people no longer employed by the gov.
However, if those people find private employment (and lets just assume the same numbers for easy maths) then they turn into net contributors to the gov of £10K: So going from £30K cost, to £6K cost, to £10K benefit.

Where it gets complicated is the wider effect of what those people did with their £30K and where it went, trickle down, multiplier, whatever you want to call it, both in terms of spending that funds other employment, and other tax revenues.

That's how cuts could work. TBH, I don't really understand how spending our way out could really work. OK, so there's the Keynesian idea of paying someone to dig a hole and someone else to fill it in and they both go spending that pay in shops etc. But how does that work when we don't have the money to pay them in the first place at all?
Being a global economy makes it even more complex - what if they go spend all that pay abroad? Is anyone going to argue for isolationism as the answer?

I think that the current incumbents policy is based on the fact that when the Bursar gives you your ten shillings pocket money from Mater every week, if you don't spend any of it then at the end of term you've got no friends and about six pounds ten shillings in your bank account.

Quite how that converts to running a country I'm not sure, but I think thats where they got the idea from.

It failed in the years after 1945, didn't it?

I don't know. I wasn't here and haven't looked at that period of economic history. I'd thought it had always been referred to as a time of austerity rather than spending though? How did we make it work then and how long did it take? With hindsight, was it the best route? All genuine questions.

on one of the news programmes the other day they suggested the general thinking is that a 1.5% cut in Govt Spending has a 0.5% impact on GDP.

The prosperity of the 1950s was created, at root, by state investment in everything from a universal healthcare system, greater educational opportunities for all, home building – and many other measures of investment.

To start with, reconstruction was obviously needed just to deal with the damage caused by bombing.

What it did was put people into work – it created jobs. But it also created a healthier, more educated workforce, not just for then but for later.

It was an approach that was hugely influenced by the knowledge of what soldiers had returned to after WWI – the "land fit for heroes", as promised by David Lloyd George, turned out to be nothing of the sort, as the Depression hit, itself created (in part at least) by the sort of 'trickle-down' economics that today's neo-liberals pretend will somehow work better now.

Right now, because we have deindustrialised, in the short term we need to regain consumer confidence and get people spending – whether on services or goods (because that's what 75% of our national economy is now based on).

So you invest. At this point, borrowing to do that is as cheap as it can be. But if you do something quickly it will start to have a positive impact quickly too. So for instance – I think I mentioned, recently, Robert Skidelsky's idea of insulating homes, which could be done quickly (training new workers to do it is not difficult and doesn't take long). The first and quickest result is that you put a large number of people back into meaningful work. They're no longer claiming benefits, but paying tax – and spending money within their own local economies. The longer-term benefits would see people's housing improve and their bills fall (and I'm not even going to mention the enviornmental benefit

).

So you get a lot for that investment.

In the longer term, I think everybody now realises that the economy needs to be rebalanced. But that is a long term thing – it cannot happen overnight. So if you don't want the deficit to simply keep on growing, you have to tackle confidence and employment.

If you simply keep cutting benefits, you'll probably increase crime – and you'll see even more increases in food banks, soup kitchens and people ending their own lives out of despair. Those are no, in my opinion, options for a civilised society.

You can, of course, also increase revenues through taxation. It's interesting at present that the [iTimes[/i is obsessing about famous individuals who use tax avoidance schemes. David Cameron himself has condemned at least one who did that (although stopped that approach in short order) and has now even mentioned 'the rich paying their share'. But I would suggest that the far greater question is not increasing tax – but collecting the tax that is owed by corporations.

Today, for instance, we learn that Facebook UK paid just £238K on a UK turnover of £20.4m ([url=http://news.sky.com/story/996301/facebooks-uk-tax-rate-slammed-as-unethicalStory[/url). Don't raise taxes – simply collect them.

In response to the OP, cutbacks don't save the economy.

[url=http://www.imf.org/external/pubs/ft/weo/2012/02/pdf/text.pdfAccording to the IMF (page 43)[/url every £1 cut by countries with developed economies since the financial crisis, directly lead to a drop in output of between £0.90 and £1.70. Apparently the OBR were expecting every £1 cut to result in a £0.40 drop in GDP.

So not only are the cuts directly harming growth, the government knew (although not to this extent) that this was going to happen. Makes 'the budget for growth', and the gov't blaming poor growth on extra bank holidays/the weather/Europe look pretty disingenuous.

A Tory group was using FB to spread propaganda, claiming that by 2016/17 debt would be £300billion lower than if Labour were in power. I explained that if this were true, then according to the IMF this means that the Conservatives would've been responsible for an approximate 30% drop in GDP by 2016/17 compared to if Labour were in power. Surprisingly no one replied to my comment, they all just carried on sharing and liking the 'fact' as if i'd never posted.


According to the link FA posted, the number of households who are net-recipients of the state is 53%, but this drops to 40% when you only look a at non-retired households. I have no idea how Scotland can be doing so much worse than the UK as a whole, I suspect some statistics may have been manipulated/misinterpreted, If not then surely Scottish independence is completely out of the question.

Spending (i.e. investing) borrowed money on much-needed infrastructure (for example) creates jobs, puts cash into GDP and the benefit is felt by many more than just those who work on those projects.
Only the fruitbat end of the economist spectrum disagrees with that.
Or Osborne as he's known.

As long as national economies continue to try to out-austere each other, global trade will continue to diminish.

Why not? If growth is larger than the deficit we don't have a problem


If everytime the government laid off a public sector employee they found a £30k job in the private sector the problem wouldn't be nearly as hard to solve. But there isn't nearly enough demand in the economy, sack a load of public sector workers and you just end up with a load more unemployed people.

Also you estimated the multipier at 0.25, any particular reason you chose that figure when the IMF have said at the moment in developed economies it is between 0.9 and 1.7?

Can you not see how large government cuts would be bad for the economy at a time when for every £1 cut by the government, GDP decreases by £1.30? (the centre of the IMF range)

This is a problem over half of the UK are now net beneficiaries rather than contributors for the forst time. It is an unsustainable position. It may be that more even distribution of income would help but I'd be surprised if the figures would stack up. The fact is our living standards are likely to decline as the Far East and South America win the race for resources. Cuts to the welfare state will sadly occur as our relative wealth declines. The US is struggling but is in a much stronger position than Europe when it comes to competing for resources. Europe is likely to go into a period of stagnation and relative decline for decades to come. The EU's head in the sand attitude to global competitive pressures will add to the woes of the Old World.

Just example figures explaining the theory Cookie. No attempt to say which would work and which wouldn't. I can see the theories and reasoning behind both (thanks to some input from other posters on the "spending" approach) and haven't expressed a belief in either.

But you need to produce sufficient things that people around the world want to buy to have the income and jobs to survive and pay the bills. Fact is, we're struggling on that front. You can't simply create jobs will public money as that money needs to come from either taxes (which requires private sector profitability) or government borrowing (which is not a long-term solution). The only long term solutions revolve around innovation / productivity increases / lower living standards.

Before the financial crisis less than half of the UK were net beneficiaries. Yes this is an unsustainable position, but that's because we're in the aftermath of the financial crisis, and currently in recession. This isn't supposed to be sustainable, no one thinks these conditions will last forever.


Yes Europe will go into relative decline, because we are industrialised whereas large parts of the world are still industrialising, this should come as a surprise to no one. If I started training for the 100m in weeks I could easily shave 1 second off my time, so yes that would mean Usain Bolt is in decline relative to me, but that doesn't mean he should be worried.
You seem to be under the impression that the world economy is a zero sum game, I would be surprised if you found many credible economists who held that view.