Political Betting is one of my favourite websites.
But I must say that I have many problems with today’s offering on spending cuts.
Regardless of where you stand on these issues politically, we should all acknowledge that there is a huge problem with the debate itself. In this country, short of holding a PhD in economics, the political debate about the economy is largely impenetrable. I have the utmost respect for journalists like Fraser Nelson, who actually follow, interpret, and explain the different financial mechanisms that both parties use to twist the numbers and make their political points, but I wonder how many others (like myself) find the economy to be discussed in a way that makes it difficult to grasp intuitively.
The way the economy is generally reported doesn’t allow the average voter to form a view on what course of action should be taken, and to argue that with the facts that underpin that view. This is bad for democracy, and especially so if public sector spending cuts are going to be the principle battleground at the next General Election
I have less respect for Fraser. But that’s beside the point. I think Robert Peston, Paul Mason and Stephanie Flanders provide excellent economic coverage on the BBC. Although I do agree that economic news should be given more prominence.
Where I have a major problem with Morus’s article is here:
The first is the centricity in public debate of the National Debt and of the Defecit. Mainstream political debate in the US has these figures front and centre, especially the latter – the public is made aware of whether the Budget is in surplus or whether the Defecit has grown year-on-year. That information is rarely communicated simply in the UK. Finance, especially governmental finance, is complex – but I’d argue the way it is reported does not allow for many regular voters to participate, or fight a corner based on the numbers.
I think this is a rubbish idea. First, we are already talking a lot about the deficit and the level of national debt. But second, the level of debate in the US on these issues rarely rises above ‘deficit and debt bad’.
The levels of public spending, the burden of taxation required to fund that spending and the appropriate role of the state – these are the big questions of political economy. In that debate the level of the deficit, or the size of the public debt, in any given year are of secondary importance.
I fear that if we were to place deficits at the front and centre of political debate that debate would quickly follow the American example and descend into petty point scoring as politicians boasted about who could run the lowest deficit or the highest surplus, who could pay down the most debt. This debate would risk missing the forest for the trees. What actually matters is the level of employment, the cost of living, the distribution of income, the availability of services and level of taxation. Whether or not the deficit is 3.5% of GDP or 5.5% is hardly the key issue.
If the answer is ‘we need American style debate on the deficit’ then I’m not sure what the question is.
I have been reading Audit Commission Chair Steve Bundred’s thoughts on reducing debt.
It has been left up to a civil servant, Steve Bundred, chief executive of the Audit Commission, to name a sum. He said yesterday that the national debt will require a £50 billion package of spending cuts and tax rises. Health and education could not be ring-fenced – and a pay freeze should be imposed on six million public-sector workers.
By my count that would be a structural deficit around 3.5% of GDP – possibly a little low.
But the key question for me is, when does Mr Bundred suggest we make these £50bn of cuts?
If we make them this year we risk an exact repetition of mistakes made seventy years ago – the dreaded double dip recession. One of the most important lessons of the depression is that fiscal and monetary stimuli should not be withdrawn too quickly.
Let me be clear on this. If we announce a public sector pay freeze starting this Summer, that would be a colossal policy error. A £5bn reduction in public spending, in the context of a deficit of nearer £200bn is small change in terms of savings. In terms of the effects on growth it is potentially much bigger. And the best way to pay down debt is growth.