Economic Fallacies


The principal division between right and left in Western politics is revealed in attitudes to the British budget deficit and public debt, The right believes in small government, lower taxes, higher saving and inducements to the private sector to provide the economic growth needed for higher standards of living; while the left creates a larger, enabling state that protects individuals and promotes their welfare through social welfare provision and centralised public initiatives. Arguably the smaller state option leads to a greater variety of personal outcomes.The question to be posed of the Coalition is whether you can move from one type of society to another two thirds of the way through a distressing global disaster without widespread economic and social distress? The answer is probably , NO.

In the debate these  are the questions requiring answers:

1. Is it necessary on economic and social grounds to seek to eliminate the budget deficit and to take on the task of lowering national debt? No it isn’t. A steady reduction in the first achieved partly by economic growth and full employment is the best and least damaging path for the British economy.

2. Will the alternative policy lead to a run on the pound, higher interest rates, and  a Government default on debt payments? It is most improbable. Britain  isn’t Greece, Spain, Portugal or Italy. It is dangerous to us all to exagerate our deficit prioblem and the Coalition should stop doing it.

3. If the public sector shrinks and social wastrels forced off their benefits will that not force people into the private sector? No. It would be helpful through time if the private sector grows to shift employment from the public to private sector but there is no automatic mechanism. Incidentally tougher immigration rules  are likely to damage the private sector.

4. What will happen to  employment if savage cuts are made to the public sector? Unemployment will rise sharply and we will enter a double dip recession. The Eurozone, Britain’s principal export market market, is suppressed because of its deficit problems and unfortunately some Euro countries are following the Boy George prescription and lowering output.

5. What about the interest paid on the debt? Isn’t that ruinous? It is most undesirable. But how many people buy for their houses without a mortgage? Or more to the point, what percentage of Old Etonians? Come to think of it David Cameron has two mortgages, if reports are to be believed, one paid for taxpayers out of Parliamentary expenses and the other out of his own resources. Oh dear, how undesirable!

6. Could the British deficit get worse as a result of Coalition policies? It is a greater risk than popularly supposed. What would happen then? Your opinion is the one that matters. What will you do?

Cutting the deficit is not the only game in town. Roy Jenkins was apt to state that you cannot fly a plane using one instrument of control. If you attempt it, the plane will crash. Fasten your seat belts, please.

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