Saturday, 9 May 2015

Austerity and cuts

I mentioned this in a previous blog; now to go into details.

There seems to be a narrative (big word for "story") that the wicked evil Tories are grinding the faces of the poor with cuts and austerity measures. There's lots of anecdotal evidence, of course. Food banks. NHS waiting lists. Cuts in police numbers. You can, of course, find anecdotal evidence on the other side. But surely what matters is the overall number?


Where's the austerity? We're still spending more than we earn, that's why the National Debt keeps rising.

But what about, as a percentage of GDP?


Where's the cuts? Debt is still rising!

So why does the story about "austerity and cuts" go unchallenged? The left won't challenge it, because it goes nicely with the "evil Tories" story. The Tories won't challenge it, because it means that all their policies aimed at cutting the deficit, aren't doing much.

Deficit? Wait a minute. Don't I mean debt? Let me explain.

Suppose your family has an income of £20,000/year, and a mortgage of £100,000. Then your debt is £100,000. But you have a flamboyant lifestyle, and you're spending £25,000/year. Then your deficit is £5,000, and your debt will be increasing from £100,000 to £105,000 next year.

The concepts of debt and deficit are, I think, pretty simple. But they appear to be too complicated for many politicians, and they routinely conflate the two terms.

So what's happening with the deficit?

Source : Spectator

The deficit is still huge. Is that "austerity"? No, it isn't. OK, after 2015 it falls, and in 2019 we start seeing a surplus (and it needs a surplus if you want to reduce the debt). But that, of course, is a pious hope for the future, not what is happening now. And we all know that these future hopes will be thoroughly revised next year, and the year after.

There is no austerity. The cuts are mostly imaginary; instead of increasing our flamboyant lifestyle still further to £30,000, we're only going increase it to £28,000. That's a cut of £2,000? No, actually. It's an increase in spending of £3000. A cut, would be to reduce spending to £23,000, and austerity would be to reduce spending down to £20,000, which as you remember, is annual income.

So next time you hear the narrative (i.e., story) of austerity and cuts, go look up the actual figures.

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