Sunday, January 16, 2011

Nice caveats, shame about the point

My only complaint about this post from Duncan Weldon is that his caveats are better than the ostensible point. The problem with arguments about the budget is that a very large chunk of the spending side is either made up of long-term capital projects, or worse, PFI-ised capital projects, which often can't and arguably shouldn't be used as in-year balancing items, commitments like NHS spending and pensions that are driven by demographic factors, or else automatic stabilisers like Job Seekers' Allowance that are directly linked to the economic cycle with a minimal lag time.

On the other hand, it's hard to think of a tax that isn't dependent on the level of economic activity. VAT? Corporation tax? Stamp duty? Income tax? Fuel duty? They're all more or less cycle-following. That the government budget is heavily influenced by the macro-economic situation is trivially true, and is determined by the structure of the tax and public sector financial management system. This doesn't change with your views on economic theory - perhaps another case for the idea that one of the groups who got the crisis right were those who saw it in terms of accounting.

I'd also add that worrying about Tory talking points like "deficit deniers" is the counsel of despair. If you're worrying about the other side's nonsense, they've got you where they want you. You need to hang something round the other guys' necks. All this accepted, and I do like Duncan's point that it was indeed the lack of an effective critique of capitalism that led the Blair government to miss the bubble, following this advice would still put Labour in the position of arguing that they would make "nice cuts not nasty cuts".

Which doesn't make any sense at all. I suspect the dividing line between the Continuity Blairites and everyone else on this is as follows: Gordon Brown, Alistair Darling, and Ed Balls actually realised how awful the Tories would be and that there was a real risk of a double dip recession, and that therefore it was necessary to fight the "language of cuts". Balls did get to cut loose on this towards the end of the campaign. I suspect Labour would have done better to define against them on this.

However, conventional wisdom demands that Brown be seen as an egghead with no grasp of campaigning. The media-savvy eye catching initiative peddlers, however, were the ones who ended up campaigning on a line of "cuts! cuts! cuts! but not like those evil Tory cuts!" which wasn't clear or convincing.


AB said...

"On the other hand, it's hard to think of a tax that isn't dependent on the level of economic activity."

Any form of property or site value taxation in which the valuation is only periodically updated (council tax being the closest the UK has). One of the many reasons why site value taxation would be a big step forward for the UK.

Also I think your argument works as a critique of short-term cuts in spending that will worsen the cycle and make capex projects more expensive, but not of of the failure to address medium to long-term solvency.

yorksranter said...

The classic example was the decision to slow down the aircraft carrier project because the Very Serious Ones said it was costing too much. Unfortunately, if you have to idle a big industrial enterprise and keep it that way without everyone either pissing off to look for work elsewhere or getting into the smack, costs money. Overall it cost a lot more.

medium to long-term solvency

What's your estimate of the net asset value of the UK?

yorksranter said...

Also, are you still a Lib Dem?

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