Thread: Britian's Bold economic cuts-- Good or bad?

Personally, i don't know what to think of it now. I know there are several people here from Britian, what do you think. And could you elaborate more on the politics of this to those of us outside of United Kingdom.

We have a budget deficit of 150 billion pounds. I think this means that w're spending 150 billion more than we're earning. It costs us 50 billion a year in interest payments alone. I don't know enough about finance to know if this is added, or part of, the 150 billion a year. I read an interesting John Major article a few months ago (ex-PM) that said all the Labour governments were doing was spending money it couldn't earn, to win elections, with no long term plan. Major's a Tory but I found it hard to fault his logic. Our debt has trebled from aprox 350 billion in '97 to aprox 900 billion today.

In a microcosmic way, if you borrow for that holiday, or new car, new kitchen, and your wage never goes up, sooner or later you come to a point where you go bust, lose your house. The three main parties all seemed to agree that that time was close, (how close we may never know), and that cuts in the public sector had to be made. Difficult to put up taxes when there's so many low wage-earners.

Wherever you make the cuts, they'll be unhappy people going on strike. Short-term, it'll cost a lot in redundancy payments, and paying benefits when there's obviously not enough private sector jobs out there. Long term, you don't have a few extra hundred thousand people retiring five years earlier than the private sector taxpayers. (Policemen can retire after just thirty years in the force, for some strange reason - perhaps politicians fifty years ago not caring about chickens coming home to roost!).

An outgoing MP at the treasury left a small note for the incoming chancellor after the election. It said 'Good luck. By the way, there isn't any money.'

A further comment on the politics. The Labour Party have a reputation for wasting money, and the Tory Party for just not spending it when they should. So, a lot of things can improve under a Labour government but at a seemingly unsustainable cost.

Bad.

I don't know much about Great Britain's economic woes, except it mirrors ours, but the same principles apply everywhere.

It is a bad idea for a government to make economic cuts in the midst of a recession - the economy will protract. If I have this right, those cuts involve military spending but also cuts to social services - such as welfare and unemployment. The problem really begin when jobs are cut, for real, not hypothetical jobs. To me, that just seems both counter-intuitive and counter productive - not during a recession.

The only jobs government can create are government jobs, it makes sense then that is should swell during lean times to even twice it's original size to compensate for the lack of commerce. This is a good time to rebuild bridges and roads.

It may not sound like a good plan as it would mean more temporary deficit spending, note 'temporary', but it keeps the country afloat - out of a depression. Once that happen systems begin to break down and it things could get pretty ugly, may even take a civil war to pull back out of it. It's just a matter of getting a nation's priorities straight. Once equilibrium again reaches the market, the Government can begin to scale back and worry about paying down the deficit then, and be in much better shape to do so.

I suppose Britain is rolling the dice hoping that business' will swoop in and take up the slack and put people to work for no reason.

The only actual cure, or treatment for economic pain is for everyone concerned (consumers) to spend more money...save nothing if possible.

The UK and EU troubles are different from the problems in US. The US suffers from deficient aggregate demand, while our European allies face structural barriers to employment. Cutting spending may be part of the strategy of eliminating those barriers, but it can't be the entire solution. It seems like all the talk over there is about job retention, while job creation is lacking in the discussion -- quite the opposite of here in the US, to which Blood's answer is more relevant.

It simple really. We don't have the cash. So we can't spend it.

Originally Posted by Bigfella

It simple really. We don't have the cash. So we can't spend it.

And what a lot of people forget is that the public sector is financed by the private sector. Even the civil servants' taxes, N.I. payments, and pensions are all funded by taxing the private sector. What I don't understand, is that a lot of these cuts will be hugely expensive in the short term by way of redundancy payments and ensuing benefit payments. And what for? If we lower our national debt by £300 billion, doesn't that give a political party (Labour, Lib -Dem or otherwise) licence to borrow it again to win votes, and put us back where we were in the first place?

I hear you Spider.

I guess the problem is soooo complex, thats why we are in this mess.

I am assuming the powers that be have actually made the calulations though and guess the long term savings beat the shorter term outlay. ( I know - its a BIG assumption)

Originally Posted by Bigfella

It simple really. We don't have the cash. So we can't spend it.

If that were true, then there would be no deficit to pay today down in the first place.

Originally Posted by Yarris

The UK and EU troubles are different from the problems in US. The US suffers from deficient aggregate demand, while our European allies face structural barriers to employment. Cutting spending may be part of the strategy of eliminating those barriers, but it can't be the entire solution. It seems like all the talk over there is about job retention, while job creation is lacking in the discussion -- quite the opposite of here in the US, to which Blood's answer is more relevant.

I don't know what you mean by structural barriers to employment, but job retention and creation go hand in hand; and both are and have been talked about quite a bit in U.S. politics. Britain's new spending cuts will also cut an estimated 490,000 jobs while slashing social services and welfare benefits. The logic here being that government jobs are standing in the way of private sector jobs! ...Would that be the barrier?

Reduce public sector jobs and the private sector will pick up the tab, but why would they? The demand for jobs will certainly increase, that's one void that will be left behind, but why would the need to hire increase among the private sector to fill it without guaranteeing any kind of increase in the demand for goods and services? I read that the British government insist this is what will magically happen.

I don't know if anyone's read the Magnus Mills novel The Scheme for Full Employment. It was about, I think, public sector workers having jobs created for them just to give them jobs. There were no profits involved and very little benefit to the nation, other than keeping people off the dole at the expense of the taxpayer. But employees on the scheme wanted more and more money for less and less work. In the end, the powers-that-be decided to end the scheme - cheaper to pay them benefits.

Of course, in the UK, unemployment will now go up. But as long as essential services are protected it could be cheaper. There is an argument that all services are essential, or else we wouldn't have them in the first place.

But some are more essential than others.

Originally Posted by Blood

Reduce public sector jobs and the private sector will pick up the tab, but why would they?

Don't forget that the private sector already picks up the tab, a much bigger tab, to employ the public sector

Originally Posted by Blood

why would the need to hire increase among the private sector to fill it without guaranteeing any kind of increase in the demand for goods and services? I read that the British government insist this is what will magically happen.

I don't remember hearing this, or reading it, but you're right - it doesn't make sense to me.

Originally Posted by spider8

I don't know if anyone's read the Magnus Mills novel The Scheme for Full Employment. It was about, I think, public sector workers having jobs created for them just to give them jobs. There were no profits involved and very little benefit to the nation, other than keeping people off the dole at the expense of the taxpayer. But employees on the scheme wanted more and more money for less and less work. In the end, the powers-that-be decided to end the scheme - cheaper to pay them benefits.

Yea. The bottom line; somebody has to spend money…but who? The government (public sector), private industry, the consumer? Well we already know government would be a sorry choice for reviving an economy - as somewhat illustrated above – there are no real profits there although government spending does serve a purpose. Next, don’t expect private industry to take the plunge. They scale back during lean times not expand. They may invest somewhat in marketing but not capital, not job creation, not without consumer demand…which then leaves consumers, the masses.

People must spend money to have a robust economy. There is no escaping that fact, that is where it begins. So take a vacation, purchase the latest game console, go out to eat more often, shop, whatever - adopt the philosophy that life’s short so you might as well live it up. And then that slow moving stream we call the economy becomes a raging river as everyone dumps buckets of their money into it. And only then will industry react to the increased demand by increasing production, which means creating more jobs, which provides more people with income that goes right back into the river. It’s ‘good times’ all around.

Consumers and producers wheel and deal as the government referees from the side imposing regulations [or reform] from time to time to keep things fair, but that's about it - call it a limited role. At the same time the same government can afford to cut taxes a little to reward the market for good behavior as the cost of social services naturally decreases (more people are earning a living) while collecting substantially greater tax revenue. This would be a good time to pay down debt.

If we back out of this then the reverse is true. Consumers stop spending, eventually producers (the private sector) stop producing then the government sees the raging river begin to settle back to that slow moving stream and so decides to jump in and do something before it dries up completely. ...Which brings us back to the moment.

The government must expand during a recession and spend [more] money since the other two entities will not, because someone must. It requires deficit spending to cover the increase in demand for social services as the unemployment rate increases, bail outs, stimulus packages and so on - not popular but very necessary. This is a good time to rebuild infrastructure - schools, bridges, dams, parks, etc - but not such a good time to pay down national debt.

The British government wants to cut social services and lay–off nearly half a million people, enact a tax hike with the goal of paying down it’s debt in 5 years while in less-than-preferable economic times. The idea being to shift the burden to the other two points on the triangle and let consumers and producers work it out on their own (same meaning as “the private sector picking up the tab”). That is a huge leap of faith! I don’t know, kind of sounds like the perfect storm. Bad idea. They must have a plan ‘B’ waiting in the wings, if not a plan ‘A’.

I am living close to RAF Lossiemouth and RAF Kinloss. RAF Kinloss will be closed because of cuts, but may be taken over by the Army to house people coming back from an army base in Germany. RAF Lossiemouth may be cut or closed as well. As an American living in Scotland, I may not understand all the ins and outs of UK forces related economics, but my family are USAF and have had to move twice because of air base closures or restructuring. The closure of one airbase effects the local economy by removing the spending power of hundreds, or in our case, a thousand or so people. The sposes and working age children of servicemen take a lot of money creating and money earning potential out of the local economy as well.

We are also going to be hit with public spending cuts. Our education services will bear the brunt of these cuts, with undersubscribed schools and a flagging library system ripe for pruning. As a result, people will become lots stupider hurrrr here, and we need more than just drunk distillery workers to keep this area afloat. The Glenfiddich distillery and others only bring in so much. With stupid people, we won't be able to jump on to the technology bandwagon that could help not just the local economy, but the whole of the UK.

I have heard it said that the private sector will make up for the job losses in the public sector. I have yet to hear how. We don't need to hire any new people, and it is likely our wages will be frozen this year. Many other businesses in the local area are in the same boat, they just can't afford to hire new people, nor is the demand going to magically appear that would necessitate hiring of more workers. It might work, but only with massive loss to the human condition and standard of living here in Blighty