The perversity of Dan Hannan and the “there are no cuts” brigade

Daniel Hannan and that 'there are no public sector cuts' brigade are being perverse. By their framing, we could end up much poorer & they could declare victory.

Daniel Hannan was at it again in the Daily Telegraph on Wednesday insisting that only the ignorant, willfully or otherwise, could insist that there were no cuts. He proclaimed:

“Total government spending has risen in every month since the Coalition was formed, and now stands five per cent above where it was in the final demented weeks of Gordon Brown’s splurge. Borrowing, too, has risen: the government will write IOUs worth £127 billion this year.”

We can argue out on the statistics – that Hannan has not taken into account inflation, or the rising healthcare costs of an ageing population.

But the real problem with Hannan and the rest of the ‘there’s no cuts’  brigade’s framing is that we could, in theory, enter into an economic downward spiral landing us somewhere in the stone age, and they could declare victory. How so?

What Hannan and company are skipping over is that no Government decides to ‘cut total spending’. Governments decide to cut discretionary spending – spending on the stuff we want to spend on like healthcare, education, parks and so on. Such spending is due to be cut from 27% of GDP in 2010 to just 20% of GDP in 2014-15.

But there’s also mandatory spending, like unemployment benefit and debt repayment, that government doesn’t get to decide whether it pours money into – events force it to do so.

You can argue until the cows come home that total spending is not coming down. But its discretionary spending that the public policy argument centres on, and what voters feel.

Crudely put, the right-wing analysis of the situation is that the government is just like a household, and the deficit is an irreducible problem – its primary cause is spending more than you tax. So if you cut discretionary spending, hey presto, the deficit is closed. (Logically there is another option – raising taxes – but the right tend to find their inner stimulater when the dread T-word is mentioned.)

Equally crudely put, the Keynesian analysis is that the state is so huge – currently government spending makes up 46 per cent of GDP – that it has far more symbiotic relationship with the economy as a whole.

If you cut discretionary spending, by lets say sacking public sector workers,  then mandatory spending – in the form of unemployment benefit for example – goes up. Furthermore as demand is sucked  out of the economy, tax receipts fall, and as the government is forced to borrow more to make up the shortfall, so do interest payments on debt.

To put it another way, a government deficit is not an irreducible problem but a symptom of a bigger problem – a contracting or slow-growth economy caused by lack of demand.

If demand is low, growth fails and the state ends up in deficit. If the economy grows fast enough, the government will end up in surplus.

The right characterise Keynesians as arguing for greater spending. This is not quite true. Keynesians argue that you have less of a choice on spending that you think you do, and that as you cut discretionary spending, mandatory spending goes up.

The stronger you believe that what we face is a demand crisis, the greater you believe the trade off to be. That is why Arch-Keynesian Lord Robert Skidelsky made such a savage attack on much of the thinking behind the ‘There is no such thing as cuts’ brigade on Tuesday.

To be fair to Hannan, he does give ammunition to this Keynesian view in his collumn, while also side swiping at his pet peeves – the EU, foreign aid, and the NHS:

“[Osborne]  has made reductions in various departmental budgets, but these savings have been more than offset by rises elsewhere – higher benefits claims, debt interest payments, increased spending on healthcare and foreign aid and, not least, much larger contributions to the EU.”

He even quotes a graph from the Spectator’s Coffee House blog that can make the Keynesian case:

” I draw particularly to the attention of any teachers and LEA officials who joined today’s strike: by the end of this parliament, we’ll be spending more on debt interest than on the entire education budget (hat-tip, Peter Hoskin):

 

At best the “There are no cuts brigade” can say that we are spending less on what we want to spend on and more on what we have to spend on. To most people in the country those are cuts to the public services that affect their lives, and to claim there are no cuts is fairly callous.

It is in effect saying “Yes, we realise that your Sure Start Centre has had to shut down, but because there’s a whole bunch of people now in the dole, there are no cuts’

At the very worst, we are tackling a demand crisis by cutting demand. This will lock us in to a downward economic spiral of ever increasing debt. We will all end up much poorer, but because we are spending billions on jobseekers allowance and debt repayment, instead of schools and hospitals and so on, Daniel Hannan, John Redwood et al will be able to claim vindication. And it will be utterly miserable.

See also:

Lebanese politicians hurl glasses and chairs at each other on live TV – Alex Hern, November 25th 2011

The case for spending to save has been made and won, so do it already – Joe Randall, November 23rd 2011

What has Europe ever done for us? Well… – Tony Burke, November 5th 2011

Toby Young is wrong about the cuts and wrong about the march – Nicola Smith, March 29th 2011

Exposé of Daniel Hannan’s “Ten reasons to leave the EU” – Shamik Das, December 22nd 2009

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79 Responses to “The perversity of Dan Hannan and the “there are no cuts” brigade”

  1. Occupy International

    Forget deficit deniers – meet the cuts deniers:
    http://t.co/H7GVovPi (via @leftfootfwd) #falseeconomy

  2. Edd Shipton

    RT @FalseEcon: Forget deficit deniers – meet the cuts deniers: http://t.co/c1eT32d4 (via @leftfootfwd) #falseeconomy

  3. Rei Murasame

    RT from the weekend #2: "There are no cuts." Really? REALLY?!
    http://t.co/T75BR5uD

  4. Matt Rogers

    There's a really clear explanation of what Keynes was on about in this article. Jolly good #makingsenseofthecutsdebate
    http://t.co/2B0m1UK1

  5. Rob Crowther

    Forget deficit deniers – meet the cuts deniers:
    http://t.co/H7GVovPi (via @leftfootfwd) #falseeconomy

  6. AGH

    RT @FalseEcon: Forget deficit deniers – meet the cuts deniers:
    http://t.co/lhbilcfm #falseeconomy

  7. James Maddison

    Forget deficit deniers – meet the cuts deniers:
    http://t.co/H7GVovPi (via @leftfootfwd) #falseeconomy

  8. Jack Bailey

    @sunny_hundal hope this is on the right track http://t.co/eFD3qACZ

  9. sunny hundal

    @tomjdalton @shorttemperuk @old_holborn no cuts eh? the facts might hurt http://t.co/Y5qPmsHV

  10. Newsbot9

    Ban evading now I see.

  11. Newsbot9

    Strangely enough, you can’t get that kind of ratio everywhere. But doing it where you can is sensible. The Tory’s slamming of the films and games industry is purely ideological.

  12. Anonymous

    I’m not sure its ideological.

    Here is my take.

    1. The government shouldn’t be offering perks to particular groups. They can’t pick winners.

    2. Given that you say a 1 pound tax cuts generates 11, why not cut lots of tax from all companies, so they can generate more? [I’m not sure your figure is accurate by the way, I think its industry puffery]

    3. The reason they can’t is that they are so desperate for money because of their debts, the government can’t cut taxation, and is increasing it.

  13. David Gillon

    Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN

  14. David Marsden

    Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN

  15. Rep in the Regions

    Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN

  16. Pucci D

    Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN

  17. TheCreativeCrip

    Aaaaand rite @ the end of Treasury Qs, Tory MP claims spending's up & 'there r no cuts'! @danielelton wiv the rebuttal: http://t.co/lWfOY6HN

  18. Mr Roshan

    Wrong. Healthcare spending is not being cut (give or take losses from inflation), but being maintained.

    I didn’t read the rest as you were wrong on one of your first assertions.

  19. Mr Roshan

    Highlights: Hannan: there have BEEN no cuts
    LFF: <>

    So, no cuts. But the author has established a fiddle factor which he can use as he wish to claim any non-increase is actually a cut.

    <>

    So, no cuts, but a strawman argument.

    <>

    By that logic, unless we are all employed by the government, no-one would have a job. The above is autistic and simplified nonsense. If we regulated migration, got out of the EU and cut red tape, stopped bank bailouts, we may still have a recession, but it would be shorter and cheaper.

  20. Look Left – Europe 26-1 Cameron: Britain isolated like never before | Left Foot Forward

    […] week’s most read: 1. The perversity of Dan Hannan and the “there are no cuts” brigade – Daniel […]

  21. sunny hundal

    However, it's amusing that Fraser Nelson still keeps misrepresenting extent of govt cuts http://t.co/O85evphN (NOT 1%) http://t.co/wwoLD46Q

  22. Michael H.

    RT @leftfootfwd: The perversity of Dan Hannan and the “there are no cuts” brigade http://t.co/JiCcLj4s

  23. Alan Fry

    However, it's amusing that Fraser Nelson still keeps misrepresenting extent of govt cuts http://t.co/O85evphN (NOT 1%) http://t.co/wwoLD46Q

  24. Thomas Byrne

    http://t.co/yXL8W5v2 “We realise that your Sure Start Centre has shut down, but because there’s a bunch now on the dole, there are no cuts’

  25. Abi

    http://t.co/yXL8W5v2 “We realise that your Sure Start Centre has shut down, but because there’s a bunch now on the dole, there are no cuts’

  26. Peter Spence

    http://t.co/yXL8W5v2 “We realise that your Sure Start Centre has shut down, but because there’s a bunch now on the dole, there are no cuts’

  27. Steve Akehurst

    RT @leftfootfwd: The perversity of Dan Hannan and the “there are no cuts” brigade http://t.co/2NbIcVjX

  28. Introducing George's Marvellous Deficit Calculator | Left Foot Forward

    […] as right-wing commentators have helpfully pointed out “there are no cuts” – or at least there is a relatively small fall in overall […]

  29. Thomas Byrne

    @S8mB I don't agree there doesn't need to be cuts, but Left Foot Forward hit the nail on the head http://t.co/eCq6eUeI

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