OK, so I’m not very comfortable sharing my political views, as I can’t help feeling that people can make up their own mind. But I’ve seen a lot of perfectly reasonable confusion about austerity and whether it’s necessary and whether spending lots of money on welfare would actually cause the country to fall apart etc. So this is my attempt to explain, roughly, why everyone is arguing about this as if the other side is nuts. I will try to keep my opinion out of it until the last paragraph.
So the government has a budget that takes in taxes and pays out for stuff like welfare and defence and all the stuff that is better done en masse than in individuals buying and selling it. This is called the fiscal budget. (It is different from the country being in debt or in credit. That is a different set of accounts). If it goes into negative numbers one year, that is fine because this is the government, banks are happy to lend the UK government money because it has never failed to pay back. There is a big pile of debt being built up. It is massive, because it has been built up over hundreds of years and includes several major wars (First and Second World wars and further back than that). The government can keep going even with this massive debt because all they have to do to pay off the debt is to sell ‘Government bonds’ which people buy as investments knowing the government will pay back the bond and interest at the end of the stated time. This can go on indefinitely so long as the government can make enough to pay off the interest (they don’t need to worry much about the actual amount of the debt).
Austerity, is about the worry that this big pile of debt will just keep getting bigger if we don’t start to have some years where the government takes more in taxes than it pays out, so the Conservatives have tried to keep government spending to a bare minimum in the hopes that this will start to pay off the massive debt. They worry that, if the money markets (those people happy to buy government bonds and get the interest for them, thus letting the government keep functioning despite having big debts) will start to worry too and demand higher interest to cover the risk of borrowing money from someone that might go bankrupt. This kind of self-fulfilling worry is the sort of thing that has happened to other EU countries recently and it is a serious risk.
On the other hand, the actual size of the debt is not really the point. The real concern is the debt to GDP ratio. So if you are in debt by £4K, your bank might worry about this if you are on £15K a year, but probably won’t care much if you are on £150K (You could pretty much pay off that debt with a couple of months of saving up). At the moment the debt to GDP ratio does sound scarily big (90% or something) but is actually at a historic low (we have gone up to 200% during times of war, etc.) So the money markets are far more likely to bankrupt the government if the economy shrinks at a rate that makes the debt look like it’s getting bigger by comparison.
Those who oppose austerity, say that the government not spending money is going to do a lot of damage to the economy. This is because the amount of stuff made in the UK economy is (ignoring overseas trade for simplicity) the same amount as the UK consumers want to buy. One of the big UK consumers is the Government, but austerity means they’re not spending so much. Another big UK consumer is the people. They have less to spend too, because the very poor are getting less in basic living benefits and the rest of the populace are feeling the pinch of a crappy economy at the moment. This means there are not enough people buying, to make producers want to make stuff and so the economy slows down and makes less stuff. Hence Labour, etc. are saying the government should spend more to make the economy grow more.
The problem with this, is that we know that if the government boosts the economy too much, they will make their own debt bigger and what might happen is that the benefits of an economy that is making more stuff will be drowned out by rising prices (inflation). This is because if you have an economy that is over producing (above its capacity) then unemployment will be low (more people will be able to get jobs) and businesses will have to pay higher wages to get everyone to come and work to make all the extra stuff. This sounds great for the workers, except that the workers are also the consumers who will buy all that extra stuff. And because their wages were high, businesses will just raise their prices to cover the extra wages and they will find that prices are going up. This will make workers ask for higher wages, to cover the rising prices, and you end up with runaway inflation (which is really really really scary for everyone- imagine having to go out and buy your evening meal at lunchtime, because you know the price will have doubled by tea time!).
So the problem is working out what the capacity of the economy actually is. Should we risk the government spending too much and taking us into inflation or should we risk the government spending too little and shrinking the economy? There is also the added problem, that you can actually shrink the capacity of the economy (it’s called hysteresis) as those who could be working, innovating, designing and investing, lose the skills through lack of use or have to turn to meeting their basic needs, rather than trying to improve their lot. If you leave a whole generation, ill-educated, with poor health care and few skills, jobs or life chances, the capacity of your economy in ten years time will be dropping.
Which
brings us to the next point. The question about what we should do in order to
keep the economy buoyant and benefit the UK is only one part of the question.
The other side of this, if we manage to secure this nice, thriving economy, is
how we want the benefits divided. On the one hand, you can say we should
benefit the rich and prosperous, because they’re the ones creating this wealth
by investing here. This is a practical argument aimed at creating more wealth
and ensuring that there is a better incentive to keep investors here, but can
sometimes end up sounding like a moral one (where poor people are poor because
they don’t work hard enough). Or you can say we want things to be relatively
equal, because there’s not much point in a thriving economy that only benefits
those already thriving. This is obviously a moral argument, but kind of a
practical argument too, if you think back to the instability that inequality
can create.
The truth is, that all these extremes are unlikely. We are not likely to see a bankrupt UK government, or runaway inflation, or riots in the streets, or a wonderfully thriving economy that makes us all rich. There probably is spare capacity in the economy at the moment because of the recent economic crash, but working out how much is difficult and inflation is a risk. Also, it really would be quite nice to start shrinking that bundle of government debt. But is this really the time, after a major recession? There is a genuine economic debate to be had here, which too many people don’t really know much about and just get the Tory or the Labour perspective without really following what they’re arguing about. It turns into an identity issue and you shout ‘Boooo’ or ‘Hoorah’ regarding on whether you see the red or the blue.
The problem with all this is that whatever either party choose to do when they win, the success or failure will not rest with picking the ‘right policy’ it will rest with how the global economy responds. The global economy is not rational or predictable. It rests with the choices that people around the world make about buying and selling stuff, debt, currency and investments. These people are sensible individually, but en aggregate, there’s no way to predict exactly what they’ll do. There is no right answer here, but we’re having it rammed down our throats as if there is. Equally, it’s all very technical and complicated and it’s fair enough to say you just don’t know what to do.
So
my personal opinion, is that, whether we thrive or we’re screwed economically,
I want to live in a country where the poorest and most unlucky people still
have the basic ability to house, feed, clothe and care for themselves. I don’t
have any interest in a thriving economy, where there is a growing pool of people
living in complete misery, for me that fails the definition of thriving. I’ve
never really felt very comfortable with party politics and I never thought I’d
join one, but I’ve had to rethink that this year. I’m voting labour because,
whatever happens with Brexit, or the deficit, or national growth, I want to be
in a country that has a genuine NHS that will mean that the unlucky and the
poor will be as OK as they can be.