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We’re in for decades of austerity

Summary:
It doesn’t matter who runs the place, which side or tribe wins any elections, the country is in for austerity over decades to come.That is, if we use the currently fashionable definition of austerity. For that definition is “government spending less this year than last”. That is what has been shouted over this past decade after all. We have various possible definitions of spending of course, real terms, nominal cash, but the most obvious one to use is percentage of GDP. That is, how much of everything does government get to direct and how much fructifies in our own pockets? Public spending has been declining over this past decade by this measure, this is most certainly true. We can see it here. From 40.8% of GDP in 2010/11 to 35.6% in 2017/18. That is what all that screaming about

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It doesn’t matter who runs the place, which side or tribe wins any elections, the country is in for austerity over decades to come.

That is, if we use the currently fashionable definition of austerity.

For that definition is “government spending less this year than last”. That is what has been shouted over this past decade after all.

We have various possible definitions of spending of course, real terms, nominal cash, but the most obvious one to use is percentage of GDP. That is, how much of everything does government get to direct and how much fructifies in our own pockets?

Public spending has been declining over this past decade by this measure, this is most certainly true. We can see it here. From 40.8% of GDP in 2010/11 to 35.6% in 2017/18. That is what all that screaming about austerity is.

The bit that always gets missed in this is that government spending was 35.6% of GDP in 2006/7 as well. That is, as a nation, we did that Keynesian thing. We’ve a recession - quite a recession in fact - therefore government spending will rise. Whether or not we particularly believe in specifically raising spending in order to boost demand or we just observe that spending will automatically increase on welfare doesn’t particularly matter. Nor does that idea that more should have been spent, or less.

Spending did rise, considerably, as a result of the recession. It’s not all that terrible that it then declines to its former level as the recession ends. Indeed, to fail to do this would mean that every recession just ratchets up the portion of the economy that flows through politics and reduces that which fructifies.

We’re about to go through all of this again too. Spending did rather blow out this past year. Quite possibly righteously and all that but that’s not the point being made here. Rather, public spending off into the future is going to decline as a percentage of GDP. For we can’t keep printing hundreds of billions of new money every year, can’t run QE at that level forever.

But, given our definition of austerity in current common use this means that public expenditure falling each year, from last year’s massive bolus, will be defined as austerity. Which, of course, it isn’t, it’s at least an attempt to return to normality.

Yes, obviously, this is all about political rhetoric and this is just a warning, a placeholder even, over what is going to be the staple of many an opinion piece.

Government spending will fall from the levels of 2020/21. There will be screams that this austerity will eviscerate all that is good and holy from the British state. The correct observation will be that it is just a return to normality after Covid has passed.

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Tim Worstall
Tim Worstall is a British-born writer and Senior Fellow of the Adam Smith Institute. Worstall is a regular contributor to Forbes and the Register. He has also written for the Guardian, the New York Times, PandoDaily, the Daily Telegraph blogs, the Times, and The Wall Street Journal. In 2010 his blog was listed as one of the top 100 UK political blogs by Total Politics.

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