From the TUC

Austerity is Self-Defeating (Graph Edition)

15 Aug 2012, by Guest in Economics

The TUC, and many others, have long argued that austerity is self-defeating.

Slashing government spending and putting up taxes against a backdrop of a weak economy will not only depress growth, it will fail on its own terms as a means of recuing the deficit. The fall in demand caused by ‘fiscal consolidation’ will simply reduce the government’s tax take and increase social security spending.

The graph demonstrates that is now what is happening in the UK. It shows the cumulative cuts in government spending and tax rises against the cumulative change in the deficit. (Tax and spending changes from Budget 2010, deficit changes from the newly released round-up of independent forecasts).

By 2015/16 the Government will have cut £99bn and raised taxes by £29bn for a cumulative tightening of £128bn. However the deficit, on current forecasts, will have fallen by only £64.5bn. For every two pounds of austerity the deficit will only have fallen by one pound.

Austerity is self-defeating.

3 Responses to Austerity is Self-Defeating (Graph Edition)

  1. jonathan
    Aug 15th 2012, 6:20 pm

    It’s more that public investment has fallen, not that spending has fallen. When I look at the figures I see a classic example of beggaring one’s self: more spending on immediate need while you fail to invest in the future. That to me is one of the most important failings of the austerity idea; unless you are willing to let people suffer, spending on immediate need stays up – or increases – which means you cut from what makes your future. The effects of that switch will show over time. It certainly has in the US, mostly at the state and local level, as more and more spending has gone to immediate needs and not to investment. In the US, a major problem is the funding of health costs for public employees – a secondary one is funding future pension costs. Whenever the cost balloon gets squeezed, the pieces that get compressed are infrastructure, education and other forms of public investment. That pays negative dividends over time; your future investment needs go up but you’ve diminished your capacity to generate the revenue necessary to fund them.

  2. Should we ‘Rebalance the economy’ or ‘Reform British Capitalism’? | Liberal Conspiracy
    Aug 17th 2012, 3:20 pm

    […] No matter how much they insist otherwise, policy-makers can’t deal with a fiscal deficit without addressing the corporate surplus. They can certainly try, as the current government is attempting, but it leads to self-defeating austerity. […]

  3. JohnM
    Aug 22nd 2012, 7:41 pm

    Short-termism again.
    The same thing that has plagued this country for the last 50 years.
    Each flavour of politician has to appease and feed their supporters, and those who donate to them.
    This government is busy feeding those who donate to it, and calling it austerity.
    Nothing changes much in politics, each party develops different “hues”, new labour was nearly purple with the tint of blue mixed with it, this government has a lavender hue.
    Eventually they’ll both end-up in-between lavender and pink.