The assault on the public services

Several entries on this blog refer to cuts, austerity measures and pressure to transfer public services to the private sector. The rationale for doing this is very weak.

  • Reducing public spending during a recession is a certain way to turn it into a slump. Everyone – including the private sector – depends on demand generated by public subvention. The main effect of cutting services across Europe is to ensure that there will be no-one to sell things to.
  • Public expenditure in a slump is counter-cyclical. Keynes argued that wars or building pyramids would be better than parsimoniousness in such circumstances. Deficit financing is not intrinsically a problem – most countries in the OECD incurred debts during the second world war, and it took a long time to pay them off. Like Keynes, I tend to think that neither is the best use of public money. Now is the time to build roads, railways, water treatment plants, housing and energy production facilities. There will never be a better time.
  • Cuts will cost jobs. I do not understand the argument that projects not undertaken or “natural wastage” do not imply the loss of jobs; of course they do. Often the loss will be felt most keenly in the wider economy.
  • The main source of the current deficit is not the public sector; it is the private sector. That does not mean that the public sector does not have to pay, but it does raise questions as to how far the cuts can legitimately be represented as the management of a structural deficit.

Ultimately, the only way out of a slump is through growth, not through retrenchment.

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