henry_the_cow: (Default)
[personal profile] henry_the_cow
... which isn't something I usually say about debates on BBC2's Newsnight.  You may have seen this one: it took place on May 30th between Paul Krugman (an economist), a venture capitalist, and a member of the Conservative party.  What makes it interesting is that they quickly moved from the economic facade of the debate on austerity to the underlying moral and political positions.

- The conservatives argued that it is immoral to run up large debts and leave future generations to pay them off; Krugman countered that it is immoral to cut the jobs that are needed by young people now

- The conservatives argued that in order to grow the economy again, it is necessary to cut the size of the state; Krugman countered by pointing out examples of countries with large public sectors that had survived the recession without significant cuts

- The conservatives argued that the high level of public-sector employment is inhibiting the growth of new businesses.  Krugman didn't pick up this point.

On the moral point, I think there is truth on both sides.  There is also immorality in running up large debts and allowing inflation to dissipate them, because this penalises savers and discourages prudence.  (I'm biased here: my family has more savings than debt).

On the second point, Krugman did allow that the size of the state was a legitimate topic for debate in general.  He just disagreed that it had any specific relevance to countering the recession.

The point about public-sector employment is one I find very odd.  I think the conservatives assume that, under normal circumstances, private enterprise will flourish.  As this isn't happening, they then reason that something must be preventing it.  They look at the size of the public sector (which they dislike) and conclude that the high level of public sector employment is stopping people from setting up their own businesses.

I think this is bonkers.  The reason there is a high number of public sector jobs is that the private sector has failed in large swathes of the UK and the (Labour) government addressed the problem by creating public sector jobs, including moving public sector jobs out of London (where the private sector is thriving).  And the reason that the private sector has failed around the country is that it was destroyed by a previous Conservative government, who saw that it was inefficient and subsidised, and concluded that the way to bring in new enterprises was to start by destroying the old ones.  The public sector argument is repeating the same mistake - rather than bring in something new first, they just destroy the jobs that exist. 

I'm all for encouraging small business and innovative industry.  If the government really wants to encourage small businesses, it could help by adopting the USA policy of requiring a certain percentage of government contracts to be spent on small businesses, and make the tendering process work for those businesses.  This has been discussed in the Department of Trade/Business for years, but is signficantly against the interests of the existing large corporates and their well-paid lobbyists.

Anyway, it's unusual for such a debate to catch my interest, and rare for me to post about politics or economics.  Ultimately it's a debate between Keynesians and their opponents.  I tend to side with the Keynesians, but the underlying problem is that Keynes doesn't just advocate spending during recession: he requires governments to save during boom times, and which politician is going to win an election on that manifesto?

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