Why the cuts are good...

[Andy Hunt]

Public spending is derived from the private sector. When the public sector gets too large it starts to crowd out the private sector.

Public sector cuts leads to a healthier private sector.

Apart from all those private sector companies which provide goods and services to the public sector, and their supply chains.

And the tax paid by public sector employees, and the wages that they spend with the private sector, rather than the unemployment benefit which is paid to them when they are out of a job and which is largely spent on oligopolistic utility companies and discount supermarkets rather than on local small businesses.

Apart from all of that.

[Mean Mr Mustard]

Where I have a problem with the Green Party position is their belief that in a world of constrained resources we can spend more on public services.

Energy constraints affect both the public and private sectors of the economy.

Who said anything about the Green Party? If Government of all the other political stripes wasn't bought and paid for by the corporate power elite - where all the same old corruption and nepotism continues between them unchecked - then maybe there would be something left for the deserving poor, and maybe even for energy descent preparations too.

PS - I'd have voted Green, but there wasn't one on offer. And with the crude attacks on the public sector coming from all the others, I'm proud to say I spoiled my ballot paper rather than support any of that rabble.

[bigjim]

Public spending is derived from the private sector. When the public sector gets too large it starts to crowd out the private sector.

Who is more important for society: a fire fighter or an advertising executive? A physiotherapist or an investment banker?

[Totally_Baffled]

Public spending is derived from the private sector. When the public sector gets too large it starts to crowd out the private sector.

Who is more important for society: a fire fighter or an advertising executive? A physiotherapist or an investment banker?

The fire fighter and the physiotherapist everytime!

But then how do you pay them without the tax revenue from the private sector? (**banking excluded given the negative effect they have had on the public purse recently lol! )

[ziggy12345]

Public spending is derived from the private sector. When the public sector gets too large it starts to crowd out the private sector.

Who is more important for society: a fire fighter or an advertising executive? A physiotherapist or an investment banker?

The market will decide

[2 As and a B]

Public spending is derived from the private sector. When the public sector gets too large it starts to crowd out the private sector.

Public sector cuts leads to a healthier private sector.

This is economic not political old chap.

In what way does a 'too large' public sector crowd out the private sector?

And how do public sector cuts lead to a healthier private sector?

[johnhemming]

[quote="foodimista"]And how do public sector cuts lead to a healthier private sector?[/quote]

The deficit for any one financial year (in the UK 1st April to 31st March) is the difference between the government's cash income and cash expenditure.

This is borrowed by the government through the issue of sovereign debt (aka gilts). The debt management office can give details on this.

The interest rate that the government (we) pay on that debt is linked to the perception as to the certainty that we will repay the debt on time. Hence if it appears that a government may become insolvent it will then pay a higher rate of interest.

Looking at Ireland, for example, even with the rescue they face paying 20% of their tax revenue on interest.

A deficit of around 1/8th of the Gross Domestic Product (which is what ours is) is not sustainable. If we were not cutting the deficit then the interest rates would go up and we would face a need for an international rescue and greater cuts.

As far as the private sector is concerned having unstable government finances and consequential high interest rates is bad news.

[contadino]

As far as the private sector is concerned having unstable government finances and consequential high interest rates is bad news.

If that were the case, the private sector wouldn't destabilise government finances by seeking bailouts.

Plus, volatile bond government markets mean higher returns for participants in those markets.

[nexus]

Public spending is derived from the private sector. When the public sector gets too large it starts to crowd out the private sector.

Who is more important for society: a fire fighter or an advertising executive? A physiotherapist or an investment banker?

The market will decide

I know what we'll need once the descent starts in earnest.

[2 As and a B]

And how do public sector cuts lead to a healthier private sector?

The deficit for any one financial year (in the UK 1st April to 31st March) is the difference between the government's cash income and cash expenditure.

This is borrowed by the government through the issue of sovereign debt (aka gilts). The debt management office can give details on this.

The interest rate that the government (we) pay on that debt is linked to the perception as to the certainty that we will repay the debt on time. Hence if it appears that a government may become insolvent it will then pay a higher rate of interest.

Looking at Ireland, for example, even with the rescue they face paying 20% of their tax revenue on interest.

A deficit of around 1/8th of the Gross Domestic Product (which is what ours is) is not sustainable. If we were not cutting the deficit then the interest rates would go up and we would face a need for an international rescue and greater cuts.

As far as the private sector is concerned having unstable government finances and consequential high interest rates is bad news.

You talk of the deficit for any one financial year being the difference between the government's cash income and cash expenditure. I will agree with that, and also that the deficit needs to be reduced over some time period that will keep the confidence of the markets where the UK government bonds are issued and traded.

But if public sector cuts are savings on cash expenditure - including, according to my understanding, that part which is devoted to capital investment, then the same change in the annual deficit could be made instead by increasing the cash income; by increasing the income from tax. (Thus I also do not understand why Lord Bullshit said "This is economic not political" when it seems to me that, being a policy choice, there is a large political element to it.)

I am still not clear why public sector cuts, as opposed to, say, tax increases or a levy on bank bonuses, are necessary. Is it not the case that cuts in public sector spending means also cuts in expenditure on consumable and capital items (stationery, vehicles, fuel, heating, specialist equipment, buildings, roads, etc.) produced by the private sector? How can cuts in the public sector then lead to a healthier private sector?

[nexus]

John Hemming wrote

Looking at Ireland, for example, even with the rescue they face paying 20% of their tax revenue on interest.

Ireland implemented three austerity budgets from 2008 onwards, which clearly haven't worked otherwise they wouldn't be in the current mess.

At the time of the austerity budgets the bond markets were 'reassured' by the axe taken to Ireland's public sector and welfare entitlements.

The result has been unemployment has tripled, emigration of talent has resumed, social problems are on the rise and the economy is in a worse condition.

So obviously we're going to follow Ireland's example.

Any pro cuts people on here care to explain why this is a good idea?

These cuts are ideological - see Naomi Klein's 'The Shock Doctrine' for how financial and other crises can be exploited.

Additionally the ConDem mantra about everyone sharing the pain is clearly rubbish.

The respected independent thinktank the Institute for Fiscal Studies describes Osbourne's austerity budget as 'clearly regressive' and that 'on average, they hit the poorest households more than those in the upper middle of the income distribution in cash, let alone percentage, terms'.

[biffvernon]

Where I have a problem with the Green Party position is their belief that in a world of constrained resources we can spend more on public services.

Energy constraints affect both the public and private sectors of the economy.

John, as we saw in the list of nations posted by Totally_Baffled above, the proportion of public spending ranges between about 10 and 90 percent. With the UK at about the middle of the range, we evidently have some potential wiggle room with regards the public/private spending ratio.

We really do need to separate the ecological question of what resources are consumed from the political question of who consumes them. The present government seem intent on obscuring the distinction.

[Mean Mr Mustard]

The reason it's not worked for Ireland is that the private sector bank debt dwarfs the economy, I think it was 4 x GDP? Think it might be getting worse still, just saw Max Keiser going bananas about 'off-balance sheet' liabilities now emerging. They appear to be shackled to bailing out the banks by the pressure from Europe and their own compliant political class.

Whereas in Iceland, they washed their hands of the criminal Ponzi banks and are prosecuting politicians too for regulatory failure, and their economy is now recovering.

Here, the relationship between the banking elite and senior Govt is far too cosy and that suggests to me that all sorts of treasonable deals are still going on, contrary to the wider public interest. After all, we've already seen how corruptible Westminster is, with cash for questions, second home allowance, the John Lewis list, duck houses and moat clearance. And lately, cash for access - a former Defence minister offering what he thought were business representatives secret commercial information from the ongoing defence review. Unfortunately, many of these despicable criminals - because that's what stealing public funds and enabling insider trading makes them - remain in place, but they are but petty crooks who enable the much grander crimes against we the people committed by the *ankers and corporates.

More's the pity - just what we don't need ahead of an energy descent - a lurch to extreme politics to clear out the cosy corruption in the centre.

[PaulS]

2010: Total Spending = £669 billion

2014: Total Spending = £724 billion

Remember the year 2000, was it a Third World nightmare? No, we had public services and all the other perks of a developed industrial society. Check out total spending in 2000...

Total Spending = £344 billion

Public spending has nearly DOUBLED in ten years!

The problem with trying to restrain public spending, which has indeed doubled in ten years, is that we are now locked into much higher costs. This includes much higher salaries to medical staff, teaching staff and management generally. At the same time much of the building boom in health and education was financed by long term (in very unfavourable terms thanks to Gordon), which will be with us for at least another 20 years, some for 50 years. This whole spending boom has fed the house price boom, which in turn benefited the banks and trapped (some would say enslaved) us in our over-priced houses.

Since these costs are fixed for the foreseeable future, cutting expenditure is now much harder. One way to do it would be to halve all public employees salaries back to what they were back in 2000. Another would be not to honour those extortionate terms of the PFIs. But it is unlikely the government would be brave enough to go down this path.

The result is that if we cut expenditure to what it was for example two years ago, we end up with much worse public services then we had then, simply because each 'unit' of public service now costs much more to deliver.

Add PO induced energy price increases triggering other price rises and you have a recipe for disaster, whichever government is in and whatever decisions they take. All you can do is to downsize and prepare as far as I can see.

[Ludwig]

John Hemming wrote

Looking at Ireland, for example, even with the rescue they face paying 20% of their tax revenue on interest.

Ireland implemented three austerity budgets from 2008 onwards, which clearly haven't worked otherwise they wouldn't be in the current mess.

At the time of the austerity budgets the bond markets were 'reassured' by the axe taken to Ireland's public sector and welfare entitlements.

The result has been unemployment has tripled, emigration of talent has resumed, social problems are on the rise and the economy is in a worse condition.

So obviously we're going to follow Ireland's example.

Any pro cuts people on here care to explain why this is a good idea?

These cuts are ideological - see Naomi Klein's 'The Shock Doctrine' for how financial and other crises can be exploited.

I'm not sure whether I would count as a "pro-cuts" person. But unlike most PSers, I remain to be convinced that the cuts are primarily ideological.

The Tories know that this we are in a mess too deep for us to get out of, and that once the oil downslope hits, all bets are off. I doubt that they even want to be in government right now. Any responsible government would be making cuts now, and those PSers who claim otherwise are indulging in doublethink - on the one hand claiming that BAU can't go on, but on the other castigating a government for policies that acknowledge that fact!

I don't believe that the cuts will "work" and lead us back into ultimate prosperity - but all of us here know that that can't happen anyway. The question is whether the cuts will mitigate the pain when TSHTF.

The worst thing that could happen would be for a collapse in the pound, due to unmanageable public debt, to put a stop to all imports. Global warming or no global warming, the simple fact is that once we can't import oil, we will start to starve. Look at what happened to North Korea.