The deficit and all that.

(Note, January 2013: This post was written when I was more naive to economic circumstances. It is best read in a perspective from before the cuts starting. It is kept in the purposes of transparency and does not accurately reflect my current thoughts on the matter.)

Belt up, this is going to be a big one.

So yeah. That march a couple of weeks ago. At a generous estimate, 400,000 marched against the government’s spending cuts. And while I sympathise with them, I also think that it was just a waste of time due to how it ended up.

Miliband’s Balls.

The first thing is Ed Miliband headlining the rally. This is a giant cock-up for him, seeing as it gives his political opponents (read: the Tories) ammunition to blame him for the violence that occurred in Traflagar Square that night. Doubly so, as the rioters started breaking off of the march as soon as he took the lectern. It’s the sort of thing that would please the rank-and-file and the left-wing, but scare off the independents and, more importantly, the Lib Dems. Labour are cutting their noses off to spite their faces in a big way, as 2015 could come with a coalition with either party on the cards for the Lib Dems, but five years of attacks would drive them towards the Tories. Miliband clearly needs a new political advisor, as this isn’t the first time he’s cocked up this way. Appointing Ed Balls as Shadow Chancellor allows the Tories to go on the full frontal attack in 2015 without even saying a bad thing about Ed M.

The Blame Game, or, What a Difference a Year Makes

They spent 13 years in power behaving like Tories, and now six months in opposition behaving like Trots. – Tim Farron

In my earlier post, Johnson and Balls, I criticised the concept of deficit denial briefly, but didn’t criticise Balls. In hindsight, I should’ve done. Because a concept going through the march was attacking bankers, saying that “we won’t pay for their crisis”. I sincerely hope, for his sake, that Balls didn’t use that line. Because he was infamous for being the economic heavyweight for Labour before, during, and after his election to his parliamentary seat. And now he’s claiming that they didn’t even run a deficit.

It’s disingenious to blame the economic crisis entirely on Labour; it was a worldwide recession, after all. But their hubristic attitude really didn’t help. And it wasn’t just a crisis caused by the bankers. But at the same time, it’s disingenious to blame the Liberal Democrats, or even the Tories, for the cuts. As it bears repeating, all the parties had plans for public spending cuts and deficit reduction, but at different rates. And Labour must take some responsiblity on this front too: they made themselves unelectable. Had they returned 270, or 280 MPs, then the Lib Dems could agree to give the Labour Party supply and confidence. But the results mean that the Lib Dems had their hands tied in any negotiation.

And bringing down the government? Bad idea. Paradoxical as it sounds, Labour need the Lib Dems in the government, and they need it to run at least more than a year. They need the time for soul-searching, and, more importantly, fundraising. They can fund campaigning for an election in a marginal, and then one six weeks later in a ultrasafe seat, but not 631 simultaneous elections all over the country with the aim of picking up at least fifteen percent of those. The alternative to removing the Tories by democratic means is revolution, which a good 95% of the population would no doubt oppose.

Margaret’s friend Tina.

And we get to the main part of the argument. The march was never going to change anything. And that was because it was aimed at the Tories.

As I said in the Johnson and Balls post, there are three ways to deal with a deficit. Well, there are really four: raise taxes, cut spending, print money, or ignore it.

The fourth is straight out. As much as Labour claim to be Keynesians, there is nothing Keynesian about running (above-inflation) deficits in times of economic growth. There is a reason why mainstream economics tends towards balanced budgets: because, if a structural deficit runs year after year, eventually the debt piles so high that interest payments eclipse GDP, resulting in the poverty seen in sub-Saharan Africa. Even though western countries are very unlikely to go so far, deficits do tend towards more money being spent on debt reduction and not on public services. The unions would have egg on their faces if in, say, 2018, (more?) public services had to be cut because the money needed to go to paying the debt. Likewise, printing money to fill the gap would result in hyperinflation and the collapse of the economy.

So we have two options left: raise taxes or cut spending. And the Tories are doing both, at a rate of 77:23 in favour of cuts. But to expect the Tories to do more is expecting too much. It’s why Margaret Thatcher said “there is no alternative” so often: even if she agreed in principle to higher taxes, which she wouldn’t as she was a hardcore capitalist, she wouldn’t have had the votes or even agreement to do so. And Thatcher famously refused to buckle under pressure during her premiership, even if it meant her own party forced her out. The Tories, and especially backbenchers, are hard-headed and won’t back down easily.

The correct way would be to pressure the Lib Dems to raise their voices in the coalition. And this is what is happening right now with Andrew Lansley’s NHS reforms. The Lib Dems are making noises and are swaying the Cabinet their way. And are helped by the Spring Conference rejecting the reforms. The few thousand people who remained in the party and went to Sheffield last month are changing the course of the government more than half a million yesterday. It’s why I remain in the Lib Dems.

The alternative?

So, what is the alternative that was being marched for? Well, it appears to be for slower deficit reduction and a crackdown on tax avoidance/evasion, from most of the rhetoric I’ve heard. But it’s not as simplistic as “tax the rich”; it requires a lot of care to tax the rich correctly. There was criticism, for example, about Osborne “slashing” corporation tax in the budget, but corporations have a mixed record on actually paying it. Even the anti-avoidance Guardian Media Group, as Private Eye (1283-84), among others, pointed out, paid less than 1% on some of their business ventures in the past few years (the rate is currently 26%).

But even with all that, we still won’t be able to fix the problem with taxes alone. The Socialist Worker‘s anti-cuts poster, which I’ve seen in several places including on campus, argues that we’d save £136bn by not replacing ageing military infrastructure, but we wouldn’t; the real figure for replacing Trident is £20bn, not £96bn as they claim. We also need aircraft carriers, as we’re getting a bit of mocking for having to fly the planes so far from Greece and Italy to enforce the Libyan no-fly zone. So the true savings from their military cuts would be only about £30bn. Adding that to taxing the super-rich at 60% (which I’d support for incomes above, say, £500k) and getting rid of the 1% NI rate for high-earners would also only retain £30bn.

So we need to find another £70bn to plug the gap, and I don’t think cutting down on tax avoidance and evasion would be able to get that, even at a generous estimate. The SW claims that getting rid of avoidance and evasion would only collect £95bn. But are you suggesting we can totally stamp out tax resistance? You must be joking. For every avoidance loophole that arises, three more will emerge. And these are totally legal, too. We’d need a 75% success rate on combating tax avoidance, and we don’t have 75% success rates on combatting anything.

So, cuts are inevitable. And they’ll be painful. But the alternatives are also painful. We’d need to raise tax for everyone, which is also painful. And letting the economy falter will be more painful in the long run. I would support more taxes on very rich individuals to offset cuts, but we can’t pretend that cuts aren’t going to have to happen. We just need to hope that the economy can recover in any case.

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