The Wall Street Journal reports that the Conservative government of Prime Minister David Cameron plans to cut 192 independent government agencies in an effort to reign in government spending.
I believe this will be the first instance in a Great Depression-like scenario where the government of a developed nation will actually cut spending (if they follow through). Some like to say that federal spending was heavily cut in the U.S. during the early 1930s under the Hoover administration. This is false (it increased 10.8 percent in 1930, 3.4 percent in 1931, and 2.3 percent in 1932).
Assuming that the financial sector remains fairly stable in the U.K. (no explosive inflation or implosive deflation) this will be an interesting development to follow for two reasons:
We will get a better look at who was to blame for the Great Depression’s severity.
Was it the ignorant use of monetary policy or absence of proactive fiscal policy? If government spending declines don’t carry the UK into a massive depression, such an observation will take the earlier, more conservative fiscal policymakers of the 1930s off the list of culprits (except for the worldwide slice and dice of international trade and supporting nominal wage freezes). Such an outcome would also diminish the strength of future arguments for Keynesian-style government spending.
We will get to see which sector can better stimulate the economy: private enterprise or government.T
Conventional macroeconomic models suggest that cutting government spending is a bad idea. Doing so causes aggregate demand to fall and will put (more) deflationary pressure on prices and wages leading to lower output (and higher unemployment). It is argued that increasing government spending (holding taxes constant) will create a multiplier effect that increases subsequent output levels.
The crowding out theory holds that consumption and investment should increase one-for-one with the decrease in government deficit spending. If this holds, then the private sector will have more resources at its disposal and means private spending (personal consumption and business investment) will increase. What will be interesting to see is how strong the private sector multiplier is relative to the government expenditures multiplier.
Keep your eyes open on this development given its unprecedented importance.
Richard Morrison and Marc Scribner team up with William Yeatman, Ryan Radia and Iain Murray, to bring you Episode 92 of the LibertyWeek podcast. We take on the prospects for cap-and-trade climate legislation, the FCC’s broadband power grab, tales from a hung parliament and an exciting new job opportunity in Venezuela.
Richard Morrison and Jeremy Lott team up with Marc Scribner, Iain Murray, Alex Nowrasteh and Ryan Radia to bring you Episode 91 of the LibertyWeek podcast. We respond to the President’s anti-anti-government speech, handicap the British elections, examine anger over immigration and chew over the threats to the Google-AdMob deal.
Frum, like many intellectuals, suffered from the desire to gain respect from his fellow intellectuals. But, as Schumpeter noted long ago, the class interest of intellectuals is statism.
Schumpeter’s reasoning in “Can Capitalism Survive?” is rooted in envy. Intellectuals would grow envious of the entrepreneurial class – “If we’re so smart and moral, why are they so rich? – and seek to transform envy into theories of de-legitimization. Racism, sexism, environmental destruction, inequalities, exploitation of the developed world along with other associated Robber Baron style rewritings of history are the narratives they develop.
Since the narratives that inform the citizenry of most policy issues are devised and disseminated by intellectuals, the dominant narratives will be anti-capitalist, anti-business, and especially anti-entrepreneurial. That sets the stage for the growth of the state which creates many well-paying niches for intellectuals – mostly on the left, with a few on the right.
That combination of psychological and economic incentives means that most intellectuals see a large and growing government as key to their class interest.
Even conservative intellectuals seek respect from their fellow intellectuals. Intellectuals – having no obvious product save words and media appearances – are often insecure. Since most intellectuals are statists, the David Frums of the world are drawn into that ideology. AEI is not a statist institution – why they put up with him is unclear.
That point is made clear when one considers his defenders. Anne Applebaum’s “he was right” viewpoint is typical. She would have the Republican party follow the lead of David Cameron of the Tory party, endorsing European values, carbon energy rationing, redistribution policies – the whole non-sustainable welfare, regulatory state.
That would be insane.
Your host Richard Morrison and guest co-hosts William Yeatman and Ryan Young conspire to bring you Episode 64 of the LibertyWeek podcast. We start with the big vote on health care legislation, squeezing more energy from the ground and the warming that wasn’t there. We continue with the British expense scandal, and the Obama administration’s love for new rules and regulations.
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