The Green Economist’s opposition to spending cuts

We have some comments from our leafleting, that people struggle to see how we can balance the books – as if the economic policies of Labour and Conservatrive administrations have a good track record in this respect!! It is as if that just because both Labour and Conservatives keep saying the same thing, it must be true. Wake up people!

We keep hearing that there is no alternative to public spending cuts and that, at the same time, we somehow need to stimulate economic growth. The economic illiteracy of this nonsense has just been illustrated by the the ‘shock’ announcement that we are now in a double dip recession. The Green Party has been been expecting it for more than a year. The inevitability of it has been eloquently explained by Dr Molly Scott Cato at Conference, in public meetings and in her writings for quite some time.

http://www.economicvoice.com/forums/showthread.php/10086-A-Green-Paradox-of-Thrift?p=10513#post10513

http://www.economicvoice.com/the-green-party-saw-the-double-dip-recession-coming/50029410#axzz1tFIRIBOy

As this latter piece explains:

Molly argues that politicians are looking at the economy in the wrong way. They see council or government spending as an expense that must be minimised. For many politicians who have run businesses cutting back on these expenses would seem to be the logical and understandable thing to do as it is exactly what they would do for their own business.

But the problem, says Molly, is that when making cuts you should understand the boundaries of your business. For a small business this is relatively easy to define and understand. But when dealing with local government for example, your business boundary encompasses all the businesses and household etc within the local economy.

Any money that is spent within the local economy should therefore be looked at as an income, rather than as an expense. What politicians should be doing is minimising leakage from the local economy, not strangling spending within it. To cut your own budgets to the bone, or not to spend money budgeted in this period, is like cutting your own income rather than cutting your own outgoings, she says.

By cutting back on local and central government spending within the boundaries we are adversely affecting the circulation of money she says. This then leads to shrinkage, a lower tax take and a growing deficit (sound familiar?).

Molly claims that government spending could generate a virtuous circle with local government acting as a positive multiplier stimulating local economies as money is spent, re-spent and taxed.

At the moment she says we are seeing the reverse effect both national and local governments cut spending and this reduces their spending with businesses and reduces the revenue they gain from businesses. This happens when councils cut jobs, so, as a key local employer, the decision many local councils have taken to cut their staffing levels will inevitably reduce spending by their employees in the local economy.

This is the realm of Danny Blanchflowers death spiral she says.

But it doesnt end with councils just spending more. There is, as you would expect, a green element that must always be considered, especially in our very finite world.

We are also boxed in by an environmental crisis she says and must also be thrifty with our resources. In the past we just consumed more, which was OK until we hit the ecological buffers. But now that we have Our duty must be to become ecological citizens, to prioritise happiness founded on relationship and virtue rather than on material acquisition.

To dos this she says, we must learn to acknowledge our ecological limits and rely on local rather than global multipliers.

It may seem paradoxical but in fact it is entirely consistent to pursue an economic strategy that acknowledges the paradox of thrift while simultaneously arguing that we should learn to flourish within ecological limits. What a green economist would aim for is the substitution of local economic activity for global economic activity.

In short:

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