Ending Austerity: Public spending is key to stability and justice

The word "Mali" comes from a Latin word for "portfolio". When it comes to fiscal policy - that is, how the government manages the country's budget - people misrepresent the country's portfolio and how it manages the individual's or family's portfolio. But they are actually different, and if managed correctly, they can end the austerity and make the economy stable and fair.

In the beginning, the UK economy experienced a strong recovery from the 2008 financial crisis, which began in late 2009 and continued through 2010. Later, the austerity policies adopted by the Conservative governments over eight years have eliminated this recovery and caused a recession, Poverty rates. Conservative arguments, from global market instability to concerns about BRICST, have failed to mask the true cause of this dismal post-crisis economic performance.

In fact, the Conservative government is suffering from a "deficit obsession" - its public policy is hostage to a balance in the balance sheet - a zero surplus, or an initial surplus - by cutting back on expenditures - but huge cuts in public spending have repeatedly failed to achieve a balance in the budget . Nevertheless, most of the British public is still obsessed with the goal of reducing the deficit, which is arguably the least likely goal.

Basic problems

The main problem in achieving a balance in the budget, in all its versions, lies in the fact that this balance can not be achieved. Take the deficit as an example, with a negative budget balance and a finance minister committed to rapidly reducing deficits. He believes that the way to reduce the deficit is to raise taxes or reduce spending. Since 2010, conservative finance ministers have favored spending cuts.

However, cutting costs reduces the demand for goods and services procured by the public sector, such as medicines and medical equipment. As a result, companies providing these goods and services reduce their staff and reduce their investments. This leads to a decline in the incomes of companies and households, and consequently to a decline in tax revenues. So any reduction in the deficit and general borrowing would be less than the same cuts for expenses.

The repeated failures of conservative governments in meeting their fiscal targets since 2010 clearly indicate the impact of cuts on private incomes and expenditures. A fiscal policy approach based on balancing the budget also reinforces instability in the British economy. When private spending is weak, attempts to balance the budget make it more vulnerable, turning small recessions into a deep recession, which economists call "procyclical".

Instead of the futile obsession with 'balancing economic trends', the finance minister must do the opposite - the use of a fiscal policy that reduces instability in the economy - which economists call "countercyclical resistance."

Any enlightened finance minister will be well aware that low tax revenues in a recession are good, raising household spending. Of course, falling revenues means a rise in the deficit (or a fall in the surplus). But after giving people more money after deducting income tax, disability will not be a problem but part of the solution.

Common sense

The guiding principles of adopting an effective fiscal policy to "counteract economic cyclical fluctuations" fall within the framework of sound thinking: the use of public investments to stimulate medium and long-term growth. At the same time, current spending provides a tool for maintaining the economy at stable and high levels of production and employment. The following principles will help the government to end austerity and build a better economy.

1. Public investments in education and transport are a tool to stimulate growth, but this type of spending takes time to implement and generate revenue. So these projects should not be stopped halfway, they are not an effective tool to manage economic output and short-term employment, but rather a more effective tool in stimulating the economy.

2. The current expenditure adjustment provides a tool to counter the decline in private investments and exports, which are causing inflationary pressures or other recession. For example, if the economy is stagnant, increasing wages or rewarding public sector employees will spur more household spending, leading to increased demand for private goods and services. If inflation risks are threatened, the finance minister can introduce temporary tax increases to stifle private spending.

3. The general budget may record a surplus or deficit as a result of this type of active fiscal policy. This depends mainly on the behavior of the private sector. Strong demand in the private sector favors a fiscal surplus, while weak private spending indicates a fiscal deficit. Both are good.

4. The balance between expenditure and taxes is the result of an active fiscal policy. But this balance is not the goal of the policy itself, but of the progressive economy - where job seekers find jobs, decent wages and secure conditions, public services flourish with adequate funding, and economic benefits spread equally across the country.

John Wicks is an economist and honorary professor at the School of Oriental and African Studies at the University of London. He holds a PhD in economics from the University of Michigan, Ann Arbor, 1969. Author of a new book entitled "Economics of the 1%: How the rich economy serves the rich, obscures reality and distorts politics."

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