Enough about cuts, put focus on growth

This is my comment from this week’s Fund Strategy.

The debate on public spending is proving to be one of the most degraded in economics. Each round of discussion is even worse than the previous one.

First there was denial. The main political parties even refused to discuss the possibility or desirability of making cuts. This was despite the obvious deterioration in the public finances.

Labour maintained this position longer than any of the others. It scoffed at “Tory cuts” as opposed to what it characterised as Labour investment.

After it while it became clear that Labour could no longer maintain such a ludicrous position. Then all of the parties starting to compete in a virility competition about who could talk tougher on cuts. Although they were all short on detail, they all agreed that Something Must Be Done regarding public finances. Tough choices needed to be made in a world of scarce resources.

All of this betrays a one-dimensional understanding of economics. Policy is not simply a question of whether to cut or not. Nor can it be reduced to, in effect, nice cuts versus nasty cuts.

Even in the most general terms there are more choices ahead than simply whether or not to cut.

Logically it is possible to identify at least three ways to rebuild the public finances: to make cuts, to raise taxation or to bolster economic growth.

What is most striking about the debate is how little attention is being given to strengthen economic growth. Yet if growth was stronger it would be possible to increase public spending where necessary, increase tax revenue yet not raise tax rates. If the pie was bigger there would be more to go round for everyone.

Yet instead of having an urgent public debate about how to raise economic growth the opposite is happening. The consensus seems to be that there should be slower, greener, more “sustainable” growth. But the consequence of continuing slow growth is likely to be more pain for everyone.

There should be a substantial reassessment of economic priorities. If anything needs to be cut it is the attachment to sustainability and “green growth”. Strong growth needs to be put back at the centre of economic policy.