Austerity economics isn’t going to work, well it is LONG term but it’s damn painful to society, but that’s what we are getting from the Conservative government, but what’s the alternative to tough government cuts and austere times?
Full employment economics in my option.
Why Government Austerity Doesn’t Work
Most economists agree economic growth is the only way out of an economic mess, so how can making more people unemployed/on welfare with less money to spend generate growth in an economy?
It can’t, less money in an economy because less of the population are in employment means lower growth which is what we are seeing now (June 2012).
Then there’s confidence in the UK economy, all this uncertainty means people with money are less likely to spend it. We want to buy another house, but really worried it could loose a lot of value over the next few years with the economic crisis developing in Europe.
I think the Tories make the mistake of comparing the UK economy to a household budget. They use the credit card analogy a fair number of times, you don’t borrow more to pay of your CC or keep spending.
Very true for personal finances, but this is an economy not a single household.
Problem with this way of thinking is unlike a household budget where you lay off your window cleaner and save exactly what it cost to clean your windows, when you make equivalent changes in an economy like lay off 10% of the public sector you still have to pay them via increased welfare benefits and lower tax receipts, but now you also have dirty windows!
I suspect whatever direct savings are made in wages are mostly lost in welfare bills and lower tax receipts, would love to know the actual figures?
Full Employment Equals Lower Welfare Payments and Higher Tax Receipts
The government should be working on a do we ACTUALLY save money laying people off policy, not we pay them £500 a week, firing them saves us £500 a week, end of austerity calculation.
If it cost £500 a week to keep a public sector worker employed, will it save money taking into account welfare payments, lost tax paid etc… If there’s no benefit firing a public sector worker because the average public sector worker when unemployed would cost the country an extra £100 a week, by firing them it’s digging a deeper hole.
That’s not to say never lay public sector workers off, if it makes sense financially taking everything into account lay them off.
I’ve not seen calculations for this sort of cost analysis, but since many public sector workers are on minimum wage or not much more and benefits for families is not much different to minimum wage + working tax credits etc… I can’t see how laying off loads of low paid public sector workers saves money???
Think about the crime associated with long term unemployment of the young, aiming for full employment should make fiscal sense.
All that being said long term austerity will work, but it will cost us a generation of young people to long term unemployment, damage the fabric of society and I strongly suspect cost a lot more than aiming for full employment on a subsidy basis (isn’t most public sector work subsidised (not making a profit)?).