Originally published on LibDemVoice on 11/09/15
Most left-wingers I meet think of left-wing politics as being about reducing poverty. If that’s left-wing, then I regard myself as a left-winger.
They usually only believe in a bigger state, because they think the state is the best way to help the weakest in our society.
That can be true, but it depends how far you take it.
In my previous article “Is evidence-based policy losing out to populism?”, I argued that two supposedly left-wing policies, which Jeremy Corbyn has proposed, could actually increase poverty. Raising the national minimum wage beyond the recommendations of the Low Pay Commission will probably increase unemployment, particularly for the unskilled who will increasingly have difficulty finding work. And printing money to fund capital projects will risk a return of the curse of high inflation.
Not all Corbyn’s policies are bad, but I think the worst is his central theme, an end to austerity.
We are currently running an £89.2 billion deficit, a lot lower than the £153.5 billion of five years ago, but still high. Even if we adjust for the economic cycle and remove capital spending, it’s still £43.7 billion per year.
On top of that, we have a public sector debt of over 80% of our GDP, which is already worryingly high. If we don’t reduce the deficit, the debt will continue increasing, and so will the interest future generations pay on that debt.
Many left-wingers argue that austerity is not necessary because Keynes shows we can get out of a deficit by spending more, stimulating demand, and the increased size of the economy will generate taxes that will reduce the deficit.
That seems to me a complete misrepresentation of Keynes. He argued that deficit spending made sense during an economic downturn, but it should then be matched by budget surpluses after. As we are now in the expansion phase of the economic cycle, it’s very disappointing to hear supposed followers of Keynes advocating the opposite of Keynes.
Of course, Keynes’ belief in surpluses during the expansion phase is only his opinion. In a paper just released for debate, some IMF economists have suggested that countries like the UK could have the option of running a balanced budget, and then allow our high levels of debt to decline as the economy grows. This suggests that George Osborne may be being too savage with his cuts, which I think many Liberal Democrats would agree with. However, it would still require continued austerity, as we are a long way from a balanced budget.
Whichever of these two views is correct, running a deficit in a recession clearly makes sense. But now we are in the expansion phase, failing to reduce the deficit means borrowing more money from the future to pay for better public services today.
There are currently four people of working age supporting each pensioner in Britain. By 2035 this number is expected to fall to 2.5, and by 2050 to just two. Pensioners bring many benefits to society, but, with a greater need for health care and welfare support, they significantly increase costs to the welfare state.
That means that by 2035 our welfare system will be under much greater strain than it is today. And, in that sense, the future will be poorer than the present.
If, rather than running a surplus or a balanced budget during the expansion years of the economic cycle, we run a large deficit, that means we’ll be forcing the taxpayers of 2035 to subsidise our public services today. And that means we’ll be taking from the poorer future, to pay for our richer today.
How is that left-wing?
(This article raises many questions which I don’t have space to answer. If LDV are willing, I will continue in a future article which will suggest what policies would truly reduce poverty)
George Kendall is convener of the Social Democrat Group, which is being formed to celebrate and develop our social democrat heritage, and to reach out to social democrats beyond the party.