{"id":7074,"date":"2019-11-28T17:04:08","date_gmt":"2019-11-28T17:04:08","guid":{"rendered":"https:\/\/progressiveeconomyforum.com\/development\/?p=7074"},"modified":"2019-11-28T17:07:02","modified_gmt":"2019-11-28T17:07:02","slug":"fiscal-policy-debt-and-deficits","status":"publish","type":"post","link":"https:\/\/progressiveeconomyforum.com\/development\/blog\/fiscal-policy-debt-and-deficits\/","title":{"rendered":"Fiscal Policy, Debt and Deficits"},"content":{"rendered":"\n

Labour and Conservative Parties, plus the Liberal Democrats, commit themselves to increased public expenditure, apparently ending almost a decade of debilitating fiscal austerity. PEF welcomes this change in policy by the Conservatives and the Liberal Democrats. No voter should conclude that the fiscal frameworks of these parties<\/a> are essentially the same. <\/p>\n\n\n\n

First, while the Labour Party commits to the most substantial budgetary expansion<\/a>, it is a mistake to focus on the overall size of the expenditure increases each party promises. This quickly leads in bickers over what is actually new and whether commitments are sufficient for the goal sought. Second and equally unenlightening, focus on amounts invariably degenerates into assertions about \u201caffordability\u201d. The commitments of all parties are \u201caffordable\u201d in the basic sense that they are easily financed by an appropriate combination of growth-generated revenue flow, new and higher taxes, and borrowing.<\/p>\n\n\n\n

These two considerations\nidentify the central difference that divides the party approaches. Of all\nparties, large and small, only Labour places its expenditure programmes into a\nclear fiscal framework, part of an overall plan for reversing austerity,\nenvironmental protection, inequality reduction and economic modernisation.\nWithout an expenditure framework, commitments may be laudable, but their impact\nis piecemeal. It is for that reason, their structured nature linked to\noutcomes, that PEF assesses the Labour Party\u2019s fiscal plans as the most\ncredible and effective.<\/p>\n\n\n\n

Most assessments of the party\nfiscal commitments by think-tanks will focus on their impact on the fiscal\nbalance (\u201cdeficit\u201d) and the public debt. This approach is both misleading and\nbanal. It is misleading because few if any of the assessing organizations\nemploy a systemic framework and covers the entire economy. As a result, many\ndirect and indirect effects of expenditure and tax are ignored. For example,\nspending tends to expand the economy, which generates more revenue. Tax\nincreases slow expansion, thus reducing revenue growth. Only a systemic\nframework allows evaluation of the net effect of spending and taxation on\ndeficit and debt outcomes. <\/p>\n\n\n\n

The narrow focus on deficit and debt is banal because it judges a broader public purpose, rejuvenation and transformation of UK society, on the basis of cost accounting. In the autumn of 1939 with Britain facing an existential threat, no major politician made the decision of war and peace based on affordability. Nor should we now, as we face existential threats of climate change and social cohesion.<\/p>\n\n\n\n

Photo credit: Flickr\/Rain Rabbit<\/a>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

John Weeks, Coordinator of the PEF Council and Emeritus Professor of Economics, SOAS, writes for the PEF blog on the parties’ fiscal policies. 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