Cutting edge
Now the details of the Comprehensive Spending Review (CSR) are known, the comments are coming thick and fast. As we saw in the last news blog, Taking sides in the war of the cuts, economists are divided over whether the cuts will be compensated by a rise in private expenditure or whether overall aggregate demand will fall, driving the economy back into recession. As you will see in the articles below, they are still as divided as ever.
At least we know the details of the cuts. The plan is for an average cut across government departments of some 19 per cent over four years, although the size will vary enormously from department to department. The government is predicting that the effect will be about 490,000 fewer jobs in the public sector. In addition to the cuts, the retirement age is to rise to 66 for both men and women by 2020 and regulated rail fares will rise by 3% above RPI inflation for three years from 2012.
Examine the details of the measures in the articles below and consider what the effects are likely to be, both on the macro economy and on income distribution.
Articles
Spending Review: Osborne wields axe BBC News (20/10/10)
Spending Review: Q&A – what does it mean? BBC News (20/10/10)
Main points from the Comprehensive Spending Review Independent (20/10/10)
Osborne swings the welfare axe Independent, Oliver Wright (20/10/10)
Chancellor spells out austerity gamble Financial Times (20/10/10)
Easier said than done The Economist (20/10/10)
Julian Callow Sees Consolidation in Europe Bloomberg Podcasts, Tom Keene interviews Julian Callow, chief European economist at Barclays Capital (21/10/10)
Spending Review 2010: Business leaders urge clearer strategy for growth Telegraph, Louise Armitstead (20/10/10)
Spending Review 2010: George Osborne leaves markets unmoved Telegraph (20/10/10)
Spending review: Osborne gambles with the economy Guardian, Larry Elliott (20/10/10)Larry Elliott on George Osborne’s spending review Guardian video (20/10/10)
Spending review: What the economists think Guardian (20/10/10)
Spending review: The work of a gambler Guardian editorial (20/10/10)
Spending review: economists and other experts respond Guardian, various economists (20/10/10)
Comprehensive spending review: We deserve an explanation. This wasn’t it Guardian, Aditya Chakrabortty (20/10/10)
Spending review: the winners and losers Guardian, Sam Jones (20/10/10)
All in it together? BBC News blogs, Stephanomics, Stephanie Flanders (20/10/10)
The sack: Lessons for government BBC News blogs, Peston’s Picks, Robert Peston (20/10/10)
A gamble on the economics Financial Times, Philip Stephens (20/10/10)
Q&A: the devil in the details Financial Times, Chris Giles (20/10/10)
Spending Review: Poorest Take Biggest Hit Sky News, Miranda Richardson (20/10/10)
Spending Review 2010: ‘More cuts could be needed’ Telegraph, Andy Bloxham (21/10/10)Cuts ‘will push UK close to recession’ BBC Today Programme, Martin Wolf and Ken Rogoff (21/10/10)Spending review cuts ‘are regressive’ BBC Today Programme, Tim Harford (21/10/10)
Spending review is a full stop but history lesson is vital in economics Guardian, Larry Elliott (25/10/10)
The Spending Review document
Spending Review 2010 HM Treasury (20/10/10)
Link to HM Treasury Spending Review site
Briefing and analysis from the Institute for Fiscal Studies
Opening remarks IFS, Carl Emmerson (21/10/10)
Link to briefing presentations (PowerPoint) IFS (21/10/10)
Analysis of fiscal consolidation by the IMF
Will It Hurt? Macroeconomic Effects of Fiscal Consolidation World Economic Outlook, Chapter 3, IMF (Oct 2010)
Questions
- What is the distribution of cuts between government departments?
- To what extent can it be said that there will be a real increase in health expenditure?
- What will be the effect of the cuts and tax increases on the distribution of income?
- What will determine whether the effect of the cuts will be to stimulate or dampen economic growth (or even drive the economy back into recession)? Which do you think is most likely and on what do you base your judgement?
- Trace through the multiplier effects of the measures.
- If the effect of the cuts is to drive the economy back into recession, what should the government’s ‘Plan B’ be?