Sharper Axes, Lower Taxes: a response to the critics
As you can see, our recent monograph Sharper Axes, Lower Taxes has raised a lot of interest among the readers of the Guardian. Not all of them have been equally pleased by the authors’ proposals, which, if adopted, would lower government spending in the UK to just below 30% of GDP. But their responses are nevertheless valuable, because they are illustrative of an intrinsic property of public spending: the asymmetry between the public reception of spending cuts and spending increases. It is easy to increase public spending rapidly and substantially without raising much attention in the process. But the tide cannot be halted, let alone reversed, in an equally inconspicuous way. This asymmetry of perceptions is partly due to fiscal illusions and endowment effects, and partly due to reasons which are not well understood.
In any case,there are several periods which most people would associate with a slashing of public spending, even if macro data show at best a moderate decline. The periods of ‘Thatcherism’ in the UK, of ‘Reagonomics’ in the US, and of ‘Rogernomics’ in New Zealand come to mind. However, it is hard to think of (peace-time) periods which are widely associated with big public spending expansions (Sweden in the 1960s and 70s is probably an exception).
Of course, there has been no shortage of such periods. The chapter by David B. Smith in the same monograph provides a historic perspective on the extent of public spending both domestically and internationally. He shows that in the late 1930s, there were only two major economies in the world where public spending exceeded 30% of GDP, the benchmark level envisaged in the monograph: Italy and the German Reich. In the early 1960s, public spending in almost all major economies clustered around this level, with only France and Austria significantly exceeding it.
Government expenditure (% of GDP) in 1960
So one could, in fact, summarise the monograph in the following way: it is about bringing the share of government spending back to the level which prevailed in most developed countries in the early 1960s, but with a radically different composition. The type of government outlined in the monograph would spend much less on the military and on industrial policies than most 1960s governments did. Instead, it would spend more on enabling poor people to purchase healthcare and educational services.
And now, with this in mind, read the introductory paragraph again…