Sharper Axes, Lower Taxes: a response to the critics

‘Absolute bloody idiots’, ‘insane ramblings of an extremist group’, ‘this insanity belongs in the bin’, ‘makes me wonder what these educated idiots who make up these think tanks have for brains’, ‘Of course, they are mad’, ‘eradicate insane right wing think tanks from the face of the Earth’, ‘ morons’, ‘These arguments by the think tank originate from professor Hyak [sic]who was a former Nazi member in the Hitler period. They are of course very seductive to the uneducated’, ‘Selfish, internally ugly people’, ‘greedy sociopaths’, ‘this deranged think tank’, ‘A far-right nutjob’, ‘IEA: Saying stupid stuff since 1955’, ‘These idea’s [sic]would find favour with the dark days of Hitlers Third Reich’, ‘dummies’,  ‘Thinktank? No, tombola of lunacy’, ‘Next on the agenda: reinstate the poor laws, bringing back poorhouses, getting the poor’s children back up the chimney’, ‘neoliberal, fascistic worldview’, ‘Resist this venal, filthy dishonest, drivel with every breath’, ‘Why is this bunch of morons allowed to call itself a “think tank” when it’s clear they haven’t thought at all’, ‘Venal, avaricious, egoistic and disingenuous’ … 

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…

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).

8 thoughts on “Sharper Axes, Lower Taxes: a response to the critics”

  1. Posted 21/07/2011 at 11:31 | Permalink

    Reading Niemietz’s take about ‘the asymmetry between the public reception of spending cuts and spending increases’ reminded me of this Ricochet post by Peter Robinson about what he terms the ‘Ratchet Man’ (quoting Carl Pirrong): ‘Obama operates under the ratchet theory of government. Once ratcheted up, spending cannot ratchet down. Spending that was not missed yesterday is imperative tomorrow, once it has been adopted today.’

  2. Posted 21/07/2011 at 11:44 | Permalink

    The comments pages of the Guardian, the BBC, the Times Higher and a lot of other places where you’d think reasonably intelligent people might cluster are full of this anonymous hate mail. It’s a bit sad. I think Private Eye has captured the essence of this very well in its regular spoof.
    You are right about the asymmetry of changes in public expenditure, Kristian. Once a spending programme is in place it is extraordinarily difficult to remove – hence the fiscal problems of so many countries. We have to keep plugging away, reminding people that the budgetary constraints they face in their own lives don’t disappear when translated to the national level.

  3. Posted 21/07/2011 at 13:54 | Permalink

    Many of the comments you display in the first part of this article really display a frightening ignorance. It is laughable for this institution to be compared to the ideas of Hitler. I would advise all of those readers to read “Hayek – The Road to Serfdom”.. The socialism that has infected our society and our economic system (a mixed system) is the greatest continued threat we currently face to our freedom. “Government is the great fiction, through which everybody endeavors to live at the expense of everybody else.” – Frédéric Bastiat. Those same readers do not understand what capitalism means at all and the sense in which all forms of society are capitalist. As for Child labour. Children always worked through thousands of years.. only in recent years has our society been productive enough (produced enough goods and services) that children have been able not to work. These same people forget that when they push foreign countries into banning child labour. The reason they are working is primarily because their families need them to work. Banning them from working in factories pushes them into prostitution and other less regulated forms of work. And that is the real scandle! Ignore those on the left who constantly talk about the INTENTIONS of their programmes .. and can’t swallow the hard facts about the OUTCOMES.

  4. Posted 21/07/2011 at 16:23 | Permalink

    Kristian, congratulations on what is a model response to some truly unbelievable and upsetting comments.
    The one about Hayek being a former member of the Nazi party is the blatant lie that upset me the most. Since when have Nazis been in favour of a small state? The level of ignorance is really shocking, but your post is absolutely the right way to deal with it.

  5. Posted 21/07/2011 at 17:41 | Permalink

    The policy of Ralph Harris and Arthur Seldon, founder General Director and founder Editorial Director respectively of the IEA, was to treat opponents not as insane nor as wicked but as intellectually misguided. That should continue to be the IEA’s policy today. Those of us who are teachers recognise that it is easier to teach people who know nothing than those who think they know something but are mistaken. Admittedly we have our work cut out with some Guardian readers; but I hope we’re up for the challenge!

  6. Posted 21/07/2011 at 21:41 | Permalink

    It sounds like Professor Myddelton is issuing another plea to economists who favour liberty to assist the everyman!

  7. Posted 22/07/2011 at 12:02 | Permalink

    The Guardian’s comments page is infested with extremist nutters who are convinced that they are reasonable people and that their opponents are evil and therefore they will hurl any amount of abuse rather than allowing an examination of the merits of the case. The best policy is just to ignore them.

    It may be difficult to cut state spending, but it should be somewhat less difficult to reduce it as a percentage of GDP – you just don’t increase it as the economy grows. What you must do at the same time, however, is make it far easier for people to supplement, or substitute for (i.e. opt out of), currently state-provided services. Otherwise, we risk not just overspending on inefficient state services, but also the opposite – artificially limiting spending on services that people perhaps may choose to direct more of their resources towards (e.g. medical care or education). This is where the clamour for extra state spending often comes from when people (other than the very wealthy) see that only the state can decide these priorities.

  8. Posted 05/08/2011 at 11:26 | Permalink

    I wonder how many of those comment were from people who took the time to read the whole weighty document. Whilst i count myself as left leaning it’s imprtant to have a rational debate about the issues and this surely is a publication to prompt that very debate. it is for more learned people than me to dissect and attempt a rebuttal but I totally agree that the comments from some are best ignored and do nothing for the case of the left.

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