What price government expenditure?

dtsazza

With all the (seemingly justified) talk about austerity measures leading to recessions, I started wondering just what effect government expenditure has on the economy as a whole. Especially as from a naive perspective, reducing a deficit to zero is easy - you simply don't spend more money than you have.

Along those lines, what would the economy look like with the slimmest possible government - one which only spent money on enforcing the law of the land (and presumably, which taxed accordingly)? Is "reduced government spending === recessionary tendencies" a universal law, or are we just seeing local minima?


(I recognise that there's a huge difference between transitioning to such a situation from where we are now, and a hypothetical country which has developed along those lines for hundreds of years, and I'd be interested in hearing view on either context.)

sheffield_lad

Yes your right it was Labour being to austere which caused the recession lol, nothing to do with a guy called Brown making the public sector so big he broke the golden rule.

The public sector has to cost less than the private sector brings in otherwise we get the word DEFECIT, not to be mistaken with DEBT as many don't see the difference.

Well for my local council that would mean the blokes who empty the dog bins being cut down, right now one sits in the lorry while the other empties the bin I have know idea how they will cope with just one of them DOH!

or the mobile library which again has 2 staff but zero yes zero customers for the last 5mths it's parked outside my drive.

Of course the unions have this covered how could you possible ask the librarian to drive 'not her job gov' 'elth and safety init' and the dog bin emptier well he would have to put his gloves on and off, he would need to be at least a level 5 pay grade (40k), in order to possibly be able to work this out.

Old_Slaphead

howee wrote: »

Of course the unions have this covered how could you possible ask the librarian to drive 'not her job gov' 'elth and safety init' and the dog bin emptier well he would have to put his gloves on and off, he would need to be at least a level 5 pay grade (40k), in order to possibly be able to work this out.

While generally empathising with many of your posts I feel that I should point out that many library assistants are required to drive mobile libraries as part of their job description
Being pedantic pay scale 5 is IRO £20-25k.

sheffield_lad

I can only go on my experience, every Wednesday they turn up park it there for 1/2 an hour and sit and wait for the zero customers they receive. This on an estate where almost everybody has two cars!

Have to admit I don't know nothing about the councils pay scales, I just think it's madness that I pay for such inefficiency.

dtsazza

howee wrote: »

Yes your right it was Labour being to austere which caused the recession lol, nothing to do with a guy called Brown making the public sector so big he broke the golden rule.

It wasn't meant to be a party political question!

I'm more concerned with the abstract theory, and then how it applies to real situations.

It just seems at the moment that there's a broad agreement that austerity reduces GDP growth. In the real world cases, this is probably true in the short term due to shifts in the economic landscape not being instantaneous (e.g. private sector "picking up the slack" in a handwavy way), as well as the uncertainty that always accompanies big changes - especially government ones.

But then on the other hand, I don't see any particular reason why the state's involvement in an economy via taxed funds is any better for it than individuals spending retained taxes themselves. In fact the general consensus seems to be that state involvement tends to be less efficient than private companies (though I recognise that the state needs to enforce contract law as well as act to prevent externalities).

So:

• Are the recessionary tendancies simply short-term while the market adjusts to a new landscape which is perhaps slightly more productive in the long run?
• Since all governments are highly indebted anyway, is this just a special case of the "false growth" we've seen over the 2000s, whereby living within your means inevitably causes a reversion to the "real"/long-term/sustainable state which looks like a drop?

CLAPTON

there is no theoretical reason why a low tax / low benefit situation doesn't work in economic terms; many of the asian countries have much lower taxes and benefits than the western countries... Singapore / S. Korea / Tiawan

however elections do tend to lead to promises that mean more spending and slowly the welfare state grows

once in a recession then cutting government spending is generally scene to increase the depths of the recession as reduction in demand leads to lower sales and lower employment