Nick Clegg’s doublethink on cuts

Clegg admits the cuts are having a “chilling effect” (but supports them anyway).

In today's Financial Times, Nick Clegg makes the startling admission that the coalition's spending cuts are having a "chilling psychological effect" on the public. Clegg's words put him at odds with George Osborne, who has consistently argued that the cuts will increase confidence and that excessive state spending is "crowding out" private investment.

As Anatole Kalestky pointed out in an important column in the Times (£) on Thursday, Osborne's views are based on the theory of Ricardian equivalence (propounded by the economist David Ricardo) – the belief that whether a government finances its spending through borrowing or taxation, the effect on demand is the same.

Kaletsky wrote:

In a paper written in 1820, Ricardo examined whether a government that went to war would be better off collecting £20m in taxes or borrowing the same amount at an interest rate of 5 per cent or £1m a year. "In point of economy, there is no real difference," he concluded. "For £20m in one payment and £1m per annum for ever . . . are precisely of the same value.

Osborne and other anti-Keynesians have since exploited this theory to argue that the public treats government borrowing as "deferred taxation" and, therefore, spends more when the state spends less.

But as Kaletsky notes, this respone ignores Ricardo's explicit rejection of the doctrine. Immediately after the passage on the theoretical equivalence of state borrowing and taxation, he wrote: "But the people who paid the taxes never so estimate them, and therefore do not manage their private affairs accordingly . . . It would be difficult to convince a man possessed of £20,000, or any other sum, that a perpetual payment of £50 per annum was equally burdensome with a single tax of £1,000." In practice, human beings do not see borrowing as being comparable with taxation.

The disastrous final-quarter growth figures proved that the public is reducing, not increasing, its spending in response to the cuts. The widely predicted surge in consumer spending, as shoppers rushed to beat the New Year increase in VAT, never materialised. Yet in spite of all this, Clegg insists that the coalition will maintain its "fiscal stance". With the economy at renewed risk of a double-dip recession, he will have to perform many more intellectual contortions in the months to come.

George Eaton is political editor of the New Statesman.

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Quiz: Can you identify fake news?

The furore around "fake" news shows no sign of abating. Can you spot what's real and what's not?

Hillary Clinton has spoken out today to warn about the fake news epidemic sweeping the world. Clinton went as far as to say that "lives are at risk" from fake news, the day after Pope Francis compared reading fake news to eating poop. (Side note: with real news like that, who needs the fake stuff?)

The sweeping distrust in fake news has caused some confusion, however, as many are unsure about how to actually tell the reals and the fakes apart. Short from seeing whether the logo will scratch off and asking the man from the market where he got it from, how can you really identify fake news? Take our test to see whether you have all the answers.

 

 

In all seriousness, many claim that identifying fake news is a simple matter of checking the source and disbelieving anything "too good to be true". Unfortunately, however, fake news outlets post real stories too, and real news outlets often slip up and publish the fakes. Use fact-checking websites like Snopes to really get to the bottom of a story, and always do a quick Google before you share anything. 

Amelia Tait is a technology and digital culture writer at the New Statesman.