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  1. Politics
8 April 2010

More on the Tories and the myth of government “waste”

John Maynard Keynes pooh-poohs Sir Stuart Rose et al.

By Mehdi Hasan

My NS colleague and good friend, the economist and former MPC member David “Danny” Blanchflower, has asked me to highlight this letter, published in yesterday’s Financial Times, which he co-authored with Robert Skidelsky.

Sir, How many of those business leaders who complain that raising National Insurance contributions is a “tax on jobs” realise that the “efficiency savings” that they demand would destroy jobs just as certainly?

Raising National Insurance contributions attacks jobs by reducing profits per unit of output: an “efficiency saving” by government cuts costs by putting someone out of work. Both measures aim to reduce the government deficit at the expense of jobs. That is why the government has wisely postponed raising NI contributions and cutting “waste” until economic recovery is under way.

The general point is that expenditure that would be “wasteful” in normal times can be useful in depressed times. When an economy is growing strongly we need to cut out waste; when it is depressed, what is called “wasteful” spending can keep up aggregate demand, employment and sales. Keynes might have been thinking of our eminent business leaders when he wrote that “common sense” is apt to prefer wholly wasteful forms of public spending such as unemployment benefits to partly wasteful forms such as over-manning in government agencies.

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