Economists vs Politicians

Tyler Cowen has a fairly downbeat assessment of the UK economy’s likely future performance (manufacturing base eroded, tourism not enough, too dependent on finance etc) but he makes a pair of characteristically good points about trimming public spending:

1. The case for the cuts is not that they will spur growth, but rather forestall a future disaster.  That’s hard to test.  A second part of the case is that not many political windows for the cuts will be available; that’s hard to test too.  On that basis, it’s fine to call the case for the cuts underestablished, but that’s distinct from claiming that poor gdp performance shows the cuts to be a mistake.

2. Let’s say the cuts lower government consumption and raise private consumption, and that government consumption is wasteful but private consumption isn’t (and long-run growth is given by the Solow-like expansion of the international technological frontier.)  That’s a good case for making the cuts, but they still won’t show up as higher gdp.  The government consumption is valued into gdp figures at cost, so even cuts proponents with a good case don’t have to be predicting higher gdp.

I doubt if the UK fiscal austerity program will much boost their growth rate, which is likely low in any case and for non-Keynesian reasons.  Simply citing a low UK growth rate is not a test of their fiscal policy…