Much is made of the fiscal multiplier, the concept that spending by government, or reductions in taxes (ideally of those who will spend that extra money rather than hoard it) will multiply spending, incomes and investment in the economy. 1/5
What is less discussed is that the opposite is also true. If you reduce spending or excessively tax those that would have spent that income, you create a negative multiplier effect where each £ of reduced gov spending results in lower spending, incomes and investment. 2/5
If we take the NHS as an example, estimates for the fiscal multiplier lie between 2.5 and 6.1 depending on where the money is spent. In other words, every £1 spent by gov on the NHS creates between £2.50 and £6.10 worth of economic activity, the expenditure has multiplied. 3/5
As above, the reverse is also true. £1 reduction results in a negative impact on the economy of between £2.50 and £6.10.
Everyone should strongly consider the effect gov real terms cuts to public service expenditure and wages have had on the wider economy as a whole. 4/5
Everyone should strongly consider the effect gov real terms cuts to public service expenditure and wages have had on the wider economy as a whole. 4/5
Remember that gov running a deficit is not only introducing new net financial assets to the private sector and mobilising labour and resources left idle for the public good, it is also stimulating wider economic activity.
Cuts are tanking the economy more than anything else./End
Cuts are tanking the economy more than anything else./End
