One of the big issues globally, and more specifically in the UK before the General Election in 34 days time, is austerity. Is it good or bad? Should we impose it or not? Personally, I believe that budget deficits are too high and need to be reduced, especially in the UK where the deficit is at £91 billion, with Cameron having reduced it by a third in his five years in power. However, in this post I will hope to assess the pros and cons of austerity, and leave you, the reader, to make your own judgement.
Firstly, if you cut the budget deficits by austerity, it will give investors greater confidence in your country, as it shows that you have a greater degree of control over your expenditures and revenue, and bringing them closer together means that the private sector will also have greater confidence with which to invest in your country, which is very good for the country as a whole, and the civilians too by virtue of more employment.
There’s also the issue of morality. Why should people spend money that they just don’t have? Some would argue that one should only spend money when they have it, and borrowing more money and increasing the deficit day by day just isn’t right, in moral terms. One could argue that one of the only ways to cut the deficit is by austerity, and until the deficit is cut to 0, the government has no right to spend money when they are already in hundreds of billions of pounds of debt.
An argument commonly propagated against austerity is that it will hinder economic growth. However, one just has to look at countries such as Canada, where, in the 1990’s, they cut fiscal deficit but still maintained relatively strong economic growth. This means that austerity is not a sure fire guarantee to hinder economic growth – it can be imposed without doing so.
However, some could say that countries who have imposed austerity have not necessarily benefitted economically from it. Countries such as Estonia, Latvia and Ireland still have a lower GDP than when austerity was imposed, and as such, one could argue that the same thing could, possibly, happen to Britain as well. Although some stories such as Canada’s seem relatively bulletproof, one could say that that was 20 years ago and we live in a different time to then.
Finally, there is no rock solid evidence that cutting government spending increases investor confidence. One could say that when the coalition came into power and announced spending cuts of £81 billion, then consumer confidence dropped to record low levels. As such, one can only hypothetically state that austerity would increase consumer confidence, and would only be plugging an unsubstantiated opinion.
Thanks for reading! Stay tuned for my next blog post.