Next week the parliamentary battle over cuts will start up again. The chancellor, George Osborne, will say the government’s programme of fiscal retrenchment is necessary to “restore confidence”. Alan Johnson, his shadow, will say it threatens the “fragile recovery”. The government plans to cut public spending by 10 per cent over four years as part of its deficit reduction plan. This will extract 5 per cent out of a shrunken economy. It is the most audacious axe-cutting exercise in almost a century, double the size of the cuts in the 1930s, equalled only by the 1921 Geddes Axe, which cut government spending by 11 per cent in two years. Labour says it is too much, too fast.
The two positions are clear enough, the arguments underlying them less so. What macroeconomic theory do the budget hawks have to subscribe to, to believe that taking £100bn out of the economy in the next four years will produce recovery? And what do the budget doves need to believe to claim the cutters are wrong?
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