I saw an article today that highlighted, once again, the backwardness of our economy. Ironically, it was a good news story: ‘Surge in confidence means UK recession at an end‘ ran the headline, reporting on an assessment by the Institute of Chartered Accountants in England and Wales. According to ICAEW, optimism is at a high, bolstered by the prospect of growth, and England’s win in the Ashes. Their optimism reading is at 4.8, up from -28 in March.
An optimism index is pretty funny already. You might as well call it a wishful thinking index, but never mind that – the interesting point was in the detail of the article, in the final lines: “IT was the most optimistic sector, followed by banking, finance and insurance firms… Health and education professionals were the least confident amid growing fears of cuts in the public sector.”
There’s the rub. Growth will return, but there will be cuts in the public sector. In other words, bank and insurance company profits will rise, but we will have fewer police officers, smaller equipment budgets for our soldiers, less money for parks and museums. There will be less social housing available. Schools will have to trim their accounts down to size. Now, there’s no doubt that the Labour government has not spent money wisely and has taken on too much debt, but that doesn’t mean we should fear public spending.
On the balance sheets of the modern economy, private spending is good, and public spending is bad. Everybody hates taxes. This reminds me of John Kenneth Galbraith’s observation in The Affluent Society: “All private wants, where the individual can choose, are inherently superior to all public desires which must be paid for by taxation and with an inevitable component of compulsion.” Because of this imbalance, cars and high definition televisions are more important than schools and hospitals, and “the economy is geared to the least urgent set of human wants.”
After the next election, the almost inevitable Conservative government will slash the budget. On paper, the economy will be healthier, but will we be richer be in any of the ways that matter?