Spending money can pay for itself if it results in greater economic activity that raises more in tax – what economists call the multiplier effect.

Cue Tim W citing evidence regarding the multiplier effect in open economies.

There’s also a nice little irony that the people arguing that increasing public spending can pay for itself by the greater economic activity caused thereby tend to be the same ones who call the Laffer curve theory – that cutting tax rates can pay for itself by the greater economic activity caused thereby – ‘voodoo economics’.

Its odd this place you get some quite considered posts, for example Duncan is belatedly listening to the righties who want the left to stop talking about demand in isolation which, in practice , means “Throw borrowed money at it ” .
In fact I was struck by the fact that both he and Jeremy Warner a centre right steady Eddie are starting to talk aggressive top down about supply side moves to avoid a very long recession.
I personally wonder if a long stagnation is not the least worst real world option but anyway you get no hearing if you still think the answer is to flood an unresponsive economy with borrowed cash . The ‘narrative’ which is that New Labour created a ruinous structural deficit is still spot on and not seriously doubted by anyone.
Then you get a good old silly post like this .

Cancelling the top rate sis an easy decision as it loses money. A better criticism is that this is tinkering
In my view until we have a radical restructuring of rewards away form the Public Sector and into the productive side of the Economy we will get nowhere . It is simply not worth working in SMEs in Britain today and that goes far up the income scale
Whats more, the damage done by allowing the client state to swell is such that even if you act now it will be years before we undo New Labour`s inheritance of community liaison administration executives and their unions.

Isn’t the argument being used that reducing the 50p marginal rate of tax on those earning over £150,000 will increase tax revenues due to the “Laffer Curve” (as you know, it is an iron law of economics that the revenue-maximising marginal rate of income tax for the rich is always lower than the one which currently exists)?

Obviously this ignores the civil service advice that such a move would cost £3 billion (and this hasn’t changed – Osborne ordered a review of the estimate upon coming to power but has been very quiet on this new estimate since May 2010).

But it’s how the Tories can (and will) square their case for a £650,000 tax cut for Bob Diamond to “save the economy” with their “maxed out credit card” narrative.

There’s been plenty of cash for tax cuts.

For businesses. Ones which have evidently not worked.
That’s the narrative we should be chasing.

@2 – What rubbish. The unions and workers are absolutely key to restoring this country. We should be looking at the Nordic Model, not America – I’m sure you’ll do just fine when the Health and University systems are devastated, and the poor pushed into the jobless areas of the country, but for normal people? Er…

And undoing “community liaison administration executives”. Ohnoes, jobs which actually allowed councils to understand what the local people wanted, can’t have THOSE, the Rich can schmooze with the Major, after all.

Comparing that to the damage Thatcher did, and the Coalition is doing now, on the basic structure of the country…is bluntly sick.

@2: “the damage done by allowing the client state to swell is such that even if you act now it will be years before we undo New Labour`s inheritance ”

Conider:-

“For some politicians, running up deficits is not a problem but a benefit, since doing so creates a population permanently in thrall to them for the favours by which it lives. The politicians are thus like drug dealers, profiting from their clientele’s dependence, yet on a scale incomparably larger. The Swedish Social Democrats understood long ago that if more than half of the population became economically dependent on government, either directly or indirectly, no government of any party could easily change the arrangement. It was not a crude one-party system that the Social Democrats sought but a one-policy system, and they almost succeeded. […]

“During [Gordon] Brown’s years in office… three-quarters of Britain’s new employment was in the public sector, a fifth of it in the National Health Service alone. Educational and health-care spending skyrocketed. The economy of many areas of the country grew so dependent on public expenditure that they became like the Soviet Union with supermarkets. ”

http://www.city-journal.org/2011/21_3_otbie-uk-govt-spending.html

@3 “it is an iron law of economics that the revenue-maximising marginal rate of income tax for the rich is always lower than the one which currently exists”

Very succinctly put.

Oh hey, apparently plenty of cash for a cut for the top tax rate for the rich as well. *Plenty* of cash for Tory backers.

theophrastus –

Labour took the NHS and doubled the spending on it, yes. Guess what? It’s STILL less money, proportionally, than most Western countries spend on their healthcare systems. It was badly needed.

More, Labour knew they had to do something to give areas smashed by Thatcher a base from which to recover, and which was finally starting to happen. Of course, you can’t have that…

And.. the Social Democrats in the Nordic countries understand that a social contract between each individual and the government allows people to exist without fear, to find good jobs and to establish relationships with other based on their preferences, not economic need.

Sweden and the other Nordic Model countries are doing a LOT better than the UK, and all you can do is slander them, because they prove that there are better ways than slash and burn, of benefiting only a tiny minority of society.

“Soviet Union with supermarkets”

Ah yes, we had people queuing in the streets for goods from those supermarkets, starvation, conscription and secret police vanishing people!

Wait, we didn’t, and you’re outright deluded. A *prime* example of the nasty party. “By the Rich, For the Rich”.

NHS
Leon the UK does not spend an inordinately large part of its GDP on Healthcare , it does have a uniquely state dominated health sector. Furthermore the vast increase in cash thrown at it has not achieved commensurate benefits .It has killed off alternative private health provision. The results of this are two fold , while we get good health results per buck( which, true to form, the state takes credit for, a highly dubious contention ) we get poor results on things that may matter to individuals, like cancer recovery. Britain has always been somewhat health orientated and health is delivered to the population by reliable low level jobsworth stuff . The NHS provides good coverage but thats about it .
For ordinary people you cannot say it is a good deal the taxes spent on the NHS would buy you about £500,000 of health insurance . I know what I would prefer , many people whose parents, say,do not fit the Soviet view of whose life matters would agree.
The reason this international absurdity is able to continue is not, as you might think the fundamentally socialist nature of the Brtiish but the fact that it redistributes from young to old and poor to rich and from ill-educated to educated ensuring that class advantage tells as much if not more than it would have done anyway. Life expectancies in poor areas remain a standing indictment of the post war socialist model . Thus it was easy for Cameron to sell ” Don`t touch the NHS” to his older voters.
Your simple attitude is awfully handy to vested interests , but then the naturally bovine have always been handy to power brokers; always will be .

On the situation of the Laffer curve the research was done by the IFS under Robert Chote and it is a matter of projecting actual empirical results not imagining what would in a vacuum. On this subject the answer is simple. You don`t know what you are talking about .Sorry but there it is .

Left wingery in Europe stands at a point of crisis having been in retreat for years and David Milliband ( The PLP `s leader over the water ) pointed to the fact that Social Democracies failure was not just a British phenomena . It has not had universally good results, Norway sits on a Lake of Oil so ignore that . Sweden established its industries under conditions of ruthless capitalism, has a tiny population vast resources and a legendary habit of social obedience . For example they changed the side of the road they drive on in one day. Imagine that here. Imagine Italy ( another large state ) or Greece , (another triumph for the left ) .Nonetheless its tax code is less redistributive than ours if greater in magnitude

The really sad thing is that government spending as a % of GDP is now getting over 50% in this country whilst taxes are about 38/9%… what does that tell you ?
Government spending in Sweden and Denmark , your top lefty heavens is hardly any more.

In other words you are living in your socialist paradise without as yet paying for it , how do you like it ?

Australia achieves social mobility reasonable equality prosperity ,fiscal sense and a lively democracy with out having East Germany inflicted on it. Why not take that as the model ?
PS
Do you know what you have become Leon …a conservative . We need reform and your backward looking sepia tinted crackly radio nostalgia is running out of time.

@8 Somebody just filled my screen with diarrhoea.

@2

“you get no hearing if you still think the answer is to flood an unresponsive economy with borrowed cash”

“The ‘narrative’ which is that New Labour created a ruinous structural deficit is still spot on and not seriously doubted by anyone.”

“Cancelling the top rate sis an easy decision as it loses money”

You may as well be sticking your fingers in your ears and shouting “I’M RIGHT, YOU’RE WRONG, I DON’T WANT TO HEAR WHAT YOU HAVE TO SAY!”

You just rejected, without any debate demand stimulus in a depressed economy, any global influence on the UK deficit, and any suggestion that the Laffer Curve bites at above 50%.

Really, if anyone is getting your praise, they ought to be a bit embarrased about it.

Ok paul newman, we should discount norway, where ‘social democracy’ is only succesful because of a small population sitting on loads of natural resource rich land, but we should laud ‘neoliberal’ australia which has no doubt been doing well in spite of its small population sitting on loads of resource rich land. Thanks for your consistency.

Can anyone point out a country anywhere where neoliberalism has ‘worked’, as in made peoples lives better? (bankers arent people)

@8 – I am no form of conservative, of any stripe, and I have someone sitting next to me laughing their head off about that comment. Of course massive funding increases will take time to generate efficient results – efficiency *was* rising, before the Coalition chopped it off at the knees.

Australia has a large element of redistribution, including a minimum wage of £10/hour, and you have decried minimum wages, so it’s entirely hypocritical of you to use them as an example. And you make special pleading arguments for the Nordic states… of COURSE they’re free market and successful, that’s my entire point – they do it without a fraction of the capitalism we have here, too.

I’d be very happy indeed to pay Nordic taxes for Nordic services.

Quoting the IFS on anything just makes you look like the rabidly single-answer-to-any-possible-question far-rightist you are. You have to burn anything which is state-involved and successful to crush the poor – “reform, reform”… but the financial markets are just fine.