Monday, 4 February 2013

The "no cuts" fallacy


The "no cuts" fallacy is so abject and inaccurate I actually think I'm actually creating an overly positive impression by referring to it as a "fallacy" in order to fit it into this series. A better and more realistic way of describing it would probably be to call it a desperate and insane fantasy.

The fantasy is that the coalition government haven't actually been engaging in an ideological austerity experiment for the last three years, and that they haven't actually cut anything at all; that austerity is a myth.

This kind of assertion is commonly made by the kind of tribalist Tory reactionaries that show up on the Another Angry Voice Facebook page in order to deflect attention away from the specific criticism of the government I've made, using the tactic of dissembling about how the blame actually lies with anyone but their beloved Tory party.

You know the type; it doesn't matter what the actual subject is, all they ever spout is semi-coherent rubbish like "Labour wrecked the global economy", "benefits scroungers are the biggest problem" or "I blame the immigrants".

The problem is that it's not just dim-witted Tory apologists chuntering on Facebook that rely on the "no cuts" fallacy (nobody in their right mind listens to them anyway), but that similar ludicrous claims have also been made in the mainstream press and by so-called economics experts too. Here's a classic example from an absurd "debt fearmongering" article entitled "The End of Britain" on the website of the popular Economics magazine MoneyWeek.

"The fact is, when you look at our finances as a whole, the Coalition isn’t cutting anything."
The problem with this statement is that it is transparently counter-factual. There is oodles of evidence that the government have been cutting things, just check out the wealth of verifiable evidence in the following section.

The Evidence

As you can see, the fact that the Tory led government have been "cutting"  is undeniable. The fact that there have been many huge cuts in services and investment is supported by evidence from across the mediascape, from traditionally left-wing publications like the Guardian and the Independent, to extremely right-wing papers like the Daily Mail and the Daily Telegraph.

Given that I've completely undermined the conclusion that "the coalition isn't cutting anything" with solid,undeniable evidence, I could just stop here. The fallacy is completely invalidated, so why would I even bother to go on?

The answer is that I believe that for those of us that like to base our political opinions on evidence, it could be a useful exercise in looking into the mindset and thought processes of those that ignore mountains of evidence in order to believe their favoured convenient justification narrative.

I also hope that there is a possibility that explaining the flawed reasoning that allows the development of such an absurdly counter-factual conclusion may actually help some readers to avoid falling for such fallacious reasoning in future.
 

Confirmation bias
[Main Article]

It is my view that in light of the plethora of evidence that the government have been cutting a lot of things, the only way that it is possible to hold the view that they haven't is through confirmation bias.

Confirmation bias is a a form of cognitive bias, which often manifests as an inability or unwillingness to spot faults in arguments with which we agree. Classic examples of confirmation bias include the tendency to cherry-pick evidence and the persistence of discredited belief.

In order to maintain the fantastical position that none of the cuts that have been made are real, the Austerity loving Tory apologist must ignore all the verifiable evidence and cherry pick bits of information that support the assertion that they want to make.

The austerity lover is unquestioning in his acceptance of George Osborne's ideological theory that the best way to stimulate private sector growth is to cut government spending. To these people it is
is an unquestionable and dogmatically held truth that it possible to "cut your way to growth".

The problem for them is that George Osborne's  ideological "cut now, think later" experiment has not succeeded in producing growth, in fact it has created economic stagnation. Since the proposition that "
the best way to stimulate private sector growth is to cut government spending" is an article of faith to these guys, they have to come up with a narrative to explain the lack of growth. Thus they deny the wealth of evidence and claim that there haven't been any cuts at all.

This is the kind of faulty thought process that occurs in the mind of the ideological austerity lover:

Proposition: It is undeniable that A always produces B (cuts create growth)
Evidence: No B (no growth, economy is stagnating, the national debt is still skyrocketing)
Conclusion: No A (there must therefore have been no cuts)
It is impossible for the austerity lover to accept the evidence that their beloved theory is faulty and that the cuts have been counterproductive, yet they have a flatining economy to explain, so they chose to deny that any cuts have been made in order to avoid having to reject the proposition that they hold as an article of economic faith. In order to do this they must be suffering from appalling levels of cognitive bias in order to filter out all the verifiable evidence that huge across-the-board cuts in government spending have actually been made.

False Economies

Now I'm going to show how the previously mentioned proposition that "it is undeniable that A produced B (cuts create growth)" is faulty.

Hypotheticals

Firstly I'm going to give a simplified example of how mindless austerity can create false economies (apologies if you find this next paragraph a bit patronising, I promise I'll get back to more serious analysis pretty soon).
Imagine you are flat broke, your weekly income doesn't cover your weekly expenditure. You decide that the only way you can make up the shortfall is by cutting the amount you spend. You have a brainwave. How about saving money by not putting any petrol in your car? This works out very well indeed in the short term, you save the £40 that you normally spend at the petrol station. However after a few days your car runs out of petrol on the motorway on the way to work. You have to shell out £100 to have your car recovered because you also "saved money" by cancelling your breakdown cover too. You spend the entire morning faffing about over your car meaning that you are very late for work. When your boss finds out that you were late because you didn't bother to put any fuel in your car he is furious. His company is struggling badly and he's thinking of making redundancies in order to keep his business viable, now your name has just gone to the very top of his list of possible redundancies. Not only has your mindless austerity experiment failed because it cost far more than it saved, it has also dramatically reduced your bosses confidence in your abilities to "think things through sensibly", therefore you have jeopardised your regular income too.
OK, so hopefully you can see that in this little story you are playing the role of George Osborne, the car and the petrol are a particular government department providing fundamental economic services and the departmental funding and that "your boss" is that elusive entity referred to by free market economists as "the market", which is in reality, is demonstrably losing confidence in George Osborne as a result of his economic incompetence (The IMF telling him to slow down his austerity experiment, all three major credit ratings agencies putting the UK on negative outlook, even Goldman Sachs criticising Osborne's ideological austerity experiment...).

Flood defences
 [Main Article]

Now I'm going to show that failed austerity experiments aren't limited to fictional story based on  hypothetical scenarios; that  George Osborne's ideological across-the-board spending cuts have already produced some catastrophic results. One of the best examples can be seen in the decision to slash £860 million from the UK flood defence budget. Few would argue that investing money to protect our towns, cities, shopping centres and industrial estates from floodwater is a waste of money, especially if they know that it has been estimated that for every £1 spent on maintaining or erecting flood defences, the UK economy saves £8 in avoided economic damage.

The problem is that George Osborne and the wonks he appointed to the Office for Budget Responsibility (OBR) don't see it that way. They have been building their economic models, and making their economic predictions on the assumption that all government spending is essentially 50% waste. If you work under the assumption that everything you're doing is 50% waste, then cuts to things like flood defences seem to make sense. If however you have a more nuanced understanding then cutting flood defence spending seems like a pretty terrible idea.

Pretty much everyone in the UK knows what a wet year 2012 was, that there were several periods of extremely heavy rainfall and that several regions suffered extensive flooding. Several of the towns that were hit by flooding had been made to abandon their flood defence schemes because of these spending cuts. The result of saving a few hundred thousand pounds by cancelling the flood defences in small towns like Kendal, is that the insurance companies and uninsured inhabitants of these places are now facing cleanup costs of £millions. If the experts are to be believed, in order for the Tory led coalition to save less than £1 billion in flood defence spending in the short term, the eventual damage to the economy could reach an incredible £6.88 billion! That is pretty much the definition of a False Economy.


Fiscal Multipliers
[Main Article]

Now onto the technical sounding "financial word stuff". The assumption George Osborne and the OBR made that all state spending is essentially 50% waste is described in economics terms as assuming a uniform fiscal multiplier of 0.5

Anyone who is familiar with maths knows that if you just bung an assumed number into an equation, you are almost certainly going to jigger the whole thing, but that is exactly what Osborne and the OBR did to produce their rosy and spectacularly inaccurate UK growth forecasts. In October 2012 the IMF have stated that:
"In today’s environment of substantial economic slack, monetary policy constrained by the zero lower bound, and synchronized fiscal adjustment across numerous economies... multipliers have actually been in the 0.9 to 1.7 range since the Great Recession" (IMF Global prospects and policies report, IMF, Oct 2012)
If an extremely right-wing organisation, famed for their ruthless pushing of right-wing neoliberal economic dogma across the globe, are admitting that in the current economic climate, state spending is significantly more beneficial to the economy than before, I'm inclined to believe it, since they must have some pretty strong evidence to justify going against their three decade long agenda of attempting to suppress state spending.

What makes this revised estimate on fiscal multipliers so damning for George Osborne is that his own publicly funded thinktank wonks at the OBR accidentally admitted that their arbitrary assumed fiscal multiplier underestimates were entirely responsible for the stagnation of the UK economy between 2011 and 2012. Here's what they said:
"The average multiplier over the two years would have needed to be 1.3 – more than double our estimate – to fully explain the weak level of GDP in 2011-12" (2012 Forecast Evaluation Report, OBR, Oct 2012)
Note that their figure of 1.3 is slap-bang in the middle of the revised fiscal multiplier range determined by IMF research. 

For those of you that are unable to join the dots: If the IMFs research is anything like accurate, George Osborne's ideological austerity experiment is entirely responsible for the stagnation of the UK economy! He's been mindlessly slashing all kinds of stuff under the assumption that it was essentially 50% waste, when the IMF figures suggest that what he has been cutting ranges between 10% waste to a whopping 70% positive return on investment.

It is a shame that virtually nobody in the mainstream press has picked up on this story, it's a bit complex, but it is solid evidence based research that clearly demonstrates that Osborne's ideological austerity experiment is the main reason that the UK economy is stagnant in terms of growth and heading towards an unprecedented triple-dip recession.

The main reason that
the UK has continued to borrow staggering amounts of money under George Osborne's austerity regime is that austerity itself has been damaging the economy by destroying valuable services and cancelling beneficial infrastructure that provide significantly better than assumed returns on investment. The economic damage inflicted by self-defeating austerity is a major factor because a damaged economy produces lower than expected tax returns, and if the damage is greater than the savings being made, the fall in tax returns actually outweighs the savings being made through the cuts.

Tax issues
[Main Article]


This section isn't directly related to debunking the idiotic "no cuts" narrative, but I believe it is  important to at least mention tax in order to give a wider account of the economic damage being inflicted by George Osborne's ideological stance on economic issues.

One of the most damaging aspects of George Osborne's tenure is his continuation of Neo-Labour's extremely lax attitude towards tax-dodging. I haven't space to go into it in full detail here (this article is more than long enough already), other than to say that allowing corporations and very wealthy individuals to siphon £billions out of the UK economy, obviously increases the gap between taxes received and government expenditure, necessitating even higher borrowing. Osborne's ideological austerity experiment is harming the UK economy and his tolerance of industrial scale tax-dodging is exacerbating the damage. Here's a link where you can read more about the economic case against tax-dodging.

Osborne's obsession with slashing taxes for the super rich (the cut in the top rate of tax) and for corporate interest (reducing corporation tax from an already low 28%, to just 21%) are also adding to the debt problem, by further widening the enormous gap between the money the government receives in tax revenues and the money it spends. It is obvious that the larger the gap between income and expenditure becomes, the more borrowing needs to be done.


Conclusion

I believe this is one of the most comprehensive demolition jobs I've ever done.

I've provided numerous links from sources from either side of the political mediascape to demonstrate that the claim that "the coalition isn't cutting anything" is counter-factual rubbish; I've explained the absurd thinking processes involved when people allow themselves to believe this kind of brazenly inaccurate nonsense; and I've provided plenty of evidence (hypothetical, real and economic model based) to show that the
"excessive  and arbitrary spending cuts lead to increased debt exposure" hypothesis, is not only entirely possible, but in fact, extremely likely to be the case in the current economic climate.

If there are any right-wing, austerity loving Tory fanatics that managed to read this far and still believe, despite all of the evidence and analysis I've presented, that "there haven't even been any cuts" or that "the cuts have been way too small and should have been much deeper"; all I can do is commend them on their mind-boggling levels of confirmation bias!


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