|An Englishman watches the British government announce its plan to cut half a million jobs.|
Perhaps Margaret Thatcher's best remembered House of Commons quip concerned her perception of the difference between the left and the right. The exchange took place towards the end of her career in 1990. She said that whereas Labour argues over how to divide-up the economic pie, Conservatives want to bake a bigger pie. Thatcher's point was that enlarging the pie requires policies conductive to economic growth.
Ironically, today it is not the left but the right that obsesses about portions. Politicians on the right have made citizens anxious over who is getting an unfair slice of a frozen national pie. Republicans and Tea Party leaders have followers asking why illegal immigrants should be getting even a meager sliver of American pie. In France, President Sarkozy wants the retired to get a smaller piece of tarte. In Britain, Prime Minister Cameron has made it clear that welfare recipients should be targeted for a smaller cut.
Against the weight of evidence and history, the right maintains that private investors are the only forces capable of creating economic growth. But when the banks aren't lending, when the most profitable corporations are hoarding cash instead of spending it, when many new corporate hires live and work for a pittance overseas, private investment is clearly not about to save the day. It wasn't sufficient to end the Great Depression of the 1930s. It took public spending on a war to turn the economies around. Japan's private sector was unable to pull the Japanese out of the rut they fell into in the early 1990s.
In a stagnant economy, cutbacks in government spending will change how the pie is sliced, but cannot grow the pie. As things now stand in the US, the slice controlled by the top two percent already comprises over half country's wealth, 54% of the pie. And as demand stagnates and prices collapse (deflation) those hoarding money will be able to sweep up property and other assets at bargain prices. Untimely acts of fiscal discipline today will lead to a situation in which the share of the pie controlled by the super-rich will grow, even as the national pie shrinks.
At best, it will remain a frozen pie. In the UK, for example, planned cutbacks in public spending will eliminate half a million jobs. Job cuts mean fewer taxpayers and impoverished consumers, meaning less revenue for government and fewer private sector services needed. Where governments cut back on education spending or infrastructure development today, citizens will have fewer resources from which to generate new wealth tomorrow. That's some way to grow a national pie.
Next time you hear someone on the right gripe about how the pie is sliced, take a cue from the Iron Lady: ask them why they have no realistic plan to grow it.