After the war

November 05, 2010 3:41 PM

In a BBC London spending debate recently I challenged Ken Livingstone over his claims about the public finances.  He said that we didn't need to cut spending, that the fiscal crisis was a myth, because debt was higher as a share of national income at the end of the Second World War.  I pointed out that we cut spending dramatically at the end of the war because we stopped fighting; we stopped buying Spitfires, artillery shells and all the other material needed to fight the Nazis.










A new working paper from the Mercatus Center at George Mason University points out the scale of spending cuts in the United States after the Second World War:


"In the four years from peak World War II spending in 1944 to 1948, the U.S. government cut spending by $72 billion—a 75-percent reduction. It brought federal spending down from a peak of 44 percent of gross national product (GNP) in 1944 to only 8.9 percent in 1948, a drop of over 35 percentage points of GNP.

While government spending fell like a stone, federal tax revenues fell only a little, from a peak of $44.4 billion in 1945 to $39.7 billion in 1947 and $41.4 billion in 1948. In other words, from peak to trough, tax revenues fell by only $4.7 billion, or 10.6 percent. Yet, the economy boomed. The unemployment rate, which was artificially low at the end of the war because many millions of workers had been drafted into the U.S. armed services, did increase. But during the years from 1945 to 1948, it reached its peak at only 3.9 percent in 1946, and, for the months from September 1945 to December 1948, the average unemployment rate was only 3.5 percent."


The picture in the UK will be a little different, but there will be a big cut in aggregate spending.  There  might still have been an increase in spending on some services, as he says the NHS was established, but we obviously can't stop fighting a World War to cut spending now so we need to find savings in services.  Cuts are necessary, taxpayers deserve better value and vapid arguments from the likes of Ken Livingstone won't change that.

In a BBC London spending debate recently I challenged Ken Livingstone over his claims about the public finances.  He said that we didn't need to cut spending, that the fiscal crisis was a myth, because debt was higher as a share of national income at the end of the Second World War.  I pointed out that we cut spending dramatically at the end of the war because we stopped fighting; we stopped buying Spitfires, artillery shells and all the other material needed to fight the Nazis.










A new working paper from the Mercatus Center at George Mason University points out the scale of spending cuts in the United States after the Second World War:


"In the four years from peak World War II spending in 1944 to 1948, the U.S. government cut spending by $72 billion—a 75-percent reduction. It brought federal spending down from a peak of 44 percent of gross national product (GNP) in 1944 to only 8.9 percent in 1948, a drop of over 35 percentage points of GNP.

While government spending fell like a stone, federal tax revenues fell only a little, from a peak of $44.4 billion in 1945 to $39.7 billion in 1947 and $41.4 billion in 1948. In other words, from peak to trough, tax revenues fell by only $4.7 billion, or 10.6 percent. Yet, the economy boomed. The unemployment rate, which was artificially low at the end of the war because many millions of workers had been drafted into the U.S. armed services, did increase. But during the years from 1945 to 1948, it reached its peak at only 3.9 percent in 1946, and, for the months from September 1945 to December 1948, the average unemployment rate was only 3.5 percent."


The picture in the UK will be a little different, but there will be a big cut in aggregate spending.  There  might still have been an increase in spending on some services, as he says the NHS was established, but we obviously can't stop fighting a World War to cut spending now so we need to find savings in services.  Cuts are necessary, taxpayers deserve better value and vapid arguments from the likes of Ken Livingstone won't change that.

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