April 7, 2010 3:00 am

The ‘efficiency savings’ demanded also destroy jobs

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From Lord Skidelsky and Prof David Blanchflower.

Sir, How many of those business leaders who complain that raising national insurance contributions is a “tax on jobs” realise that the “efficiency savings” that they demand would destroy jobs just as certainly? Raising national insurance contributions attacks jobs by reducing profits per unit of output: an “efficiency saving” by government cuts costs by putting someone out of work. Both measures aim to reduce the government deficit at the expense of jobs. That is why the government has wisely postponed raising NI contributions and cutting “waste” until economic recovery is under way.

The general point is that expenditure that would be “wasteful” in normal times can be useful in depressed times. When an economy is growing strongly we need to cut out waste; when it is depressed, what is called “wasteful” spending can keep up aggregate demand, employment and sales. Keynes might have been thinking of our eminent business leaders when he wrote that “common sense” is apt to prefer wholly wasteful forms of public spending such as unemployment benefits to partly wasteful forms such as over-manning in government agencies.

Robert Skidelsky,
Emeritus Professor of Political Economy,
University of Warwick, UK

David Blanchflower,
Bruce V. Rauner Professor of Economics,
Dartmouth College, NH, US

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