Ahead of the delivery of the Comprehensive Spending Review tomorrow, it is worth reading what the Adam Smith Institute has to say about the impact of public spending cuts on the economy.
The Adam Smith Institute is the UK’s leading libertarian think tank. In an article today, they describe the difference between money and wealth when considering the impact of cuts on the economy.
Rather than seeing the government as external to the economy, the author explains that government spending merely reallocates wealth. The money the government spends comes from either taxes or borrowing.
None of the methods used by the government to create the money they spend actually creates wealth in the economy.
Therefore, government spending cuts do not hurt the economy and do not ‘take money out of the economy’; something they describe as a Keynesian fallacy.
When we hear details of the spending cuts tomorrow and start to read coverage of the cuts in the media, it is worth keeping this in mind.
Photo courtesy of russelljsmith.
