Profitable Crisis

After much speculation, tomorrow we find out the results of the government comprehensive spending review. It’ll be interesting to see the level of cuts that the government unveils and whether the frenzied talk of 25 to 40% cuts is merely a psychological trick to distort our perspective.  If the government announces a mere 20% reduction in key services, even if those cuts cause permenant structural damage, everyone will breathe a sigh of relief.

Perhaps what is more significant is the rationale and motivation behind the cuts. All the economic data indicates that a recovery is well established – corporations are reporting healthy profits again.  An improved economy will generate increased tax revenue and boost government coffers providing extra income with which to address the debt accumlated through years of financial mismanagement.  Conversely, a reduction in public spending will raise unemployment, reduce the devastate the associated private industries, reduce the tax base and risk plunging us into a double-dip recession.

If the recovery figures are correct then it increasingly  looks as though the government cuts are ideologically driven rather than economic:  the UK government is using the budget deficit as a pretense for a level of public service cuts that even Thatcher could not achieve.

At the depth of last year’s financial crisis some commentators suggested that we were seeing death of capitalism. As it turns out  those same financial institutions that brought the world economy to its knees are now posting record profits on the back of tax-payers bailouts.

The economic crisis initiated by greedy and reckless markets will be the justification for cutting audited, democratically accountable social spending.   Far from being the end of capitalism, the economic crisis may well prove its greatest triumph.