Sunday, December 10, 2023

Comment: Such “savings” do not save a single euro

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The “savings” envisioned by economic politicians are usually either misunderstandings or excuses—but rarely actual savings, writes special editor Jan Hurrie.

The main economic policy focus of government negotiations is on balancing public finances – and the question of what means should be used to achieve that balance.

There are several key words that are repeated over and over again in the speeches and slogans of the interlocutors, which are best to keep in mind when listening and interpreting.

Some key words in economic policy sound more like misnomers or phrases that distort the true purpose, meaning the exact opposite of what they might appear to mean at first glance.

Such problem words and proverbs, for example, common in almost daily use are “savings”, “reduction in spending” and completely different “stimulus”.

When hearing keywords like this, it’s best to either close your ears or resort to self-explanation.

Even though the words mentioned in the examples seem fairly obvious, depending on the context, it is possible to use them as roundabout expressions even for completely opposite actions than you think.

Everyone can interpret the mentioned words and other key words of economic policy as they see fit, but here’s one possible, albeit questionable one to admit:

A cut in one person’s spending is a cut in another’s income

When government negotiators or finance ministry officials, for example, talk about “savings” or “spending cuts”, they usually mean cuts to public finances.

But simply “savings” or “reduction in expenditure” they rarely mean means reduction in the expenditure of the entire national economy, let alone the actual savings of citizens.

For example, public “savings” from income transfers related to social and unemployment protection or cuts in medical expenses do not necessarily save a single euro – and new spending can easily accumulate more than the intended savings.

This occurs when a cut in spending in public finances means an equally large cut in income for some households and often companies, and has the multiplier effect of loss of income.

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The “savings” and “spending cuts” of economic politicians do not necessarily save or cut even a single euro from the spending of the country as a whole.

Cutting social or unemployment benefits may appear to save public finances, although in reality it shifts the financial burden from the collective shoulders of the nation to the personal burden of the citizens who need those benefits.

Similarly, before public health care spending is cut, services will be poor and queues for treatment long, and after a while more (mostly well-to-do) citizens will turn to private health care at their own expense.

Interpreting economic policy hacks in this way makes it appear that economic politicians’ “savings” and “spending cuts” do not necessarily save or deduct a single euro from the nation’s spending as a whole.

Building structures by refurbishing them with firewood or clay

On the other hand, when the economic political conversation turns to improving employment and the growth potential of the economy, politicians start talking about reforms that “encourage acceptance of work” and “structural” reforms that encourage growth. Let’s strengthen.

The first mention sounds like a carrot, but it usually means a stick, because “encouraging to accept a job” almost always means forcing the unemployed into any job by undermining unemployment protections.

The second described “structural” reforms are more difficult to explain, as they may actually be any political or administrative fad intended to change society or parts of it in the long term.

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“structural” reforms are more difficult to explain, as they may actually be political or administrative whims

In the name of the precautionary principle, it is best to interpret the sight of structural reforms with skepticism rather than get immediately excited about any structural promotion.

The success, value or other effects of structural changes that have a wider impact on society are rarely certain, let alone being unilaterally beneficial, as it seems when conceiving and marketing projects.

For example, the recent opening of the taxi industry to free competition was a structural reform. This was supposed to improve services, reduce prices and perhaps spur economic growth, but instead we got price scams, confusion and even push-pull between drivers at crowded taxi stations.

Another broad example of structural reform with more ambiguous effects is Social Security reform with its new welfare sectors. The pattern has closed as a shaky start for now, as it will soon be renewed again. Expenses had to be saved, but instead we are now debating additional funding.

procrastination or lack of understanding

Of course, it is up to politicians to define what kind of services Finland provides to its citizens for the common good, and which services everyone should pay for themselves according to their needs – and their means.

But that choice – and the consequences that follow – must be able to be described and justified by politicians openly, without equivocation, so that anyone can understand the matter without having to explain it themselves.

To only talk about “savings”, “spending cuts” and “stimulus” is somewhat arrogant of undermining citizens as if there were no consequences for anyone.

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Of course, it is up to the politicians to define what kind of services Finland provides to its citizens for a common purpose.

In the same way, enthusiasm about “structural reforms” is often more idle chatter than information that brightens the overall picture of economic policy without the slightest indication about the quality or purpose of the reforms, which are difficult to understand in any case. .

Of course, it is understandable and human that politicians prefer to talk about pleasant things rather than unpleasant things – and this is why it can be tempting to express even unpleasant things with nice curved expressions.

And the popularity of hokeys like “savings” can also be explained by the fact that perhaps the politicians who set economic policy don’t fully understand how a nation’s public and private economy works.

Everyone can consider for their own sake which is the better and which is the worse option, the fact that economic politicians don’t understand the economy, or the fact that they do but still speak the same way are as they do.

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