Splashing the cash

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From a republican perspective, the results of a poll showing that 54% of people in Wales would vote to keep the monarchy whilst 23% would vote for a republic is not at all a bad starting point on an issue which is barely discussed publicly and in relation to which the media and the main political parties relentlessly promote the status quo. And, interestingly, it’s far from clear that even all those who support the continuation of the monarchy are over-impressed by the cost to the public purse, with just over half saying that the monarchy should pay for the coronation out of their own resources. That said, it’s probably the case that attitudes to Saturday’s events probably reflect attitudes to the institution, and that the overall level of enthusiasm is rather less than the BBC and media would have us believe.

There have been some wild claims as to just how much of a boost the UK economy will get as a result of the jamboree, with the palace repeating claims that the benefit could be up to £1.25 billion. That looks a bit like a politician’s statistic to me (92.8% of which, like the figure of 92.8% itself, are made up on the spot to support whatever argument is being advanced at the time). It’s certainly true that a lot of tourists like to visit royal sites and palaces – whether that number would rise or fall if the occupants were cleared out and the whole of the building made available for public view is an open question. Royal history without the royals might turn out to be a surprisingly lucrative proposition.

One rather more specific claim has been that pubs will gain from a £120 million spending splurge over the weekend. The basis of that claim is uncertain to say the least – the workings haven’t been reported – but, for the sake of argument, let’s suppose that it’s true. The question, then, is ‘is that a boost to the economy overall?’, and the answer to that depends on where the money is coming from. If people are smashing open their piggy banks, or pulling the money from under the mattress or wherever else they’ve been hiding it, then the expenditure will indeed boost the economy overall. If, on the other hand, they’re merely spending money which might otherwise have been spent in the supermarket or on other leisure activities, then the ‘boost’ to one sector of the economy is matched by a hit to one or another different sector. In a time when people are struggling with the cost of living, the second scenario seems rather more likely than the first.

It has been reported that the cost of staging the event to the public purse will be around £100 million. Again, I haven’t seen the workings, but am prepared to accept the figure for the sake of argument. The same question arises – where does this money come from? Given that the government keep telling us that the cupboard is bare, it won’t be coming from Rishi Sunak’s piggy bank, or from under his mattress (although the tax authorities might usefully take a peek anyway to see what might be there and where it came from). And in the absence of any announcement of cuts elsewhere, it isn’t obviously going to impact other spending. In terms of the government’s overall spending, it’s a tiny drop in the ocean, but the likelihood is that it is effectively going to increase, marginally, the current year’s deficit. And that highlights one of the key differences between government spending and household spending – the government can, and almost invariably does, spend money which it hasn’t actually got. The result is that spending £100 million of extra government money on a coronation provides a real boost to the overall economy in a way which transferring £120 million of private money from supermarkets to pubs does not.

That doesn’t mean that I’m advocating spending £100 million on a pointless and archaic ceremony; I can think of plenty of better ways of spending that money. I’m more interested in the general lesson here, which is that government spending which increases the budget deficit boosts the economy; and its corollary, which is that ‘austerity’ (cutting government spending to reduce the deficit/debt) dampens the economy. That doesn’t mean that governments can or should run ever bigger deficits (there are other mechanisms, such as a lack of resources and a consequent increase in inflation which impose constraints on that, although despite all the posturing by politicians about percentages of GDP the simple truth is that no-one knows with any certainty where the limits lie). It simply means that when growth is weak, deficit-funded government expenditure can boost it, and that the time to reduce deficits is when growth is strong. There’s nothing new about that, it's something which has been known and understood for many decades. The tragedy is that we have a government which, for largely ideological reasons (and to protect the interests of the wealthiest, which may well amount to the same thing) tries to pretend that the opposite is true, and a main opposition party which is so keen to prove its fiscal responsibility that it’s even keener on taking action likely to dampen rather than promote growth.