Jeffery Miron on the Emergency Budget

Jeffrey Miron, writing at forbes.com, reckons that Osborne's emergency budget is "an excellent compromise, since an austerity plan based entirely on spending cuts would have had slim odds of adoption":

The U.K. government has just announced an austerity plan designed to restore the nation's fiscal balance. The plan calls for about $145 billion in spending reductions and about $43 billion in tax increases, summed over the first five years. The spending cuts hit welfare, housing, disability, and retirement benefits, as well as public sector salaries. The tax hikes include a rise in the value-added tax and a (risk-adjusted) levy on bank profits.

This plan is about 77% right: the spending cuts are dead on, while the tax increases are unfortunate.

The spending reductions all scale back a system of government support that is far too generous to be sustainable. The U.K., along with every rich nation, must reign in these excesses until their social safety nets protect the truly poor, but no one else.

The tax hikes are unfortunate, but not horrendous. As taxes go, a VAT is one of the least offensive, and a levy on bank balance sheets that penalizes excessive risk can in principle reduce the likelihood of panics.

In practice these tax hikes are still problematic, since evasion and avoidance will limit the revenue gains. The bank levy, in particular, will drive banking activity overseas, and banks will avoid most risk adjustments through accounting sleights-of-hand.

Miron suggests that "even this plan will face tough-sledding", and the hostile coverage I've seen so far from the BBC and Channel 4 leaves no doubt about this. It's a shame, because they produce some good programmes, but I think the only option is to cut the BBC loose, and revoke all subsidies for Channel 4. A taxpayer funded media that toes the government line is dangerous, but one that actively fights the government ridiculous.