Cuts vs efficiency

Reading Paul's call for increased spending on childcare might suggest that he's conflating two separate issues. He says:

So how will the extra money be found? I’m a sensible post-Keynesian who enjoys the benefit of Modern Monetary Theory insight, and so I understand better than IPPR appear to that the best way to invest is through deficit spending. That would, well, just work.

Now, there is a case for deficit spending. And there is a case for increased spending on good childcare. But they are two different things.

The case for spending on childcare is that, as James Heckman has shown (pdf), it is a great investment. Better childcare leads to more educational achievement and better health and thus higher economic activity and lower public spending in the future. Even if the Austerians and "in the black Labour" group were wholly correct and we do have to curb public spending overall, there'd still be a case for higher spending on childcare. And if there isn't, you should be arguing against Heckman, not Keynes.

So, is Paul just mistaken to conjoin the two logically separate issues? Maybe not. The problem here is one of public choice.

Ed Balls has claimed that a Labour government's "zero-based spending review" will "[assess] every pound of taxpayer’s money including for its impact on growth and fairness."

Given its high social return, childcare spending should emerge from such an assessment not only intact but with a higher budget.

If, that is, the assessment were based only upon disinterested and far-sighted rational thinking.

But it might not be. As Roger says, zero-based budgeting usually becomes a way for consultants and managers to press their own interests. There's a danger that, by the time a government has pandered to powerful bureaucrats, corporate lobbyists, the Daily Mail and unions, zero-budgeting will end up cutting the sort of pre-school childcare that has good returns because it doesn't have  powerful interests to speak up for it. Who's got the most power over politicians: unions, big business, military chiefs, the media - or nursery teachers?

From this perspective, I fear that Paul might be right to link deficit spending with childcare - because, given political pressures, only deficit spending can protect sensible long-term investments.

Mr Balls might want to make intelligent cuts in public spending. But what if his desire exceeds his ability? There then emerges a trade-off between smaller government and efficient public spending.

Comments

[BT London]

Krugman on serious people like 'in the black Labour':

http://krugman.blogs.nytimes.com/2012/10/21/an-elite-obsession/

[FromArseToElbow]

Ed Balls's reference to zero-based budgeting will be commonly understood to mean "everything is up for grabs", i.e. we don't just assume that prior commitments will continue. That said, his claim that "every pound" will be assessed on its individual merits is specious. Large parts of public spending are mandated by statute, so they're beyond the scope of any budgetary discretion short of new legislation. Other parts are inter-dependent. We can't keep spending on rifles but refuse to spend on bullets.

ZBB is a useful technique if you have poor cost control - i.e. you're not sure what you're spending money on. It surfaces wasteful expenditure that traditional incremental budgeting tends to obscure. To this extent, ZBB might be helpful for micro-budgets in the public sector, but at the macro level of Whitehall it is meaningless. A ZBB pledge by Balls now is just a way of deferring discussion on specific commitments.

As for better childcare, the compelling case for this is likely to be the need to expand the working population, by getting more mothers to work, so growing the economy to offset an ageing population and increasing care costs. The Guardian today reports the Commission on Living Standards' proposal for improved childcare with the comment: "The commission is remarkable for reaching such a consensus on the long-term structural problems facing the UK economy, as it is made up of a diverse group of leading bankers, industrialists, trade unionists and economists." There's nothing remarkable about this. All parties have an interest in growing the working population. Some may be more interested in growing the quantum of tax receipts, while others see benefits in repressing wages, but the end result is consensus: more working mums, please.

Paul Cotterill's point is not that childcare lacks support, but that a commitment to improve it will be used as justification for cuts elsewhere, i.e. a quid pro quo approach. As we no longer hypothecate debt for specific programmes, deficit spending will always be cast in terms of the "least valued" spending by government - i.e. subsidies to skivers rather than strivers.

[Tim Newman]

"The case for spending on childcare is that, as James Heckman has shown (pdf), it is a great investment."

Much of this would depend on how this extra money was spent. Providing better childcare might well be a great investment, but it does not necessarily follow that increased government spending in this area will result in better childcare.

[gastro george]

Yet the French seem to manage it ...

It's a poor argument that we shouldn't spend because it might not be spent well. I *might* walk under a bus tomorrow, but that doesn't stop me getting up. The point is to develop policy and infrastructure that ensures that it's spent well.

[Tim Newman]

"It's a poor argument that we shouldn't spend because it might not be spent well."

Which may be a reason why nobody, at least on this thread, is making it.

[gastro george]

Uh?

"... but it does not necessarily follow that increased government spending in this area will result in better childcare."

Please expand.

[Churm Rincewind]

"...it does not necessarily follow that increased government spending in this rea will result in better childcare."

Apart from anything else, this is because there is no clear evidence and no consensus that subcontracting the care of one's children to individuals or institutions outside the family circle amounts to "better" childcare than conventional home parenting.

Obviously home parenting is often not an option, but it could no doubt be argued by its advocates that an increase in Goverment expenditure might be better directed towards further financial support for parents rather than in the direction of the professional childcare sector.

This is a highly contentious question, and there are no easy answers.

[gastro george]

OK, I see, you talking about childcare in the generic sense rather than publicly-provided childcare. Well, I guess we differ about that. It's noticeable that the more successful European nations provide a more comprehensive level of public childcare, and have a higher proportion of women in the workplace and in high-powered jobs. Quite a waste to lose that resource ...