Our long term economic madness

In May the Conservative Party portrayed the election as a choice between Tory competence and Labour chaos. Labour’s spending and borrowing compared to the Conservative “long term economic plan”. The electorate made their choice and the current government received a mandate to cut the budget deficit and fix the economy.

Britain is now purportedly on the path to economic sanity, but you can be forgiven for having some moments of doubt. In this foul year of our Lord 2015, after nearly six years of “austerity, we will still spend £70 billion over budget. Should we redefine what the word “austerity” means?

The economic madness really began when Gordon Brown and Ed Balls implemented their plans for a high tax, high spend, much enlarged state and continental style economy. As we know only too well, it grew completely out of control.

The government has the opportunity to reshape the British state permanently, and when ideas are floated about “thinking the unthinkable” and slashing budgets by 40%; there is a flicker of hope that they might grasp it with both hands. Sadly, there is too much evidence to the contrary to believe anything serious is really being done to end the public spending spree and return to a sensible, sustainable fiscal situation.

“Austerity” Osborne routinely talks flippantly about spending £2 billion here and £2 billion there on infrastructure projects, but not-so-funnily enough that is the exact sum of money that the UK has to borrow each week just to plug the gap between our income and our outgoings. This looks an awful lot like a policy of spending and borrowing.

The £60 billion a year we pay to cover the interest on our borrowings is now the fifth largest item of public spending, exceeded only by the budget for welfare, education and the NHS. Yet our government, elected on a platform of the “long term economic plan”, does not seem to grasp the severity of the situation.

The chancellor intends to cut the deficit to zero and run a budget surplus by the end of the parliament, which is the same aim he had in 2010. Yet we have NHS managers, council officials and BBC executives lining their pockets with taxpayer’s cash with salaries beyond the £142,000 earned by the prime minister.

We intend to build HS2 with £50 billion of borrowed money and build a replacement for Trident for approximately £60 billion of borrowed money, none of which is accounted for in the annual budget. How can we possibly afford these projects?

We borrow money to send abroad in aid, and go to great lengths to splurge the cash just to meet the budget target, resulting in scandalous waste and corruption. We do this every year, and boast about it, pat ourselves on the back because of it, despite the mountains of evidence of waste and corruption, despite the cash lining the pockets of third world governments and dictators.

Both David Cameron and George Osborne have spoken of the importance of being prepared for the “global race”, the great economic competition, yet we transfer billions upon billions (of borrowed money) every year to the European Union, which redistributes it to rival economies. It is not a rational economic or foreign policy to borrow money to give to a foreign body for the dubious benefits of being ruled by it.

I really do wonder sometimes if our leaders have any idea what they’re doing. Is this simply a matter of the blind leading the ignorant? It doesn’t really bear thinking about. Sometimes the only conclusion one can reach is that this is a mad country, ruled by mad people.

“Austerity” in contrast

The US outlet “National Review” has a nice peice contrasting so called “austerity” with… austerity. An example should illustrate:

After enduring one year of painful but necessary cutbacks by government and business in order to regain competitiveness, Estonia is now outperforming the U.K. on every major economic indicator. The U.K., on the other hand, has allowed austerity for the private sector to take place for nearly three years without any commensurate cuts in government. Our tea-drinking Atlantic neighbors have suffered accordingly.

One year? One? My my.

The whole thing is worth a read if you’re into facts and figures.

The Austerity Curve…

Even for the Left this is moronic

Might it then be the case that something like a Laffer Curve exists for austerity? That is to say that cutting government spending up to a certain point leads to lower deficits but beyond a certain point, the impact of lower growth and higher unemployment means that deficits get worse as the government cuts more?

Like the Laffer Curve it suggests that there is a point at which cutting government spending becomes self-defeating, it simply lowers growth, depresses tax revenues and pushes up social security spending by more than the government is cutting.

I’ll just make a couple of points — even though you could write a tome on how stupid this idea is.

The reason the Laffer Curve is regarded as a reasonable yard stick for setting taxes is that, at the very least, it’s start and end points are basically sound. If the tax rate is set to 0% you will raise no taxes. And if the tax rate is set to 100% you will raise no taxes.

You can argue about everything between 1% and 99% but the start and end points can’t really be argued. Even if you could find the one or two idiots who would work and hand over all their earnings to the state…

The problem with the ‘Austerity Curve’ is that not even the start point is sound. A Higher Deficit doesn’t necessarilly mean No Austerity. A high deficit will lead to high debts. High debts to higher borrowing costs and potentially default. And default equals catastrophic ‘austerity’.

I could go on, but I think it is clear that the Austeruty Curve is one of the most laughable economic theories ever imagined.