Picture: The Debt Burden. Source: financialhelper.co.uk
For every £1 which the Labour government added to the British economy between 2001 and 2009, they added £5.40 in debt (source below). That statistic puts into perspective the news that unemployment is down, inflation is on target and growth is up. This does not really mean the economy is staging a Lazarus style comeback. It is bad news really because the wrong message will be inferred, as Cameron’s showboating in Parliament and Gideon’ Osborne’s jumping on the conference table in Davos and yelling, “We’re the Bits, we’re well hard and we’ll take you all on,” have demonstrated.
Among the youngish men who have never had a proper job in the real world but think a PhD in Philosophy, Politics and Economics and a few years experience as a political researcher makes them an expert in everything Nick Clegg is furthest off the mark in thinking that the signs point to closer links with Europe and eventual entry into the Single Currency system. He wants more public spending and will we all stop accusing pervy Lib Dem politicians with perviness please. Boris Johnson has argued in the past that we should “dump the rhetoric of austerity today,” while rousing choruses of “Happy Days Are Here Again” have been heard around Conservative headquarters. At a time when the economic situation demands a serious attempt is made to explain why austerity is necessary and a more vigorous implementation is vital, the Prime Minister and Chancellor want us to buy bigger houses, the Deputy Prime Minister wants to spend more and the Mayor of London wants us to close our eyes and ears and pretend we’re in a safe place.
If the latest statistics tell us anything at all, it is that despite that the official huffing and puffing about recovery, Britain’s economy has run aground on the shoals of stagnation (don’t we British love a nautical metaphor). There many be more jobs, but we must remember that many of them are part-jobs, only offering twenty or thirty hours work per week. This is evidenced by the lower productivity and no real growth in the economy.
Let’s be honest for a while, pumping the equivalent of five per cent of GDP into the economy by printing money (aka Quantitative Easing) while only managing to show two per cent growth is a recipe for financial catastrophe. And with official inflation still running ahead of GDP growth (and real inflation even higher) in real terms the economy is still shrinking. If people earn roughly the same as they did seven years ago, before the credit crunch, and the real cost of living has risen in the region of four to five per cent each year, the difference in lifestyle will be enormous.
While interest base rates (the rate government lends to banks) remain near zero while the banks charge much higher interest rates for lending the money straight back to government at over three per cent (yes, that’s how Quantitative Easing works when governments have a structural deficit), costs will continue to rise and wages will not . Currencies will continue to go down like the proverbial Lead Zeppelin against commodities and energy costs will go on rising. We truly do live in Interesting Times, and they will not be ending soon.
The question of when Britain will return to real growth as opposed to growth through manipulated statistics (there’s an election just over a year away remember) is difficult, but from every side of the argument there is one common but completely wrong headed assumption, that if we follow the right policies now then we will be back up and running at 3pc annual growth in three or four years.
The fault lies with neither Labour, Conservative nor even Coalition government. The rot set in decades ago, when Margaret Thatcher’s government (and Ronald Reagan’s administration in the USA) started to base their economic policies on the Kumbayaism of academics rather than the sound advice of people who ran businesses. Back then the panacea that did not work was controlling the money supply. Yes, it would be lovely if we had free trade and everybody could sell their goods on equal terms in a free market, without let or hinderance. Such utopianism is fine on paper, where the economics of academia start and end. but exporting jobs to India and China in the sure and certain knowledge of those nations buying services from our countries that they could provide more cheaply and just as efficiently “in house” and buying into our values and tradition of fair play was just delusional.
So we are stuck, economies go west as jobs disappear over the eastern horizon while national, business and personal wealth disappears down the drain. One of the big problems those visionary economists were too myopic to see even though it was staring them in the face is that if you create a huge pool of Labor by exporting jobs, it places an enormous financial burden on the state as welfare and social security bills rocket. This forces up taxes and eventually, as higher taxes cause more unemployment it leads to more borrowing in the bond markets to fund the deficit. Every bond sold increases the amount of interest the government must pay which again forces up taxes. It is a series of concentric vicious circles.
And example of the sheer idiocy of academic economists like Paul Krugman (Krugmanomics) is their belief that increasing benefits (funding the extra spending through borrowing of course) contributes to GDP growth. They are too naive, too ignorant of real life, to understand that GDP is only a measure of churn in the economy. An increase in GDP does not indicate greater productivity.
Until low income earners have the tax burden lifted, which would mean getting the deficit (NOT the National Debt, that’s a different problem) to near zero, consumption spending will be low and living standards will decline. The Conservatives seem to understand this but do not have a clue how to achieve it, while Labour are still advocating their own version of Krugmanomics, created by finance spokesman Ed Balls, which future historians may come to call Bollocksonomics. Bollocksonomics involves expanding the public sector vastly by creating non – jobs in town halls and government departments. A non – job is a position which caries a salary without any job description, functions or tasks having been defined. For examples non – jobs follow this link.
Such drastic deficit reduction also cannot happen without people accepting that others can afford to give them less through the state. That won’t happen at all, one only need witness the wailing and gnashing of teeth from the hand wringers and bleeding hearts of the Labour voting, middle class left at any mention of benefit cuts to understand why.
The political will, and more importantly the reforming zeal needed to take on the smug, affluent wailers just isn’t there. Another fly in the ointment is the grip on the public sector of the Unite Union, an anti British organisation that will do absolutely anything to prevent necessary reforms to the financially crippling benefit system.
Soon none of this will matter. The compound effect of the rapidly increasing debt burden we are under will be such that the deficit will need to rise again to sustain it. Add to that the financial disaster that will ensue should Labour return to power in 2015 as well they might, and open up the borders to uncontrolled immigration (as they certainly will) while giving those unskilled immigrants generous benefits and free health care, and the debt burden will reduce us to a Greek style basket case economy by the end of their first term.
Further Reading: Perfect Storm by Dr. Tim Morgan, Tullett Prebon
Are We Heading For A Financial Crash? Chief Reptillian Soros Is Betting On It
Feeding the monster
Boom and Bust – the debt economy
The Debt Threat to civilisation
The Jobless Economy
The Jobs Crisis
Work and Play