Thursday, February 19, 2009

Economics of the Mad House

Thanks to a Twitter from Liam Murray I am interrupting my work to express incredulity that the at a time when tax receipts are down 11% year on year, government spending has risen by 6.7%. As Liam says, Prudence is well and truly in her coffin. Imagine if a business ran its affairs like this. Imagine is YOU ran your affairs like that. You'd be heading for the bankruptcy courts.

No one denies that some sort of fiscal stimulus is necessary to kickstart the economy, but this cannot just be financed out of increased borrowing. No one seems to be looking at cost reductions or efficiency savings.

To my mind, the main trouble with the measures announced so far, is that they are incredibly ineffective. Surely infrastructure projects are the way to go? But do we hear a hint of money going in that direction? Do we hell. These seem to be the very projects which are being cancelled and delayed.

Discuss.

42 comments:

Obnoxio The Clown said...

Surely infrastructure projects are the way to go?

Why? Analysis of previous attempts at infrastructure projects to get you out of a recession show that it has never worked before.

The ONLY thing the government can do to help ease the recession is to cut tax.

That is the ONLY thing that works.

But do we hear a hint of money going in that direction? Do we hell. These seem to be the very projects which are being cancelled and delayed.

When you've got no money, you've got no money.

Mike said...

Maybe a little hasty with you incredulity Ian.
Whilst I'm sure the gov't hasn't been belt-tightening on discretionary spend to anything like the extent that the poor saps in the private sector are having to do (if at all), much of this deficit will be due to automatic stabilisers rather than conscious gov't action - see http://www.wisegeek.com/what-are-automatic-stabilizers.htm

Danger said...

Just as I was about to accuse you of being a moron, you ended your post on a sensible note. Yes, infrastructure projects, tax cuts, you name it. We need to get money flowing into the economy.

P.2 of the FT today has an article that says Hugh Osmond has chided David Cameron for his totally useless response to the crisis we are facing. Excellent -- let's hope a few more economically literate donors start to apply some pressure. The Tories need to be arguing for a large and well-targeted (i.e. not a further VAT cut) fiscal stimulus. It is pretty pathetic that they have spent the past few months manoeuvring for political advantage -- the country needs its politicians to understand this crisis, formulate a relief plan and then come out and argue for it. So far, Cameron has done none of these things.

Demetrius said...

My I remind you again of the Das Fliegen Schwein (The Flying Pig) Theory of Economics. The ideas about infrastructure are entirely consistent with this. As all these plans relate to an economy that existed about ten years ago and bear no relationship to the economy that will exist ten years hence they will not support any real growth or benefit and will crash land.

canvas said...

Infrastructure spending is the way to go.
You're absolutely right , Iain...

By the way, do the Tories have an infrastructure spending plan? rails, roads, bridges...

We need to create hundreds and thousands of new green jobs.

trevorsden said...

Cameron is wise to say as little as possible.

The reason must be surely obvious ---- he cannot have a clear idea yet - until he becomes PM - as to what the real situation is. Even the govt are clueless so what chance dos the opposition have?

The plans of the opposition are totally pointless. They are the OPPOSITION you dorks. Their task is to hold the govt to account. The situation is deteriorating by the minuter. We can only speculate
a) on the date of the election
and
b) just what might be the state of Britain at that time (whenever it is).

Meantime just concentrate on sound solid conservative principles. The sad fact for the electorate, which they may not find palatable before the election, is that some nasty medicine may be needed. Best the Tories stick to saying "wait 'til we see the books"

Iain Dale said...

Canvas, you will be delighted to know that Cameron announced just such a green jobs policy a couple of weeks ago. A simple Google search will give you the details.

The Grim Reaper said...

In theory, there's nothing wrong with the idea of spending money during a recession in order to boost infrastructure so that you'll be ahead of the game when the downturn ends. In practice, it depends on you actually having money in the first place - something which this government doesn't have much of anyway. The amount of debt being taken on is incredibly disturbing. I wonder if Gormless still thinks talk of us going to the IMF for a loan is "ridiculous"?

I have to agree with Obo the Clown that the only way forward at the moment are big tax cuts, along with some spending cuts as well.

Alex said...

I think investments in piano wire and lamppost production are likely to prove successful over the medium term.

an ex-apprentice said...

Until the zombie Banks are again made solvent, all else is a waste of time.

All measures taken by the govt so far might be fine if the problem was short term lack of liquidity.

It's not. The banks are inescapably insolvent. Dead but won't lie down.

We've already wasted God knows how many billions in a refusal to face reality. Either stand back and let them die, or step in and nationalise.

Oldrightie said...

I have to agree with Obo the Clown that the only way forward at the moment are big tax cuts, along with some spending cuts as well.

---------------
My contribution,

http://oldrightie.blogspot.com/2009/02/who-needs-expensive-experts.html

Danger said...

Re. trevorsden. It is just not true that it is impossible to know what is going on. I meet people in Mayfair and the City every day who have a good grasp of the situation. Why doesn't the government? I suspect because they, like the Conservatives, are more interested in playing politics. It is indeed the role of the opposition to hold the government to account. In this case, they should be holding the government to account for the same deficiency of which they themselves are guilty: failure to understand this crisis, formulate a relief plan and then come out and argue for it.

tl said...

Efficiency and saving money are just euphemisms for cutting jobs, that's why they're not being talked about.

Trevorsden is right, the Tories should just shut up because the closer you scrutinise anything they have to say about economics the more embarassing it gets.

Vince Cable is the only guy who seems to be able to pull off being both critical and sensible about the economy without looking like a twat.

Guthrum said...

I have advocated that in the March paypacket no Tax or NI is deducted.

Three benefits

The money would be spent, not hoarded as if you give it to the banks

Business would have a month off being harrassed by HMRC

People will actually start asking if this is what I ewally earn, what is the rest being spent on

hatfield girl said...

Most infrastructure projects in the pipeline are PFI funded. Well, not funded as there's no credit. New Labour's infrastructure programmes have collapsed.

Steve_Roberts said...

"No one denies that some sort of fiscal stimulus is necessary to kickstart the economy"

Yes they do - or at least this one does. A massive shrinkage of the public sector, and a 'bonfire of controls' would be much better. Surely as a germanist you know how Earhardt initiated the Wirtschaftwuender?

Eddie said...

Angela Eagle on BBC today repeating the mantra...

"It is because we paid down debt during the good times that we can now borrow to help us through the recession"

Labour borrowed (increased the deficit) in 2002, 2003, 2004, 2005, 2006, 2007 and it wil be massive in 2008

Just when were the good times under Labour then?

Must be when they followed the Conservatives policies!

MARA MACSEOININ said...

And net debt is now 47.8% of the GDP; and the government wants to *increase* spending in order to end child poverty, presumably by increasing adult poverty.

Lola said...

Surely infrastructure projects are the way to go?

What! Look, every penny spent by government is a penny we, the people, cannot spend. Infrastructure projects kill employment in the wealth creating private sector. They also take years to deilver jobs and only have a few jobs for the money spent - they are capital projects. Letting governemnt loose with money only leads to massive mis allocation of capital.

For Christ's sake Iain go an do some economics - I suggest you start on Adam Smith - and then say something sensible.

If you want to create jobs, cust taxes on income and capital for individuals and private business and to pay for it lay off 10% of public sector attendees every year, or rather release them to find employment in private sector wealth creating jobs.

Lola said...

Canvas - you are delusional and worse, just plain wrong. Stop picking that hole in your tights, it'll just get bigger.

Harry Haddock said...

No one denies that some sort of fiscal stimulus is necessary to kickstart the economy,

Yes they do. They are called Austrian economists. Ask Thatcher about it. Jeeeeezzzz...... I can see we really have returned to Heath style Blu Labour. So, at the next election do you want Keynes, or Keynes? God help us all.

JPT said...

Never mind the mad house it's the poor house we're all heading to.

Neil said...

"So, at the next election do you want Keynes, or Keynes?"

I want Freidmann, or better still, Hayek. Unfortunately I think you may have a point, the Conservative party is a bit too Keynesian, and Iain has proved it with this post. Public spending is NEVER the way to go. David Cameron needs to make sure he doesn't follow the same mistakes as Gordon made.

acadman said...

The problem with major construction projects is that they are so long to get going. You have the entire planning permission process, then tendering and awarding of contracts, even before the work begins.

I think there is a case for creating confidence through a capital works program but to do that you have to have the project ready to start immediately so they create jobs at the right point in the business cycle.

But to work that would mean government would have to have a continual stream of planning-approved and tendered projects in the pipeline that they can unleash as soon as the clouds start to gather during the downside of the economic cycle.

It would be a rather sophisticated approach and I would be interested to know if any government has ever attempted it.

Failing that, if PFI construction projects that are already under way are in danger then perhaps government guarantees of finance would have been a much better use of the fiscal stimulus.

The other approach the government should have tried instead of the absurd VAT reduction would be to substantially raise personal allowances so that consumers can drill down their debt more quickly.

Iain Dale said...

What a lot of arrant nonsense. I was clearly not advocating a Keynesian increase in public spending. What I was saying that all the measures announced so far have been ineffective. The money has been wasted. The way to get money moving round the economy is to give people real tax cuts, money in their pockets. Bringing forward existing infrastructure projects would also boost employment and boost the construction industry. That's not some lefty Keynesian thinking, it common sense.

acadman said...

I forgot to add...Brown wont cut public spending in areas it could be cut because he is, of course, a coward. That and his narrow minded tribalism makes it very difficult for him to to do whats right for the country, only what's good for the Labour party.

trevorsden said...

Eddie and Lola are right.

BTW - Browns get out of jail free card, to fund everything from spending to tax cuts is simply to borrow more. this governing thingy is dead easy you know. Billions here billions there - no problem.

And danger these city friends -- where were they these last 10 years? Did they know what was going on all tjhis time?

The city barrow boys can go and fcuk themselves for all I care.

I speak as a dyed in the wool conservative - and I hope that the next conservative govt will not be as gullible as the last labour one.

And I hope all tory based bloggers like Mr Dale will do all they can to ensure that this does indeed happen.

'The City' has been condemned out of its own mouth - more fool them for sucking at the dick of this labour government.

Tell your Mayfair and City friends what I think of them Mr Danger - they need to know.

trevorsden said...

Eddie and Lola are right.

BTW - Browns get out of jail free card, to fund everything from spending to tax cuts is simply to borrow more. this governing thingy is dead easy you know. Billions here billions there - no problem.

And danger these city friends -- where were they these last 10 years? Did they know what was going on all tjhis time?

The city barrow boys can go and fcuk themselves for all I care.

I speak as a dyed in the wool conservative - and I hope that the next conservative govt will not be as gullible as the last labour one.

And I hope all tory based bloggers like Mr Dale will do all they can to ensure that this does indeed happen.

'The City' has been condemned out of its own mouth - more fool them for sucking at the dick of this labour government.

Tell your Mayfair and City friends what I think of them Mr Danger - they need to know.

an ex-apprentice said...

"The way to get money moving round the economy is to give people real tax cuts, money in their pockets. Bringing forward existing infrastructure projects would also boost employment and boost the construction industry."

Cobblers! Without a properly functioning banking system, all else is a waste of time. Stop putting the plaster on your finger and pay attention to the bullet hole through your head.

whufcpj said...

Iain - it is a scorched earth policy. They know that the game is up and they are making sure that the Tories will not be able to fix it.
GB does not have a shred of decency - he should be prosecuted for treason - and neither do the Labour party, for once they should put country before party and call for a vote of no confidence, so that the people can decide who they wish to get us out of this mess in a General Election.
These are unprecedented times and the policies in the immediate future will determine whether UK PLC will be an economic back water or retain it's place with leading nations.
The last time the country was on it's knees we had a strong newly elected leader and North Sea oil (this was after a period of fudge under Heath and Socialism and Wilson). Cameron is no Maggie and we do not have vast reserves of North Sea oil anymore.
With no Election until next we are doomed.

an ex-apprentice said...

MRS PLATO, YOUR "COMMENTS" AREN'T WORKING.

And without an E- mail address, no-one can tell you.

This was a public service announcement, hope you don't mind, Mr Dale.

Newmania said...

How is this a surprise ? It was bound to happen. Labour’s ability to claim they have reduced debt was based on the fact that debt was coming down fast during the Major period and into Blair’s first three years from the previous slow down.
The key point here is rthat when the economy slows down claims on the state escalate in the form of social provision just as tax take shrinks .That’s why debt is so much faster than you might expect and why you should be paying it down to nothing in a boom.

This is the inevitable result of Brown`s squander



Obnoxio ...what analysis ? Put up or shut up Clown

Newmania said...

That's not some lefty Keynesian thinking, it common sense.


Chris Whiteside loves Keyenes

Sobers said...

Best way to boost employment? Make it easier! Start a new sort of minimum wage. In return for a minimum wage of say £10/hr, employer pays no NI, no sick pay, no maternity pay, no employment tribunals, no redundency pay, very basic notice to quit period ( a month say), nothing. Employee works 40 hours, gets £400 (less tax). If an employer could take people on because they have work, but knew they could get rid of labour if the work dried up, surprise surprise , work would appear.

I'm a small businessman - the only reason I don't take on an employee is the sh1t load of paperwork and costs that it would entail. And I could never get rid of them easily if it didn't work out. Reduce the red tape, make it purely a financial consideration - can I afford to pay this man x, knowing I can make y from his labour, and Bobs your uncle.

brian said...

I saw a rerun of Mandelson before a select committee in Nov or Dec last - he was asked what the indebtedness of the banks were and he replied in terms ' Don't have a clue'. If he and his team have no idea - and they have supposedly been working night and day with the banking problems - then, not only is this a frightening thought, how on earth can Cameron, et al, be expected to make very detailed comments on it. I suspect, btw, that Brown lays awake at night petrified by the thought of the conservatives 'opening the books' after a GE to reveal the full horror of what he has been up to these last 11 years. I also am beginning to suspect that Brown may not be in the tight little inner loop that conceives and dictates economic policy. I just feel that recently he has spent rather a lot of time being out and about, abroad and at home, drumming up support for himself in the popularity and saviour stakes. Maybe Mandelson, Darling and those new 'Lords' are now in control - all of them almost totally inaccessible to questioning by Parliament. If so, Democracy at its best.

Lola said...

"Bringing forward existing infrastructure projects would also boost employment and boost the construction industry." No. It. Won't. Those construction 'jobs' will be bought at the price of Mrs Miggins extension, or Mr Jones new garridge. Governments do not 'create' jobs. They redistribute jobs. You cannot spend money twice.

Richard Havers said...

The main problem is not one of those in govt. has ever had anything approaching a proper job. Trouble is neither have most of the Tory front bench. The lack of fundamental understanding is frightening.

As for Baron mandysomething of Fop his only claim to the job he has is because of his 'connections' and his European role. He talks the talk, He don't walk the walk.

Lola said...

Sobers, eggsacktly and me too. All the things you mention are frictions that destroy the chances for people to get into employment.

I have a job for a junior secretary, but I cannot afford both the risk and money to fill it. Cut my taxes and remove the frictions and I would be very happy to try and make such an opening work.

disgusted said...

It's not just roads and bridges.

Let's bring forward infrastructure projects like computerising NHS records, compulsory ID cards, mass fingerprinting to get library books.

Building up debt faster than you would left to yourself. Government - it's what we do.

Nigel said...

>>No one denies that some sort of fiscal stimulus is necessary to kickstart the economy, but this cannot just be financed out of increased borrowing.<<

If it's not financed out of increased borrowing (or by printing money), then surely by definition it's not a fiscal stimulus ?

Clive King said...

Get rid of Town/Community/Parish Councils. They are run by good well meaning individuals who when put in the same room around a table ignore real community need because it is too much work or it does npt fit with their model of the world. A small (couple of 10's of millions???) but worthy saving to the public purse.

Guthrum said...

'Get rid of Town/Community/Parish Councils. They are run by good well meaning individuals who when put in the same room around a table ignore real community need because it is too much work or it does npt fit with their model of the world. A small (couple of 10's of millions???) but worthy saving to the public purse'

Rubbish, Close down Whitehall and the BBC, they are not even populated by well meaning people. Restrict Westmister to 100 MPs dealing with Defence of the Realm and Foreign Affairs.

Save Billions