Wednesday, 28 April 2010

Why politicians have to hide the truth

I am sure I'm not the only one to look on the state of Greece's public finances with a wry grin. It's not that I want the Greeks to suffer or take any pleasure in the fact that they will have to endure reductions in their standard of living for several years. What makes me smile is the absurdity of it requiring a full-scale collapse before political leaders are prepared to say that which everyone on a budget knows very well. A parallel can be drawn to the position in the UK in both 1976 and 1979.

1976 saw the government run out of money. It was spending shed-loads on wasteful nonsense and had extracted every penny it could through tax. Raising taxes further was not an option politically. Voluntarily cutting expenditure was not an option either because ideology prevented the governing party's MPs from voting for it in the House of Commons. Only by borrowing from the International Monetary Fund could the truth be faced because the loan came with conditions requiring reductions in government expenditure. The government said it was not their decision, it had been forced on them by the IMF and they had to do it to secure funding. Greece is in that position today. Decades of over-spending and fiddled accounts has left them virtually bankrupt and they know it, but they also know they couldn't sell it to the people, so they have had to seek loans from outside which (if made, and there are currently obstacles to that happening) will allow retrenchment to occur despite it being against the wishes of the Greek people.

The winter of 1978-1979 saw the UK in a state of virtual collapse. Thanks to the strict terms of the IMF loan two years earlier it was not government finances that were collapsing but much of the framework that makes life bearable was creaking under the weight of unaccountable union barons flexing their corrupt muscles. Their aim was nothing less than to place government under their direct control. At the same time loss-making nationalised industries continued to suck vast sums out of the productive economy. The usurpation of political power by union leaders was rife throughout the 1960s and 1970s. Indeed the first general election of 1974 was described by the hapless Ted Heath as a chance to choose who runs the country, the government or the unions. He lost the election despite his description going to the heart of the main problem the country suffered at the time. It wasn't until we had endured five years of Labour being brow-beaten by their union paymasters, and the inevitable social problems that resulted, that sufficient people were persuaded it was time for a change of direction. That change did not need just a little tweaking at the edges but wholesale rejection of some of the central tenets of the socialist consensus that had existed for at least twenty years.

The Winter of Discontent was not only the last straw it was something that hit everyone very hard, except the union barons. Refuse was not collected, the dead were not buried; these core functions of every government's domestic work were not being carried out. It took something so fundamental and so shocking to wake people up to reality. Even then, the incoming Conservative administration only secured about 44% of votes cast and had a majority in the House of Commons of just 43 seats.

It takes something drastic to drive home the message that the incumbent government has got it very badly wrong and a big change is needed. In Greece there are protests in the streets about the prospect of government reducing its spending. Apart from the usual rag-bag of agitators the protesters appear to be people genuinely afraid that their standard of living will be affected adversely if they no longer receive the benefit of their government spending money it doesn't have. That is a perfectly valid position for them to take because no one wants to suffer a fall in prosperity. It is all very well me looking on from afar and saying the money they received was never affordable by their government, that is no comfort when they have bills to pay and are far more interested in their own well-being than in airy-fairy macro-economics.

People make plans and take on long-term commitments in the expectation that they will not get poorer. It is probably fair to say they also expect to get richer as they get older, but I believe expectations in that regard are generally modest. Certainly people expect pay rises because there is always some inflation and they expect their wage packet to recognise this and maintain the real value of their earnings. Some, perhaps most, will truly expect to get richer if they are in fields of work where they are able to develop skills and experience that make them more valuable to their employers. Whether or not someone hopes to get richer to any significant degree, no one hopes to get poorer over time. Faced with one party saying "sorry chaps, you will have to be poorer" and another saying "we will maintain your income" it doesn't take a genius to work out which is likely to find greater favour through the ballot box.

The difficulty comes when incomes have increased beyond what is affordable. At some stage the overspend will have to be eliminated unless one wishes to be in the position now faced by Greece. By that time, however, the overspend has occurred, usually for many years, with the result that real people have received salaries and taken on financial commitments in the expectation of continued employment at the same level. Had the overspend never occurred they would not have received that money and would not have planned their future in the expectation of receiving it. Once it has occurred the game changes. Then they have a direct personal interest in the overspend continuing. Their whole way of life might be in jeopardy if they vote for it to be eliminated even though they might realise that the current situation is unsustainable.

It is objectively bizarre that the Conservatives and Liberal Democrats are not saying "Labour has bankrupted the country by spending too much, we need to slash expenditure severely". Everyone knows that is true but the objective truth cannot mask the fact that millions of people with the right to use a stubby pencil on the 6th of May benefit from the overspend. Appealing to them about the need for retrenchment for the future health of the economy cuts no ice if it means they lose their jobs or face a reduction in income. At least it cuts no ice for so long as there is a major party in the election giving them hope that they will not suffer in that way.

We might be just weeks away from following Greece's example and having to seek financial assistance. Whether we are or not, the scale of the problem is not apparent to enough of the great voting public for it to persuade them to vote for a strategic change of economic policy. Were we to face a full-blown crisis after the election responsibility for the necessary reduction in public spending will be laid at the door of the lender coming to our rescue. None of the three major parties could afford to lay the blame anywhere else because none of them is putting the truth before the electorate now. They think, perhaps correctly, that the truth will harm their chances of success on the 6th of May.

What a terribly indictment it is that telling the truth about something of such huge importance can hamper a party's chance of election, but it will always be thus once money is in pay packets because most people will be more interested in their personal position rather than the wider public interest. Our current situation is a classic illustration of why it is so important for government to rule in the national interest rather than just trying to buy votes. No, I don't pretend that is likely to happen in my lifetime, but you can't stop me dreaming.


Norman said...

What also seems surprising to me is that no party has mentioned the £200bn (or was it £250bn?) that rolled off the printing presses last year.

One would hope that was a one off as going down that road is going to end in tears so the government won't have that easy credit again in coming years.

The lead article on BBC Radio Scotland this morning was Greek protesters saying that Greece should just default so that no one would have to be laid off. How they'd be paid wasn't raised. I also read in Telegraph leader yesterday that over 50% of public sector workers think that government spending should increase.

I realise turkeys don't vote for christmas but our politicians not tackling the issue isn't helping matters but encouraging these type of delusions.

wonderfulforhisage said...

Great post, thank you.

And even more reason why professional politicians are a bad idea. It must be much more difficult to be honest with the electorate if your livelyhood depends on their vote.

Stan said...

Well said, FB - although I can't believe you got through a post about Greece's financial woes without mentioning the euro once!

You've got the ideal qualities to make you a Lib Dem politician ;)

Mark Wadsworth said...

TFB, are you up and blogging again? I ought to reinstate you to my top twelve blogs but I'm then faced with the difficult decision of whom to demote.

Grumpy Optimist said...

So we get the politicians we deserve. We look at them and we see ourselves facing back. we are still in denial and we cannot blame the politicians.

Though the fact that we have Brown as our PM on the assumption of the previous paragraph - well surely we never deserved him did we?

TheFatBigot said...

Yellow Card for Mr Stan.

Yes, Mr Wadsworth, I'm not as regular as I once was but I make a deposit twice or thrice a week in the hope of keeping my blood pressure manageable. I would be delighted to be back on your special list but cannot presume to be deserving of the honour.

Jim said...

Which is why you should never let the socialists anywhere near government. Because they always promise to spend other peoples money (either taxed or borrowed) on extra 'free' stuff for the masses.

And sadly once they are in power, there is long enough between the extra spending ending up in loads of peoples pockets, and the inevitable running out of money (its taken Labour 13 years to get us this far, and decades for the Greeks) that the opposition parties cannot ever hope to stop it. What electorate will vote for a message of fiscal prudence and austerity, when all seems tickety-boo?

Oppositions end up like the Tories pre-recession, promising to spend as much as Labour. And then when the crash comes, they look stupid, because they need to change tack and start advocating cuts, when they were agreeing with the govt spending plans only months before.

Far better to be a party in the wilderness for a decade or two, a la Churchill in the 30s, and advocate the right policy, even if it is electorally unpopular, in order to be well placed to take over when the crash comes. Look at the rise in popularity of Ron Paul in the USA. He's been ploughing a lonely furrow for a long time, but stuck to his guns because he believed he was right. And events are proving him so. And he is reaping the democratic rewards.

And it is only ever the crisis that will initiate change - as you rightly point out there is too much vested interest for there to be any reforms until the barbarians are at the gate.