Friday, 17 April 2015

The election for jobs

The last time I offered some thoughts to the great and good of the world it was on the subject of the love of Scotland to use English money in furtherance of its Socialist dream.  Now we are in the midst of a general election campaign and we are hearing much more of the same, although this time the Welsh nationalists and the Greens are also being heard - spouting the same economically ignorant garbage.  What is interesting to me is that the SNP have now firmly planted themselves in the overtly Communist ground of their Welsh and Green fellow-travellers.  Nationalise this, that and the other; hike taxes on a chosen group of victims; promise vast increases to spending on health, education and social services and assert that every problem can be solved by government having more power. Well, it persuaded voters in Venezuela so why should it not persuade the British?  

These dangerous extremists all start with the same punch-line.  They want the end of "austerity".  

It is a start I simply do not understand.  What is austere about the country's government spending roughly £90,000,000,000 more in the current year than it will receive in tax and other revenues?  Of course it must be accepted that the overspend this year is only about half the overspend in the last year of the preceding Labour government; but it is still a massive overspend which adds £90,000,000,000 to the already vast debt on which we must pay interest every year.  As I understand things, the interest payable this year on the vast sums our governments have borrowed but not repaid is in the region of £30,000,000,000; about as much as the government spends on education, about as much it spends on defence and about a quarter of what it spends on healthcare.  At an interest rate of just 1% this year's overspend will add £900,000,000 to the annual interest bill. That is not austerity, it is reckless extravagance. 

I have long been worried about politicians blabbering on about "the deficit".  Countless times in the campaign so far "the deficit" has fallen from the lips of superannuated politicians of all parties.  I wonder what that piece of jargon actually means to people with little or no interest in politics or economics.  Everyone can understand what is meant by the government borrowing money and having to pay interest on it out of our taxes.  Everyone can understand what is meant by the government owing more and more money every year and having to pay more and more interest on that borrowed money each year out of our taxes.  Everyone can understand that if the government continues to spend more money than it receives the result will be an ever-increasing amount of taxpayers' money that must be used to pay interest rather than being used for the cuddly things that make taxpayers' lives better. Why do they not use simple language to explain simple concepts?  

We know why the dedicated Socialists do not use simple language.  Straight talking promotes straight questioning and none of them can explain how their dreams of spending ever more money can result in anything other than greater debt and greater interest payments.  When push gets somewhere near to shove and they try to give an explanation they fall back on the very theory that seduced the moronic Gordon Brown.  Spend more and the economy will be boosted thereby resulting in greater tax revenues that are self-sustaining and will allow accumulated debt to be repaid.  Yes it worked well for him, didn't it?  It worked well in the USSR, didn't it?  It worked well in Greece, didn't it?  It worked well in the UK during the 1960 and 70s, didn't it?  It works well in Venezuela, doesn't t it?  It works well in Zimbabwe, doesn't it?  It works well in France and Spain, doesn't it?  

We also know why the slightly less Socialist Conservative Party does not use simple language.  Much of that party's problem is caused by a catch-phrase used by the current Home Secretary in a speech some years ago.  She wished her party to cease to be perceived as "the nasty party".  In doing so she gave that very label to her party, no doubt that was not her desire or intention (and nor was it the substance of her speech), but these days catch-phrases capture public attention in politics as they do in entertainment and she gave her party a brand with which it is still, well, branded.  

Mr Cameron has one winning message.  So far it has featured as part of the narrative however it has not risen to the top of the debate.  

We must be realistic, what matters to most voters is whether the policies of the incoming government will improve the lot of them, their families and friends.  They are not, I think, interested in fancy theories or in jargon-dominated statements of principle.  They are, I think, more interested in three things above everything else: (i) having more of the money they have earned to spend for themselves, (ii) limiting the amount of their taxes that go to non-taxpayers and (iii) jobs for their children and grandchildren.  

I might be wrong but I believe the overwhelming majority of people in this country want to earn an honest living and benefit from doing so.  

They accept the need to pay tax but expect income tax rates to be modest on modest incomes.  

They support a limit on the total amount of benefits that any one family can receive because they earn less than the amount handed-out to some; the current cap is £350 a week for single adults, £500 a week for a couple, and £500 a week for single adults with one or more children living with them.  £350 a week is £18,200 a year, £500 a week is £26,000 a year.  These are very substantial sums and it is hardly surprising that those working for £18,200 (on which they pay tax) or £26,000 (on which they pay tax) feel it is unfair for others to receive more in benefits than they receive from working.  

I might be wrong but I believe the overwhelming majority of people in this country consider it right that their children should inherit whatever they have accumulated.  If someone does not believe in inheritance he or she can always make provision to ensure their children get nothing, my opinion is that most want their children to receive the cash value of whatever assets they have accrued during their lives.  

I might be wrong, but I believe the overwhelming majority of people in this country want their children and grandchildren to earn an honest living.  They also know that some peoples work deserves a greater return than others.  Most importantly they want there to be jobs so that their children and grandchildren have the maximum possible opportunity to earn whatever their endeavours are worth and be self-sufficient.  

It was a few years ago now that George Osborne caused his party to leap ahead in opinion polls by announcing a policy to increase the Inheritance Tax threshold to £1,000,000.  The benefits cap caused no great difference to opinion polls, although I am yet to meet anyone other than a wealthy Islington Socialist who opposes it.  

Mr Cameron's strongest hand is jobs.  Five years in government and around 2,000,000 new jobs created in the private sector.  I don't suggest that government policy had a lot to do with it, although it undoubtedly had some effect simply by appearing to be more business-friendly that the student union drivel spouted by the millionaire Marxist leader of the opposition.  

In a country that is so solidly dominated by the concept that government has magical powers it is not necessary to explain how government policy has caused anything, it is assumed by far more than it should be that anything good or bad is the result of government action (or inaction).  

Mr Cameron has one and only one election winning message.  He can assert that his has been a government of 2,000,000 new jobs.  That is a fact, undisputed by anyone.  He says (incorrectly) that his government has created 2,000,000 new jobs.  It did not create them.  What it did was pursue policies that gave sufficient confidence to sufficient job-creators that they were prepared to take a chance and employ people.  

If he has any chance of winning an outright majority Mr Cameron must push the jobs figures.  Mr Milliband, the millionaire Marxist, asserted that the policies of the current government would result in mass unemployment.  Like so many idealistic politicians he is not interested in the truth.  He will not accept he was wrong.  The substance of his argument is that they are the wrong type of jobs so they don't count.  

So far the election campaign has been about fluff and nonsense.  Not just that but it has been dominated by the concept that the more the government does the better things will be.  We can't be surprised, it has been the prevailing consensus of opinion in the BBC and the political and press elite for more than 20 years.  

Mr Cameron would be foolish if he did not use the remainder of the election campaign to use one simple fact to his advantage.  It does not matter whether government caused, contributed to or had no effect at all on employment and unemployment figures; it will be believed by lots of voters to be responsible.  Unemployment is at the lowest level for ages but unemployment is a negative thing.  Employment, on the other hand, is a positive.  He should shout 2,000,000 million new jobs from the rooftops and challenge those who dispute the quality of those jobs by saying "so, you would rather those people had no job rather than the perfect job?"  

This election is the election for jobs.  
 

11 comments:

Simon Fawthrop said...

Good to see you still on good form Mr FB, good points well made as always.

One minor quibble: "When push gets somewhere near to shove and they try to give an explanation they fall back on the very theory that seduced the moronic Gordon Brown. Spend more and the economy will be boosted thereby resulting in greater tax revenues that are self-sustaining and will allow accumulated debt to be repaid"

Gordon Brown relied on the con trick of calling all spending "investment" but never once did we see a cost benefit analysis on the "investment" or even a rate of return calculation. And now e have Ed^2 using the same con trick when they talk about their budget and heading towards primary balance, it excludes "investments". Why doesn't someone as them if those "investments" were so good how come we still have a large number of semi-illiterate adults adding to high unemployment? To give one example.

Anyway, rant over and I hope you are still enjoying your Indian restaurant.

John miller said...

Like some ancient Californian prospector, I still pop over here every day.

I appear to have struck gold again...

A quick search on zerohedge.com for Richard Feynman on economics supports your statements. It became the fashion, after the event, to invoke Keynes to justify even more borrowing. But, try as I might, I cannot find Keynes telling us to borrow every year, ad infinium. Even Balls seems to have given up on this one. If borrowing is so good, why not go for a couple of trillion and solve all our problems in one fell swoop.

The real reason for the current insanity is that we no longer have "politicians", we have "tinkerers" and they do not practice "politics", but rather they practice "meddling".

I never thought to hear a leader of the Tory party
promise me that he would be there for me from cradle to grave.

Simon Fawthrop said...

John, set up an RSS feed, much easier. I use Feedly as it sinks across iPad and Windows.

The Free Exchange section of the Economist as an interesting and timely article about politicians meddling in the economy just before elections.

"INCUMBENT politicians know that if the economy is doing well, they are much more likely to be re-elected. When wages are rising and jobs are plentiful, workers feel happy. Small wonder, then, that many governments attempt to manipulate the economy to boost their political fortunes. New research, though, shows that however hard politicians try, shaping the economy to suit their electoral needs is a tall order.

In a paper* published in 1975 William Nordhaus of Yale University posited the existence of a “political business cycle” (PBC). He suggested that in the run-up to an election, politicians go on a spending binge. They may increase the generosity of unemployment benefits, for instance, or cut taxes. This, they hope, will give the economy a short-term boost, maximising their chance of re-election. After the election, though, they often have to cut back to stop the economy overheating and debt piling up."

Spoiler, it doesn't work.

Its behind a paywall so you'll have to dig out a copy if you aren't a subscriber.

Random said...

TFB, a few points here
1) The Greek government has introduced large austerity measures. You cannot directly compare the UK and Greece as Greece use a foreign currency - the euro and do not float so lose competitiveness and can face a sovereign debt crisis.
2 ) Austerity will not necessarily reduce the deficit. For example let us suppose the government cuts a teacher's wage. You will get less back in tax and NI. And the teacher may spend less leading to less VAT. A good metaphor for this is a credit card with cashback - when you spend at Tesco you will get a measly percentage back, but when the govt spends at Tesco it gets a % back (in fact 20), and when Tesco pays its employees it gets a % and when the employees go to the local pub and have a drink the government gets a %.
For the government it is a cracking deal - when it spends it gets 100% back as cash back.
Well why is there a deficit then you are screaming. Well, people may save money. This is what the deficit is - private savings. The government is not in control of the deficit.
And finally 3) Government spending works by crediting bank accounts. Govt checks don't bounce and are not "funded" from anywhere. Essentially all govt spending works by "printing money." Taxes debit bank account and make room for spending so it is not inflationary. They "unprint" money. Taxes also give the paper currency (£) value as you can't pay them in Bitcoin or Gold.
There are mechanisms since the gold standard to borrow back the savings the govt creates. Previously when currency was fixed to something (say gold, last time was until Black Wednesday in 1992 fixed to the German DM.) With a fixed rate you can't spend more than you tax or people would exchange it for the gold. So you have to borrow it back, issuing another (IOU) bond, not convertible to the gold (or dollars, in Argentina's case.)
But QE shows us we don't have to do that. We could QE the entire national debt with little consequences. Look at Japan - deflation, 200%+ nat debt, downgraded by the credit agencies, no default, low and falling bond yields. Japan shows us the mainstream is wrong.
https://alittleecon.wordpress.com/2014/06/03/the-basics-of-modern-monetary-theory/
It's impossible for the 'debt' to be a burden on future generations, as we can't sent stuff back in time, even if we wanted to. It makes no sense for the govt to save in £s as it can print as many as likes.

Random said...

Zimbabwe:
http://bilbo.economicoutlook.net/blog/?p=3773
You can't compare a tiny little developing country to the UK. But Zimbabwe's problems were due to the stupid land reform in 2000 where a bunch of people who knew nothing about farming stole land from the mostly white farmers who owned all the land due to the racist regime prior to 2000.

TheFatBigot said...

Thank you for your contribution Mr Random. Can you please tell me what is austere about our government spending £90,000,000,000 more this year than it will receive?

Random said...

Nothing at all. However, it is not really "debt" but rather a savings account.
A lot of it is "intergovernmental" (QE) and via
Personally I would like tax cuts combined with spending cuts.
Plus that £90,000,000,000 is because people (net) save money. The govt does not get all of its monies back because some is saved.
The "national debt" is really the national savings and will go up and life will continue as usual.
Look at Japan - they save a lot, 200%+ debt, no biggie.
It is only a problem if you don't issue the currency in which case it really is "debt."
If the population wants to save a lot then let them. Why do you want them to save less and borrow more? Don't you like well funded pensions?

Random said...

Here, from Mark Wadsworth:
"the government doesn't actually collect tax money and then spend it. The government creates money by spending it and then, to prevent hyper-inflation, destroys a similar amount of money by collecting taxes. "
The govt is a currency issuer not user so it is a
The government can spend as much or less as yesterday. It makes no sense for the govt to 'save' money for future generations.
It is useful myth in that it prevents politicians from spending like crazy (it also hides coercion) but it is just that - a myth. I thought you were smart enough to understand. Unfortunately the current crop seem to actually believe their own BS and have raised NI, raised VAT by 2.5%, and a bunch of other taxes as well as cutting wasteful spending.
Money is an IOU from the govt, a tax credit. £1 means it will redeem £1 in taxes. The govt imposes You-owe-mes then on you. Clever trick.
You can do this trick with your kids (if you have any.) You say you owe me 10 TFB dollars. If you don't pay I will kick you out. Then you offer to pay them 10 TFB dollars to do stuff around the house. Maybe they want to save some TFB dollars so you can 'borrow' back your own currency at say 5% to encourage thriftiness.
You can have savings without the spending. What this means is Kid A goes into debt to Kid B. Kid B has savings. Which is what the banking system does.
Steps are:
1. Govt requires you to pay taxes in its currency, say a property tax. Fees, fines, etc also create demand for the currency. It can be a foreign currency like the euro espc if you govt is run by morons.
2. Govt then spends on a bunch of stuff.
3. Government then voluntary borrows back the money. Otherwise, there are extra reserves in the banking system that banks can't get rid of so it drives the interbank lending rate goes to 0. Banks with not enough reserves borrow from banks with excess reserves or from the central bank at a 'penalty rate.' Banks don't loan out deposits. Banks loan and create new money and then back it up later.
Govt checks don't bounce.

Random said...

"At an interest rate of just 1% this year's overspend will add £900,000,000 to the annual interest bill. "
That interest not saved is spent and respent and comes back as taxes and is income for bondholders. The govt has full control over the interest rate.
Most bonds are held by pension funds. We could nationalise them and spend on 'state pensions.' Funnily, nobody seems to mind money spent on 'state pensions.'

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