It is Obvious

Chris Rick has got altogether too much to say

Archive for August, 2010

Have you stopped beating your wife yet?

Posted by chrisrick13 on August 6, 2010

It is obvious: I have no idea how things will work out over the next few years.

We are faced with a simple choice: we can start to pay off the money we have borrowed over the last few years or we can try to find a way to push the debt to our children.  The government has said it is going to pay the debt off by spending less itself and by getting more from us in taxes.  It has effectively asked for time to get the task underway and, as it has showed a clear intent to act, has been given it.

The previous Labour government said that it would do the same but need to double its (our) debt while it slowly applied the brakes, the coalition has said that it will tackle the problem over a shorter period.  The Labour government intimated a certain balance between cuts and tax rises whereas the coalition has proposed higher cuts and lower tax rises.  As a consequence there has been a debate on whether the coalition strategy will create a more stable recovery or push the country into another recession.  I already know how many angels can dance on the head of a pin.

Have no doubts I am firmly in the camp that blames the Labour party for spending us into a mess.  They may have reduced social injustice over a 10 year period, but even that is in doubt.  However they have brought government spending forward (PFI) and run up huge debts to do it.  Will 10 years of fat be a good balance for those at the lower end of income/earnings/assets for 20 years of famine?

I have commented before that on the day after the election all the senior Labour party members who were interviewed could barely keep the smiles off their faces.  They had created a mess and got the Conservatives into power to handle it knowing that the electorate would blame them and make them un-electable for a generation.  The price was 5 years out of power that they did not want anyway.  There was a small wobble when they nearly ended up in a coalition themselves but they were able to stop that happening.

Enough of that, what of the recovery?  The plan is to slim down to reduce spending and increase productivity to increase income by taxing a growing economy for more.  The way to increase demand for our goods is to lower the price.  Pound devaluation has gone some way along that line.  The other big step is to reduce the average earnings to a dollar a day so we can compete with China/India/Brazil.  We can easily lower the average salary – simply sack lots of people.  25m workers at an average of £10,000 a year become 25m people at an average of £8,000 a year if 5m of them are unemployed.  It also has an effect on people still in work: “if you won’t do more for your pay there are 100 people sitting at home who will”.  The same amount of production, or close to it, has to be got from the 20m as the 25m were achieving.  This race to the bottom does not have to be won: when you are chased by bears just don’t be the slowest runner in your group.

The problem with any thoughts of recovery is that one man’s export led recovery is another man’s trade deficit.  It is a zero-sum game.  At the moment the other man is competing fiercely but is also not buying because he is cutting back on expenditure, just as we are.  Therefore we still have to compete but there is a much smaller pie for us to cut a slice of.

This is not an economics for dummies article.  The central banks have taken action to halt this spiral.  The trouble is that I see little evidence of it having any effect matching the desired or predicted one.

It is obvious: I have no idea how things will work out over the next few years and neither do those in charge.  (Am I getting repetitive?)


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The Phoney War

Posted by chrisrick13 on August 5, 2010

It is obvious: time to celebrate.

So the crisis is over.  The banks have been saved and are now making profits.  Employment is up…or down, depending on how you view the statistics.  Greece has been saved.  The new government is tackling our deficit.  Companies are not collapsing with increasing frequency.  GDP growth is everywhere.  People are not going bankrupt in increasing numbers.  The gulf oil leak has been plugged.  We have won 19 medals at the European championships.  We have just thrashed Pakistan in the first Test.  The summer is long, dry and warm.

The world has been saved.  The UK has survived.  There are no more problems.

What can possibly go wrong?  Here come the government spending cuts and tax rises.

It is obvious: time to celebrate – you know what an optimist I am.

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