Monday, 1 August 2011

The Debt Ceiling. What Politicians Say vs What they mean.

What Barack Obama says

"Spending cuts would not come too quickly to hurt the fragile U.S. economic recovery"
Of course, he KNOWS that state spending, in an indebted country with an open economy with a floating exchange rate, like the USA, doesn't support the economy, and quite possibly slows the recovery, the fiscal multiplier probably being somewhere below 1.

What Barack Obama Means
"Spending cuts will be talked about just loud enough to keep the punters buying our debt, but not loud enough to provoke strikes amongst the Democrats' clients in the public sector"
We have similar problems in the UK. There are few economic problems which couldn't be solved by firing 10% of the public sector, the vast majority of whom push paper around or whose job it is to interfere. The problem is that this will cause the entire public sector (probably including the 50% whose work is absolutely vital) to start shouting and breaking things. It may be obvious that half the public sector is useless, but the useless bit is the bureaucracy which is what decides what to cut, & bureaucracies' function is their own perpetu
ation. We're gutting the forces, releasing criminals and cutting police. Why are we not firing civil servants too?

In the USA as in the UK, "the cuts" fall on those without 'agency', the ability to influence the outcome. The problem is these are usually people doing something people value. Money is shaved off waste collection, resulting in outsourced bin-men getting the sack instead of tightly contracted, unionised council prod-noses. This results in the utterly ridiculous sight of the pen-pushers in the MoD outnumbering Soldiers in the Ar
my, who are too busy getting their legs blown off in Afghanistan to fight back. Bureaucrats don't cut themselves. Police numbers fall, whilst ministry of justice headcount remains the same.

The other reason apart from bloated, self-serving public sector b
ureaucracy, for the deficits in are "entitlements" (US-speak) or "Benefits" (UK-speak). Naturally, just like in the UK, the Left won't wear ANY cuts to these. In the US, because red-state America is much poorer than Blue, the Republican base won't wear any cuts to entitlements either. Neither will the republican extremists consider any tax rises, even the removal of loopholes & tax breaks. Nor will the party of supposedly small government (yeah, right) countenance cuts to farm subsidies (Iowa has disproportionate influence in the presidential primary season) or defence, spending on which is running higher than during the height of the Cold War.

In the UK, even the Labour party's position (though it is never stated as such) is for significant cuts, albeit slightly slower than the Conservatives, who are co
nsidering FURTHER amalgamations of storied regiments, cuts to policing, prisons, the Royal navy, RAF. (Some) Labour politicians are thinking seriously about changes to benefits, agreeing with the Tories (in principle) on a Universal Credit. Ignore Ed Balls' partisan Keynesian headbangery, the debate is rather grown-up compared to most countries. However despite, all the agreement, without cuts to benefits, we cannot balance the budget, here or in the USA.

It's not just about where the cuts must fall. Politicians have to stop making the excuse that this is a demand-led recession. We've had the biggest fiscal and monetary stimulus EVER, and it has not produced growth. You can argue that the stimulus has prevented worse; Obama or even the Guy who looked like Baron Greenback who used to live at 10 Downing St. are occasionally credited with "preventing a great depression", but that assu
mes this is about demand.

Gordon Brown

This recession isn't about people not buying enough. This is about an economy that is operating near its productive capacity (unemployment is relatively high, it's just many of the long-term unemployed are effectively unemployable, which is also why jobs go to immigrants), it's just that productive capacity needs to be retooled away from shoving paper around between Whitehall departments or poking your nose into people's sleeping arrangements for the council, and towards doing and making things people actually value. Because the economy is running at near capacity, extra stimulus merely creates inflation. What's that - lots of inflation in the economy? So we can't and shouldn't "stimulate" any more.

WHEN all those diversity mongs have been fired, and they've found jobs in the private sector THEN we will get growth, and not before. It's the moving of people from useless to useful jobs. But politicians rely on the bureaucracy to implement their grand ideas for the rest of us. So there will not be the savage assault on the public sector bureaucracy that's needed, here or in the US. The easy listening of Keynesian demand management is drowning out the supply-side reforms which will allow growth, and creating nothing but inflation. Interest rates need to go up, and bureaucrats (not soldiers, police, bin-men or road-menders) need to be fired, en-mass.

Of course, it won't happen.



3 comments:

Single acts of tyranny said...

Yes indeed, it amazes me that the politicos leave it to those subject to the cuts to make the cuts. Thus hands are always poised by the incubator off-switch in hospitals not the gender equality outreach workers.

But you are sadly correct. I read on John Redwoood's blog this week that he regards a 10% cut in the state as impossible. Yes, you read it right, the Uk could not function with only a £540 Billion public sector.

Private Fraser, they are playing your tune.

cuffleyburgers said...

BANG. ON. THE. MONEY.

sewa elf said...

Nice article, thanks for the information.

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