...a blog by Richard Flowers

Tuesday, November 22, 2011

Day 3977: If Mr Balls walks like a duck and talks like a duck, does that make him a QUACK?


Any sceptical journalist on the subject of ALTERNATIVE MEDICINE will tell you that there are some people who will EXPLOIT anyone who is ill and/or in pain, and tell them:

"the medicine you are using is not working; if only you were using this ancient Chinese/African/Indian herbal mixture/shamanic bangle/magic pointing stick then you would be better."

The sceptical audience tend to refer to this disparagingly as "woo"; and refer to its practitioners as QUACKS.

And yet, this is EXACTLY the same technique that Shadow Chancer Mr Bully Balls is using to describe the economy and his own "alternative remedies".

If you are diagnosed with CANCER, then you will probably be offered CHEMOTHERAPY or RADIOTHERAPY or a bit of both. These are VERY HORRID. Chemo is basically taking poison. The poison kills more of the cancer cells than your ordinary cells. But it's still poison. Radiotherapy is basically being blasted with radiation. It's targeted on the cancer so it kills more of the cancer than of the rest of you, but it's still killing bits of you. And then we get onto the CHOPPING BITS OUT OF YOU options.

If that's what conventional medicine is offering, you can understand why some victims might want to try an ALTERNATIVE.

But when the alternative is to NOT take the treatment (and instead place fruit slices on your Chakra points or something), then YOU DIE.

I'm really, really not overdramatizing this.

A cancer is an ORDINARY, HEALTHY part of the body that goes WRONG and starts growing out of control.

The Western economies, all of us, have various stages of something like cancer of the public sector.

(Look, it's an ANALOGY, not a proper comparison: NO public sector worker is "wrong" the way a cancer cell is wrong. They're just people, trying to get along, make a little money. Just like working in the private sector. The fault lies more with a SYSTEM that created too many jobs it couldn't afford.)

A strong, healthy public sector is a VITAL part of our country, but if it starts to grow uncontrollably then it becomes a danger to us all. Of course there is a danger of cutting too much, of cutting good and "healthy" bits out. And we need to be CAREFUL, so careful, because of that.

But if we ignore the problem and let it grow out of control then we end up going down the road through France to Spain and Italy and then Greece.

And the Greek economy looks very like it is actually going to DIE.

(And look, it's another analogy; there isn't an ACTUAL road that goes to from France to Spain to Italy. Not without using a car ferry from Gibraltar anyway.)

Let me try a DIFFERENT medical analogy. The Great British economy took one heck of a whack in 2008. Mr Dr Vince "the Power" Cable describes this as a MASSIVE HEART ATTACK. And you don't expect to go back to running marathons straight away after that. You need a period of RECOVERY.

The same is true of the ENTIRE WORLD economy.

There's no point placing BLAME here. We've all done that before. It's all too horribly complicated anyway, and by now we've all decided we know the story. But we cannot avoid the fact: it happened.

After an APOCALYPSE-class catastrophe like the Credit Crunch, NOTHING will fix the economy any time soon. I'm sorry, that's just the way it is. It will take time, and not months but years maybe even DECADES.

ANYONE who says otherwise is talking ALTERNATIVE MEDICINE

Any "growth" that we saw in 2010 was AT BEST a DEAD CAT-MONSTER BOUNCE (even a dead cat-monster will bounce if you throw it at the ground hard enough, and the 2008 crash was about as hard as it's possible to throw). At WORST it was an ILLUSION fuelled by a Quantum of Easing to the tune of BILLIONS of pounds and PAID FOR by a 25% fall in the value of Sterling and the more than 5% inflation rate we are having to live with now.

Handily we have EXPERIMENTAL EVIDENCE for what happens to recovery plans after a massive crash.

In Americaland, President Barry O borrowed a whole load more money (mainly because the crazy wing of the Reploutcrats wouldn't let him raise taxes) and invested it in a stimulus package. In Great Britain the Liberal Democrats agreed to let Master Gideon SLIGHTLY accelerate the cuts that Alistair Dalek had planned.

And as you can see… both economies are still EQUALLY SHAFTED.

There are really only two plans on the table: borrow as LITTLE as you can (the Coalition plan); borrow MORE than you need and invest it in the hope that that leads to growth that gets you enough extra income to cover the extra borrowing (Barry O's plan).

The EVIDENCE appears to be that NEITHER plan is very successful in the short term. The only difference being Barry O owes a LOT more money at the end.

So when Mr Balls says that the current stagnation is the fault of the Coalition's cuts then I'm sorry but, like the quacks who try to push alternative cures on the gullible, he is IGNORING the EVIDENCE.

(Or at least he's ignoring HALF the evidence: look, look, he cries, the Coalition plan hasn't worked instantly! We must do my plan for tax cuts and spending! No, no! Do not look at the Americaland stimulus package of tax cuts and spending that, er, hasn't worked instantly either!)

The economic situation is not getting any better. And Hard Labour keep repeating the same mantra that the economy is reaching a "turning point", that it's time for a "plan B" or that "when the facts change, they change their minds" (as if!).

But what, REALLY, has changed?

The problem is more the LACK of change, rather than anything else.

Now Hard Labour have invented a new stick to hit us with: they are tossing around the accusation that the Coalition are going to borrow "more than Labour would have done".

That's NONSENSE. The Coalition are only going to borrow more than Labour SAID they would have done. That's not the same.

Remember, Mr Alistair Dalek ALSO said that Britain under Labour would grow at 3½%, have 2% inflation and ½% interest rates. Do you think that that is what would REALLY have happened? Let me ask another question: do you think Mr Alistair Dalek ever got an economic forecast right when he was Chancellor of the Exchequer?

And it's funny, isn't it how Mr Balls never quotes Mr Dalek saying he would make cuts in 2011 "Deeper than Thatcher's."

(Almost as hilarious as last week's Any Questionables on the Radio, where Diane Abbot-and-Portillo immediately GROANS THEATRICALLY "oh, the old cliché" as soon as someone suggests that the financial problems may have ever so slightly started when Mr Frown was Prime Monster, but raises not a PEEP at the suggestion that all the greedy bankers can be traced back to… "oh the EVEN HOARIER old cliché" …Queen Maggie. I think this is called HISTORICAL IRONY.)

Hard Labour's claim that they would spend more and borrow less depends on them having succeeded, in the teeth of a global recession, and against every precedent they set while in power, in pulling huge levels of growth out of their fluffy behinds.

And if you believe THAT then you're clearly the target market for Lynx deodorant and Rapture cults.

Here's the difference: the Coalition borrowing is going UP to pay for the so-called AUTOMATIC STABILISERS, including the increase in benefits payments because there is higher unemployment and capital spending on infrastructure.

This is a CYCLICAL DEFICIT (the very-KEYNESIAN rise in borrowing when there is a fall in tax revenue to smooth the economic cycle – in fact, exactly what Hard Labour were SAYING we should be doing for most of the last year. A clue: we were).

When (when!) growth returns, there will be more jobs so more tax income and lower benefits and so the situation naturally reverses and we repay this borrowing.

This is the COMPLETE OPPOSITE of Labour borrowing to cover CURRENT spending i.e. paying for public sector jobs. THAT is a STRUCTURAL deficit, one that does NOT reverse when the economy gets better (as we saw when Mr Balls was spending more than the country earned at the HEIGHT of the BOOM!).

Let's look at the MATHS.

Unemployment is going UP because people in the PUBLIC sector are losing their jobs. The Coalition hoped this wouldn't happen because more jobs would be created in the private sector. That hasn't worked. That's a FAILURE on the government's part. The private sector IS taking on more workers, but not AS MANY as are losing jobs in the public sector.

(There is also a BIG problem for YOUNG people, because OLD people are working LONGER, and so not leaving GAPS in the workforce for young people to move into. And companies are reluctant to create NEW jobs for a great many people who have been failed by an education system that Labour geared to getting the TOP HALF into universities while under-investing in apprenticeships meant ABANDONING the rest. But that's a whole other demographic thing.)

The WORST argument against reducing the public sector is that "the government loses the taxes that they would have paid".

I've said this before but no one seems to be listening: this is Baron Munchausen logic.

Think about it. If the government employed EVERYBODY, could it raise enough tax to pay for us all? Only by taxing everybody at 100% of their salary.

Yes, making that public servant unemployed costs the exchequer lost tax and extra benefits. But not nearly so much as they SAVE in reduced wages.

In fact, if unemployment is rising but private sector employment remains under control then the public sector wage bill must be falling and the only reason the government can be borrowing more is because tax revenues remain depressed.

All things being equal you would EXPECT that – we've CUT income and corporate taxes and people have chosen to SAVE rather than SPEND which reduces spending taxes (VAT, duties and the like). The idea was to stimulate growth and take a smaller share of a bigger pie. But the pie DIDN'T get any bigger so obviously LESS TAX.

So where the Labour Party is RIGHT is in saying that we need GROWTH in order to get the country out of the economic doldrums.

Where they are DEAD WRONG is in thinking that there is anything that the government can DO about this that the Coalition aren't doing already! Lower taxes, doing that; increase capital spending, doing that; invest in education for young people, doing that; the list goes on. Could we do MORE of those things? Well, maybe, but it always comes down to where does the money come from and does it, in the end, actually work?

Growth, real growth, will come when people stop being more afraid than they are confident that there is money to be made. All we can do is try to spend wisely preparing for that in the meantime.

So when Mr Balls (or Mr Milipede, if anyone remembers him) says that they have some TONIC that will CURE the economy, just remember that it's probably SNAKE OIL. Or a MAGIC POINTING STICK. Or WOO.

Because Mr Balls' brand of prescription isn't MAGIC; it's just a NASTY TRICK.

1 comment:

Edis said...

A lot of the argument is framed as public versus private sector, as if this is the same as a division between wealth creating and non-wealth creating parts of economic life. A more subtle distinction is between those who make things (the transformational economy) and those who monitor what is made ( the transactional economy). A productive market economy needs a large transactional sector – when New Zealand went through its massive privatisation spasms from the 1980s onwards the proportion of workers engaged in the transactional economy went up from one in three to one in two – even allowing for decrease in the employment in traditional public services.(1)

The modern economy is generating a whole range of services which have public goods attributes (in Adam Smiths terms) and the private sector is not pricing in these developments, so costs are being forced onto the public purse. We need to take a radical look at these processes. I think the chapter 6 on ‘measurement’ and chapter 7 on ‘values’ in Coyle’s new book give some really useful frameworks for debate. I hope we can apply our intelligence to these insights. A fluffy rant on this would be most interesting.

(1) John Kay ‘The Truth About Markets’ p361 ‘the costs of markets’.
(2) Diane Coyle ‘The Economics of Enough: how to run the economy as if the future matters’