Budget Lobbies

A British Government Budget is due to be presented to the Commons next month, therefore the lobbying has begun. Besides the usual sectoral claims from welfare interests and business, a whole range of Brexit-related fears and expectations are being pressed for the Chancellor to take note of.

The situation is bedevilled by the Brexit situation - which no-one, inside or outside government has any grip on - and further complicated by the fact that the Chancellor's 'responsible' stance [largely what the business community have demanded: to keep as far in to the European Economic Area as possible, after formal withdrawal from the EU] is under vicious and sustained attack by the headbanging Brexiteers.

Behind all this, lie crucial social and economic facts. There is no doubt that the National Health Service, the schools, the police and the armed forces are grossly underfunded. This is not simply an issue of how many billions of pounds are spent on those services: nobody can deny that aggregate allocations by the government are increasing [though some services, like the police and prisons, are struggling with the effect of previous real-terms cuts]. The essential point is that what the government has allocated is much less that is needed to meet the expectations of the changing population.

Osbornian austerity has been in force for seven years, during which the economy has stagnated. Real terms economic growth, especially in material output from factories and farms, has in most sectors declined. There is now a major milk shortage in western Europe, including the UK, because the supermarkets drove down the price of raw milk so far that hundreds of farmers went out of the business [at huge personal loss, with the slaughter of thousands of specially-bred animals]. More conspicuously, manufacturing output has declined, and productivity in most sectors of industry is at best the same as it was in 2005. Since the population is larger than it was in 2005, including more school-age children and over-seventies, the needs of education, health and welfare are growing: and the state's spending on educational and social services has not kept pace. Meanwhile, the capabilities of the health service improve and extend life have greatly advanced: if only those improving resources and facilities can be afforded, with people trained and available to provide them.

The state should be spending massively more than it is. The Chancellor and his team know this all too well; but they are steeped in the Osbornian dogma that extra spending can only come from extra taxation or extra government borrowing. Extra taxation will reduce the money that people and firms can spend on their items of choice, so 'demand' will decline; so the private sector of the economy will decline in total turnover. Extra borrowing will give the government and taxpayers higher interest bills to pay in the future: so it is an imposition on future generations that would be inexcusable to impose it. So the Treasury team is stuck with the existing austerity mantra.

This is not the whole picture, however. It is unfortunate that the deeply untrustworthy John McDonnell has been the cheerleader for an alternative proposition that really should be implemented.
In the medium term, the only way of paying for increased and improved public services is by getting more tax from the whole economic system because it is growing. A really growing economy can both pay more wages to employed people and yield more taxes for pensions, benefits, hospital, schools, police and the other essentials.

This policy option does require the government to borrow massively more money: earmarked for investment programmes of improved infrastructure [roads, railways, hospitals and housing] that provide economic returns by providing a healthier and happier and less-stressed workforce.But the government should foster much more borrowing and spending for investment in industry, agriculture and offshore activities both around the British isles and around all the UK's overseas territories [which have been wasting assets since they ceased to be needed as coaling stations and watering points for historic commercial shipping]. It is clear that robotics, 3-D printing, artificial intelligence etc are major components of the future pattern of industry; and that Britain is still a major contributor of new ideas. These are both in microprocessors and in new and improved materials that can stand the more extreme demands of the new era. The government should foster at least a dozen of the  technologically fruitful universities as hubs around which other universities, research associations and individual firms can gather their work on new things. There will always be depressives who say that you cannot guarantee which ideas will be successful and which not; so you should do nothing. That is not how the great achievements of the past were made. Bold ventures must take bold chances, and expect some failures: while experienced managers can spot cases where the money is running away faster that output is developing. And the state should provide a lot of money [from borrowing] to float the whole thing.

Companies have built up the biggest reserves ever, and have paid large dividends while not investing in new plant or higher productivity in their existing plant, and they have bought-back shares; or they have bought other companies [usually proving the old adage that the sum of the returns from two merged companies is rarely more than half of the combined return before the merger]. They should be taxed on what they hold in reserve, taxed more on what the declare for dividends, and given massive tax relief on genuine material investments. It is all so simple, so obvious!

New and improved plant is the only way to enhance productivity. Enhanced productivity is the only way to get substantive economic growth. Economic growth is the only way to get more taxation painlessly out of an economy. Taxation is the only way for governments to get the money they need to spend. Simple!

Schemes of Socialism

The newly selected Republican Vice-Presidential candidate for the forthcoming US General Election is quoted as likening Obamacare - the compulsory provision of health insurance for Americans - to the 'socialised medicine' that is common in European countries.

The Opening Ceremony for the recent Olympic Games in London included a hospital scene that may have convinced millions of Chinese and Americans that UK health services are primitive, with nurses in antique costumes putting two or more children in some beds. Within the United Kingdom there is mounting scepticism about the Conservative Party's promise that while they are in government 'the National Health Service is safe with us'. The minister in charge, Andrew Lansley, has shown himself to be a poor communicator and deaf to challenges; while implausible 'efficiency savings' are advanced as the cover for real-terms reductions in the funding that will be made  available to many components of the system.

It is notoriously a fact that research is constantly presenting new forms of treatment and new drugs that are often very expensive. The pharmaceutical companies spend massive amounts of money on research, which they can only recoup by selling drugs profitably. Thus health services, whether state funded, insurance funded or charging patients individually, have to pay for the research through the purchase prices they pay for the drugs. It is also  notorious that new treatments, including surgical and radiological and pharmaceutical procedures, prolong the lives of patients; so those individuals are likely to live longer as users of maintenance treatments. So if any healthcare system were to provide the best available treatment to all comers, free to the patient at the point of delivery, the costs would increase massively year on year. If the funding for a state system of healthcare is capped, it must follow that some treatments are unavailable to some patients; and some treatments are not available to any patients. This all creates stress points where the decisions are taken as to which treatments shall be available, to what categories of patients. In a country like the UK, where the National Health Service is hugely popular, voters resent restrictions on treatments and would always vote by a huge majority for untrammelled funding of the Service.

Politicians are coming to understand that for at least forty years the state has been raising more and more taxation - and also borrowing massive amounts of money - to maintain the NHS while paying ever more massive sums in benefits and 'tax credits' both to non-employed citizens and in wage subsidies to employees. This massive scheme of socialism has constantly been extended by both Labour and Conservative [and now by Conservative-led] governments; and it is an unavoidable fact that the spending is grossly excessive. There is no practicable means by which voters can be kept on-side with the sham democracy that still totters   on by default, if a government drawn from any of the existing parliamentary parties made a realistic attempt to reduce spending on health and benefits and all other government services [not least the defence of the realm and the law and order system]. The bathos of the present coalition government's situation is that they are actually borrowing more money, year on year, while they are claiming 'success' by reducing the rate of increase of borrowing that might occur without the cuts that they are making in public services and in defence.

The conclusion that US conservatives have reached, that any system of state-supervised compulsory healthcare becomes an intolerable burden on taxation [and that the same would apply to any open-ended permanent benefits system for people of working age] is born out by the British experience. Greece, Spain and Portugal are in varying degrees of proximity to bankruptcy because they have had similar systems. In the Greek case welfare costs have been accompanied by massive state spending on excessive public sector salaries, excessive pensions available from early ages, and tax avoidance on an heroic scale has ensured that the state met spectacular budget deficits by borrowing: time has now been called on that country.

To the American conservatives there is no difference in principle between Greece and the United Kingdom. They are not wrong as they hark back to the founding fathers of the republic and the great libertarians who have ensured that the massive scope of the US federal government has been restricted as compared to European countries. One of the many reasons why Americans strongly supported the foundation and the expansion of the European Union was that it presented a good prospect of becoming a federation like the USA, where there would be a balance between federal and state powers; leading to less 'big government' over the long term. The dishonest way in which the eurorats have tried to establish federalism by stealth meant that countries like Greece were able to act irresponsibly and continue to sell government bonds because international bond buyers assumed that Europe would collectively guarantee the debts of all the member countries. German voters are now determined not to be suckered in consequence of the eurolies that their government allowed to become common currency. The majority of Germans [and Finns, and Swedes, and Austrians, and Slovaks] are prepared to let Greece fail economically. Europe will then permanently be changed: jerked back into at least partial reality.

Britain has so far maintained its AAA credit rating: in defiance of the evidence that is all too apparent. The fake prosperity that engulfed and deluded the population for two generations is rapidly coming to an end. Both the safety net of benefits and the beloved National Health service are in danger: as are the equivalent systems in Italy and France, even though their different funding mechanisms partially obscure the parallels. The future is bleak.

Investment into Britain: Profit out of Britain

David Cameron, temporarily the British Prime Minister in a coalition government, took advantage of the Olympic Games to convene a large gathering of fellow-politicians and international business leaders to which he made a well-known sales pitch: 'invest in Britain, stimulate growth in this country, help the world economy to recover, and take the profit'. The last and most important phrase is usually excluded from reporting of the speeches within the UK; but it is the one crucial part of the proposition from the perspective of the potential investors.

A masive proportion of the British economy is already under alien ownership; much of it by outright ownership and most of the rest by shareholder participation which [although split between various overseas owners] often exceeds 50% of the total shares. This means that the Political Economy of British capitalism has failed, and is failing further. For centuries before the emergence of  modern academic Economics it was absolutely understood that investment was crucial for economic growth; and that the primary source of investment resources was from 'the profits of stock': the earnings produced by the efficient use of the resources that were available for investment in previous years; after the costs of running the state and the wages of labour had been paid.

The de-industrialisation that began during the period of very high inflation in the nineteen-seventies, and was massively expanded in range and pace during the nineteen-eighties, compelled many formerly-productive employees to retire, and thus become eligible for state benefits  until they reached the age at which the state old-age pension [with all the attendant benefits] was receivable. Other people of working age who became unemployed could not get new jobs in their area, and many of them became physically and/or mentally ill as a direct consequence of unemployment [often shading into unemployability] and thereby recipients of benefits. Hundreds of thousands of people came out from schools and colleges onto the employment market which offered nothing to people of of narrow and limited education in whom was instilled the absolute lack of any work ethic. Politicians readily recognised the effect of this socio-economic situation on children. 'Hereditary pauperism' had been well-recognised from the middle ages until the end of the nineteenth century and massive endeavours were made by charitable institutions to assist children to gain the attributes that would enable them to gain useful and remunerative employment.

The 1945 government introduced 'child allowances', cash sums payable to parents of a second and of subsequent children. The Thatcher government and its successors developed a system of family income supplements which new Labour converted into 'tax credits'. By 2008 and the exposure of the fake economy through the credit crunch, Britain had become one of the greatest  and most disastrous socialistic experiments in human history. There was no correlation between work done and income received, for a huge proportion of the population. The highest-paid employees received massive multiples of average earnings, often withour justification; many thousands of low-paid employees worked extremely hard for minimum wages which were below any realistic 'subsistence level', especially in London, and thousands of cases were recognised in which recipients of benefits 'played the system' to huge pecuniary advantage [not counting conspicuous cases of benefits fraud of which those which were exposed were recognised as the 'tip of the iceberg'. The allocation of government funds to the benefits system drained the national treasury, forcing the government to cut spending in other areas and to borrow in order to fund essential services such as health and education. The present policy of spending cuts, ostensibly designed to reduce the government's rate of increasing its borrowing, is recognised to have a negative impact on economic growth. But the government can see no alternative to its present course, even though the weakening economy increases demands on the benefits system and exaggerates the original problem.

The Labour opposition was the government which for thirteen years pushed the socialistic experiment forward, expanding the deficit  at an increasing rate. Their present abstract proposals that the government should relax their limited efforts at austerity would soon be forgotten if the government 'got real'  and Labour politicians hurled insults at 'Tory' measures directly and radically to challenge the unsustainable benefits drain of the nation's income and wealth.

All three major parties got Britain into this mess: they show no sign of recognising its real nature or its gravity, so there can be no hope of them resolving it within the current system.

Benefits and Dependency: 1834 and 2112

New legislation in the UK will modify provision of a huge complex of benefits that have been developed over the past seventy years. The total cost of the welfare state, excluding the National Health Service [which is separately undergoing upheaval], is by far the largest segment of state expenditure. With deindustrialisation and mass immigration of people who come to Britain specifically to live on benefits, this spending has grown massively; and all other categories of state spending have been squeezed.to accommodate it.

The very first duty of government - defence - has been reduced, erratically and detrimentally, in order to protect the social budget. The latest crazy notion for 'saving' from the puerile Department of Defence is to expel soldiers from their homes if they stay in the forces for more than seven years. This will create a huge incentive for the most experienced and useful troops to move on from their service to another career [or even on to benefits if they can't get jobs]. By supporting devices of this kind the Conservative majority of the coalition government is constantly betraying the unwritten rules by which society has been bound together for centuries. The 'Military Covenant' is a pattern of informal but firm understandings as to how society will fairly support soldiers and sailors and their families so that the serving members of the family could give their full commitment to their hazardous duties: and it is being treated with contempt. The plan will submit long-serving soldiers and their partners to the competitive private housing market; where their modest savings and small salaries will place them and their families at a disadvantage . Their children will be plucked out of their schools and transferred into schools in the low-cost housing zones that their parents can afford - which will almost certainly increase the aggregate disadvantage of their environment. Parents compete hard to keep their children out of the sink schools in which arrogant do-nothing head teachers draw high salaries while allowing so-called teachers to encourage their 'students' to run amok in a hierarchy of bullying that is supposedly following a programme of self-directed experiential education.

The current 'reform' of the benefit systems is intended to compel as many people as possible to offer themselves for jobs; any jobs, including the fake jobs that have frequently featured in this blog. Opportunist lobbyists are pressing the government to abolish the minimum wage and reduce requirements on employers to treat their employees fairly. There is a massive push to force benefit recipients of working age [eighteen to sixty-eight] to take jobs: but the economy is not generating anything like a sufficient number of jobs for the non-employed. The state plans greatly to reduce the public sector employment that was recklessly expanded [on borrowed money] by the Blair and Brown governments, so the government will not directly provide employment for the under-educated masses; especially those who have little or no experience of the self-discipline and compliance with regulations that employment demands. Nevertheless the Treasury is providing funds to subsidise notional jobs in charities and in firms. This is a seriously dangerous method:
1. The more people whose fake jobs are subsidised by the state each represent a charge on the Treasury, so the 'saving' from  benefits is transferred to another head of expenditure; and the longer each person is kept in such a post [or in a series of such posts] the more is the cost to the state.
2. People know very quickly when they are being deceived in a fake job. The is demoralising in itself, and it deepens the individuals' disillusion with public authorities.
3. The employers who take on such people are likely to face managerial problems in allocating tasks to people who have no [recent] work experience and no practical skills, which will be disruptive to established employees. Both groups of workers are likely to give the employers more discontinuities of attendance due to stress, threatening the delivery of outputs or services by the organisation. And employment law is a great inhibitor to the organisation accepting short-term state-subsidised jobs, because the occupants of any such posts have a very large range of protection as employees under EU law.
4. Trade unions and lobby groups use both sincerity and cynicism to undermine the whole charade. A recent scam promoted by the government to give 'work-experience' to young people without giving them formal employment contracts [or wages] was subjected to a storm of ridicule and criticism that induced several firms to withdraw from the plan, some of them before anybody had been taken on under the scheme.

There is evidence, visible on the streets in every town and city, that there is a huge pool of non-employed young people who exist in peer-groups whose ethos is inimical to the sort of social values that LibDem and Tory Members of Parliament share. They are on the streets because they find their homes uncongenial, with no legally-earned income to pay admission for them to anywhere else. A reasonable fear of theft and vandalism makes churches reluctant to open their premises to such people; and after paying diocesan levies and pension costs parishes have no resources to provide salaried leaders for youth organisations [while reasonable laws to ensure that volunteers are 'safe'  are a huge deterrent to volunteering].

Young people who incur huge debts to get degrees from marginal new universities fare little better than their uneducated peers in the 'real' employment stakes: one in five recent graduates is unemployed, and additionally about 30% of young graduates are employed in unskilled posts. This problem of a 'wasted generation' is growing week by week. They have no awareness of the phantom of an ephemeral 'big society'.

Many young people in Brazil and in India are also alienated from their families and exist in even deeper poverty than their contemporaries in the UK; but around them they see growth. They see new indigenous branded goods in the shops, and even though they cannot immediately buy them they can aspire to add them to their lifestyle: and they can become motivated to seek real employment opportunities as an access route to consumerism. There are positive reasons all around them which point to advantage from participation in a burgeoning economy. A similar picture faces the single children of hard-working and poorly paid Chinese parents: the parents tell the child that the struggle is worth it, because their family standard of living is palpably improving. There are four grandparents who are all keen to reminisce about the hard times of cultural revolution and sing the benefits of controlled capitalism as a way station on the route to unimaginable prosperity.

In the relatively successful emergent countries politics is seen as part of the pattern of institutions that should foster growth: there would be riots if a government tried to extract tens of billions of dollarsworth of taxation from dynamic firms and hard-working employees to pay benefits to a growing mass of skivers who were allocated to fake jobs by firms whose owners creamed off millions of dollars. In Britain Labour members of parliament applauded such plans when their lot was in power, and now LibDems and Tories applaud their own ministers when they present the same fantasies; while their elderly electors look on in sullen despair and the young [except tiny, perverse, politically ambitious minority] turn their backs on politics altogether. The ways in which politics and the economy interact are very different in different parts of the world. The relationship of the two in China and Brazil is positive, in the UK is it destructive.

Brazil and Britain count as 'democracies' and China does not so qualify, in the view of the US State Department. That test does not take account of economic efficaciousness. The world needs a method of evaluation that reflects the range of  human aspirations, that puts politics in the appropriate place. Democracy on the US model is not a necessary condition for human happiness.

Six Days To go

After a nugatory meeting of the G20 Finance Ministers over the last weekend, the world economic community is still waiting for France and Germany to overcome their significant differences about how the Greek crisis can be solved in a way that will assure the future of the euro. European Ministers are to have a 'summit meeting' over the next weekend: meanwhile, as the US Treasury Secretary put it, France and Germany "have six days to save the world". That is no less than the truth, about 'the world as we know it' . It will be important to follow that key story as the days go by; but it is even more important to understand what other realities the world community should be facing up to, regardless of whether or not the euro can be nursed into some sort of health.

I have just spent a couple of days in the Derbyshire Peak District, and on my return to London I noticed a phenomenon that I have not seen before: the leaves in the south are going brown before those in the north: normally spring comes earlier in the south, and the leaves remain on the trees longer in the south than in the north. I assume that this year's deviation is a consequence of the unusually dry weather in the south and east of the country, which has left the trees exhausted and deprived of nutriments. Parts of Derbyshire have also been drier than usual in the past year, but not sufficiently to have a comparable effect on the trees. Crop yields in the south and east - Britain's heaviest agrarian regions - are down this year. As the global population trend is raising more awareness that countries [and economic communities, if they can survive] must become more nearly self-sufficient, given that that they must export surpluses of what they produce if they want to continue to be able to buy crops that their climate will not sustain. Meanwhile, if it is implemented, EU environmental legislation will massively reduce the rights of farmers to access rivers and ground water when rainfall is insufficient to support the growth of the crops, and will increase the charges that the government makes for the permitted abstractions: so food is likely to become both more scarce and more expensive.

Another key sign is exemplified today by the Prime Minister meeting the main gas and electricity suppliers to ask them to lower their charges, at least to 'vulnerable' customers: and this at a time when the government is pursuing environmental targets that will require the companies to invest massively in 'green' energy supplies. The cost of that capital spending can only be repaid from charges to customers in the future. So it is becoming dearer to heat as well as to eat, in response to deliberate government policy: and that is happening in more and more households across Britain this year, as real incomes fall.

It remains fashionable, almost compulsory, in journalistic circles and in academia to scoff at the few commentators who advance a worst-case Malthusian proposition that the world is close to the point where it cannot feed the population that will be born in the next few years. And even when the possibility of a crisis of overpopulation in some faraway countries is allowed, it is assumed that this will not affect the old advanced economies. Yet it is now speculated by demographers that the ageing of the indigenous European population will lead to massively increased immigration of culturally alien Africans and Asians. Japan has absolutely refused to allow immigration to dilute the racial structure; and Europeans are becoming increasingly resentful of immigrants who draw on the benefits system while they 'outbreed' the indigenous population. Opposition to immigration has usually been based on racial and/or religious grounds: which means that people have muted their expressions of concern because of the existence of laws against 'racial hatred' . Ambitious politicians will soon recognise that dependent immigrants will cost so much in benefits that the rate of benefit for all claimants - indigenous and immigrant - will be reduced [at least in real terms] and large immigrant families will be seen relatively to benefit. Then opposition to immigration will become 'economic' rather than 'racist', which will make it respectable.

As the economic squeeze intensifies, the date at which this grim forecast for socio-political consequences will be applicable comes closer. That gives increased importance to the downward revision of unprejudiced forecasts for the British economy: the announcement by the Item Club today is consistent with the worsening prospect.

The economic situation is worse than you know

After fourteen months offline this Blog is now again active. During the past year I have completely revised my presentation of the facts about the economy, been cured of prostate cancer and moved to temporary accommodation as I buy a much smaller London flat.
The passage of another year has made it clear that the underlying economic crisis is essentially and fundamentally political. From 1980 to 2008 British politicians welcomed - indeed, gloated about - the casino banking that seemed to be carrying the economy forward as the ongoing destruction of industry was accompanied by sales to aliens of the most valuable intellectual property assets in the country. Taxes on banks and their staff flowed into the Exchequer along with the one-off proceeds of privatisation and North Sea oil revenues - and quickly went out into the growing flood of 'benefits', to remunerating NHS managers and allowing schools to attract the designation 'failing' alongside the contemptuous description as 'sinks'. The Thatcher governments fostered the first generation of a new wave of 'hereditary paupers': a species that had been eradicated in the eighteen-thirties. New labour followed through, expanding the budget and wantonly miscalling massive flows of current spending as 'investment'. The 2010 coalition talk about draconian 'cuts' that shake out as minor reductions in the rate of increase of government spending and of the national debt. They and their advisers are still in cloud-cuckoo land.
In the coming days, the facts and arguments underlying these assertions will be presented, in the context of contemporary events.