Fiddling the Books

When Railtrack - notionally, a privatised company - was declared bust, its assets [railway lines, signalling systems, many stations, masses of land etc] were seized and a new government agency called Network Rail carried on as Railtrack had done. Under the daft scheme of privatisation that was undertaken by the Major government, the infrastructure was [mostly] put under Railtrack/Network Rail while the train operating companies competed for franchises to run the trains on the Railtrack infrastructure.

In a crazier development, the government began to subsidise Railtrack [and continued with Network Rail] by giving them money to make improvements, and allowing them to borrow money for track maintenance, updating signals systems, making level crossings safer etc. They also began to subsidise some of the franchised train operating companies as well. These companies could run on a relatively slender capital investment, as the majority of the rolling-stock on the railways had been privatised separately to leasing companies that leased the trains to the operators. The leasing business was quite exclusive and was generally profitable; but where there was doubt as to whether the mass purchase of updated trains would be affordable to the leasing company or the operators, the government opened the taxpayers' assets yet again to pay for the new trains.

The net result is that the people [as a whole] are paying more, per capita, in real terms than they did under British Rail; for a service that is in some cases inferior to British Rail when it was strapped for cash.

A few years after the Railtrack debacle was ended - by the creation of Network Rail - some bureaucrat noticed that the growing debt ascribed on the books to Network Rail was in fact guaranteed by the government; that Network Rail was ultimately part of the state apparatus. So the Railtrack debt was aggregated with the national debt: which made the government's debt-reduction target even less attainable.

And now, suddenly, some other bureaucrat has noticed that housing associations are established as companies. So their aggregate debt [which has been accounted as part of the national debt] should be shunted off the government's books: and that is to be done.

The political importance of that decision is that the government is under huge criticism for the failure of 'the system' to address the dearth of 'affordable housing'. The housing association sector will now be pressured to borrow masses more money - at the prevailing low interest rates - to provide a partial solution to the housing crisis. If the bureaucracy had had the simple common sense to shunt the housing debt off the state's ledger seven years ago, when Osborne began to implement his austerity mania, thousands of homes could now be in use. Under the present regime, politics never offers the right response, even to the most obvious and urgent social issues.

The UK cannot twist away from its problem

August 2011 was a terrifying landmark for the British government. They borrowed more than in any previous August: a year after taking power with ringing declarations that control of spending and borrowing was their overwhelming priority.
Is it really the fault of Balls-Brown 'mismanagement' of the economy, especially of government spending, from 1997 to 2008? The answer surely is that Labour did nothing to assist the real development of the economy, but they are neither clever enough nor bad enough to get away with wantonly ruinous policies. Britain is [at least superficially] not alone: we are perceived to be in a hole that looks very similar to that in which the USA authorities have begun to panic.
President Obama is obviously unhappy as his rating with the voters plummets. The Federal Reserve is trying a new version of 'quantitative easing' called 'the twist': and commentators are highly sceptical that this will have the desired effect.
But the US economy is much better placed than the British, as will become clear in the coming months. The Chancellor says that he will stick to a failed policy: this is reckless obscurantism. The problems must be diagnosed properly before they can be addressed effectively. This blog tries to help.

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.