Tuesday, Jun 08, 2010
George Osborne: think before you cut
Greg Pytel: To the Chancellor: UK ain't Canada
It is very likely that the government proposed budget cuts will not help the public finances but ultimately end up in the bankers' pockets.
Posted by ant @ 10:13 AM (1333 views) Add Comment
23 Comments
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1. the number cruncher said...
An interesting view from Pytel. Deep down I think he is probably correct but would like to see some numbers and analysis to back this up. Does sound like robbing the poor to feed the rich. Across the western world we are going into austerity mode, selling off what few public assets remain and cutting spending. the whole debt bubble auserity cycle is straight out of the pages of the Economic Hitman.
2. nickb said...
I can't believe everyone is lapping up the comparison with Canada in the 90s, and especially the proposition that the Canadians had overspent on public services. (It was rather high interest rates that were causing a (vested-interest-exaggerated) problem). "In September 1995 a video was leaked to the Canadian press office of John Snobelen, Ontario's minister of education, telling a closed-door meeting of civil servants that before cuts to education and other unpopular reforms could be announced, a climate of panic needed to be created by leaking information that painted a more dire picture than he "would be inclined to talk about." He called it "creating a useful crisis".
the story is covered in "How to invent a crisis in education", Globe and Mail (Toronto), September 15, 1995. The process whereby various vested interests exaggerated the financial situation is covered in Naomi Klein, Shock Doctrine, p257-259.
3. nickb said...
And where are our unions, where is our general strike that will fight this evil, fallacious, banker beneffiting, austerity program in the UK??
4. techieman said...
"And where are our unions, where is our general strike that will fight this evil, fallacious, banker beneffiting, austerity program in the UK??"
nick dont take it personally.... we have lived beyond our means for too long... this is a reaction to that. Whether that reaction was voluntary (yeah right) or forced on us by the markets or other outside influences, we would still have to at some stage have this sorted. If that is sorted by a short and painful shock or a long slow march ... realistical was the choice that the democracy (sort of ) made.
A general strike will only make us less competitive and make the whole country end up looking like a macro version of BA, together with those implications. Really is that what you want?
I realise that the argument is an emotive one, especially for those that lose their livelihoods and yes thats unfair.... but who said life was fair?
5. nickb said...
Who says we have been living beyond our means? By what standard are you assessing that? Please see my post 2 above. I'd like to see figures that show that the debt stock (not deficit) is high by historical standards. After WW2 several European countries had debt stocks that were multiples of their GDP. They did not pursue austerity programs and came out ahead of the UK, which did. ]
To the extent that it is high, this is a result of bailing out the financial sector.
I will take it personally thanks, - this deficit-terrorism scam is a personal affront on every citizen, myself included.
6. nickb said...
Techie,
A general strike if we only had unions with balls enough to pull it off, might force the government to alter its path. But unfortunately the anti-union legislation passed by Thatcher and maintained by subsequent governments appear to have put paid to that.
Suppose some of the newly unemployed came round to your place to rob you? I hope then you wouldn't complain of it being unfair... because life's not fair...
7. orcusmaximus said...
nickb,
I was one of the newly unemployed. Rather than winging about it, I went and got myself another job within a month, at a cost of a rather long commute.
So sack all the unproductive beureacrats and force them to get real jobs which put money into the economy rather than sucking money out of it. Remember it's YOUR money the government is wasting (assuming you are a tax payer).
I strongley recommend you read How to Cut Public Spending: (and Still Win an Election) which describes how to cut public spending by £50 billion without affecting services. The £6 billion spending cuts promised do not go nearly far enough.
8. techieman said...
nick its obvious we have different views here. If i were one of those unemployed, then too right i wouldnt like some smart ass telling me lifes unfair, but then again it is.
As for living beyond our means where have you been? The word bubble in "credit bubble" should help you there. We have collectively binged on credit and now collectively we are paying the price of that binge. How that price will be levied i will agree is absolutely unfair. You just need to look at M3.
So you believe this whole thing is a rouse to batten down the working man? As for someone unemployed robbing me, then if you like i am robbed by them indirectly every day of the week via my taxes. The burden will be greater on those unemployed, agreed but dont you think the burden will be pretty big on those employed?
As for total debt im a bit confused obviously straight after WW2 there was the Marshall Plan, and obviously there was massive rebuilding and a large debt burden incurred for that. Or are you talking about another period? Because if the former of course there was no austerity since we were borrowing to invest to produce things not (as now) to consume.
9. Mickey said...
Its pretty clear Nick is clueless on these matters!
10. nickb said...
Techie,
It's the oldest fallacy in the book to believe you have earned every penny of your income. Does Richard Branson work a million times harder than you do? Am I responsible for my education and good parenting? Do you believe the unemployed are all feckless and should starve etc?
I agree about the credit bubble, but this has precious little to do with government spending, and its supposedly unaffordable levels. Credit bubbles come and go regularly, they are a consequence of our financial system, against a background of a surprisingly consistent size of the public sector over time. the present crisis is being manipulated by vested interests, this is a well documented process as i have referenced earlier. If you choose not to look at such evidence then go ahead with your "I'm not listening" headset... there is not much point having a conversation.
I believe it is an orchestrated rouse to cut the size of the public sector so that private corporations and finance can move in and clean up. There is no shortage of evidence of this across a range of crises, unless you have your fingers in your ears and your hands over your eyes.
The Marshall plan - we had it initially, then the US cut Britain out. At this point we, apparently, decided to cut our deficit, whilst others in Europe did not. I agree that we need to regear the economy to production, not consumption. But this is a long term issue, and shouldn't be confused with the current debt situation. A situation (let's not scream "crisis") that has arisen to a significant degree because we bailed out the banksters.
The problems as I see it stem from the financial system, not from having a "too large" public sector, whatever that might mean.
11. nickb said...
Orcus
>So sack all the unproductive *bankers* and force them to get real jobs which put money into the economy rather than sucking money out of it. Remember it's YOUR money the *bankers* are wasting (assuming you are a tax payer).
12. nickb said...
Orcus,
the book you reference is published by "the taxpayers alliance". This is a *fake* grassroots organisation - ie not a grassroots organisation at all. i would be a bit more circumspect about a group that pretends to be a popular pressure group but does not disclose any of the sources of its funding in its annual accounts, if i were you. Apparently it's advisory group is a list of right of thatcherite crazies. http://www.taxpayersalliance.org/
Nick
13. ant said...
@number cruncher 1: if you went through Pytel's blog there are number, calculations and models that justify his opinions (starting from the first one. The largest heist in history - http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html). If you want even more financial maths analysis then may well ask Martin Wolf of the FT (a famous economic guru). He must be able to do it easily:-)
14. techieman said...
NIck - I will engage you:
1. I dont really understand the point about Richard Branson. I dont work hard at all (i have in the past perfecting [as much as i can] my skills) so using me as an example against Richard Branson as another is ill conceived. In any case even if your premise was right... so what? I dont get what you are driving at. If you are asking if i think that the unemployed should starve then no I agree if they are truly unfortunate or cannot work then i dont mind supporting them (but for the grace of god etc). You raised an issue of them stealing from me - i was countering that with as stupid a response. Are you saying that because people are unemployed they are bound to become criminals? I really hope not. Of course as you must know lots of people are on incapacity benefit when they aint.Now if there are no jobs for them to go to then get one to dig a hole and another to fill it in.
2.Credit Bubbles come and go regularly? Eh? While you can have a credit bubble for a number of years. "a balloon looking for a pin". The fact is its only when it bursts there is pain. This bubble is greater than anything since the South Sea bubbles of the 1700s. The bubble has burst. If the governments hadnt supported the banks then there would have been systemic risk. Did they do the right thing? Maybe / Maybe not. In my view all they did was postpone something, but i am in a minority in the view.
3. As for my not listening headset, really how this will all end up is subject to various unknowns, if that results in a shrunk public sector then ok, but i really dont care about that. Im not really sure why anyone would. Its a personal preference that you get served by a public or private sector. I listen at the micro level since that is what i do professionally.
4. Under the Marshall plan i believe we got more than anybody else as we negotiated the "special relationship". At one stage the £ was worth $4 (thats why a crown was nicknamed a dollar). In any case you brought up the issue of debt stock so you might want to explain what you actually meant - i was just taking a wild punt
5. Clearly you have a passion for the public sector - i dont. People i know that work in the private sector have been laid off, because there is not enough profit to keep them working. Now you may blame owners or management for that, or you may even argue that they were looking for an excuse to lay people off - that is really up to you. I dont differentiate between public and private sectors, they are all people but you seem to be implying that the whole burden of this "made up" crisis should fall on the private sector. Why? Because the private sector INCLUDES banks?
6. The PSBR is unsustainable. Whether that gets sorted by an increase in taxes or a decrease in spending - and lets face it it will be a bit of both, the reason is debatable. You could say those greedy banks - infact you do - but why did they keep lending and open up CDOs cubed / CDS' etc? Because that was a bubble. I have a cousin who is deaf and was working for Lehmans. I can tell you on the last week he got in at 6am and worked till 1am. He was told that there was no problem relative to the solvency of the bank. As i said i dont care what sector we are in - to me its not relevant.
15. nickb said...
Techy,
Thanks for your engagement.
1. It seems to me that you started any stupidity here with your "who said life was fair" jibe. You were implying that throwing people out of work is not a good reason to resist cuts in public spending, the unfairness being neither here nor there. In which case, to spell it out, the point was that you might not say so if it was you that were the victim of some unfairness or other. The point about taxes is that you implied that taxation is theft. Which, it seems to me, requires that all income is 100% earned, which is preposterous given the massive differentials in earnings that (now) exist even between hardworking people.
2. Yes, credit bubbles come and go regularly. And they burst, and another one comes along, because the banks create credit freely in times of economic expansion, and it's more profitable to speculate on asset prices than invest productively. It can't continue indefinitely so eventually it stops, bursting the bubble. That's precisely my point, and it has nothing to do with the size of the PSBR.
3. Are the private and public sector are substitutes? It seems to me that there are good reasons in theory and practice why the private sector is bad at providing public goods (and why the public sector is bad at providing comsumer goods). There shouldn't be anything controversial about this, it's economics 101. Economies with strong public sectors (albeit in different ways) such as France, Germany and the Scandinavian economies have been consistently strong industrial performers.
4. The debt stock is the accumulated national debt. The point is that even if the deficit is high, this fluctuates yearly with the business cycle, and does not imply that the debt level is high by historical standards, so does not necessarily imply a crisis.
5. I think it's silly to have a 'preference' either for the public sector or the private sector because they are compliments, not substitutes. I took your "we've been living beyond our means" comment to imply that you think the public sector is "bloated", as all the think tank and VI rhetoric pouring out of the financial sector is explicitly stating. If that's not what you meant, my apologies.
6. Is it? By which standard are you arguing that? Is there a certain level which is unsustainable? Then could you show some figures to support that? I suspect you are here equating the deficit with the debt stock. Since the former fluctuates from year to year depending on the business cycle, it seems to me that there is no particular level of PSBR which is "unsustainable", and that it is rather the debt stock that matters. Which takes us back to economic history. Why do you think a national debt of 100% of GDP is "unsustainable" when historically this does not seem very high?
You haven't addressed the point about there being clear evidence that pseudo crises are created and manipulated by VIs.
Nick
16. the number cruncher said...
Nick B - respect - I like your style - there are a few home truths our libertarian friends on this site just do not want to hear.
Fact - the public sector is a mix of the hard working and useless JUST like the private sector
Fact - public spending is efficient at alleviating personal misery of the less well off9far better than any attempt by the private sector at achieving these aims)
Fact - the banks have caused most of house price bubble (including subverting nu-labour, policy makers etc)
Fact - debt levels and public spending are not out of historic norms
Fact - there has been a large concentration of wealth into fewer hands
Fact - our economy needs more real work and less speculation(in all its forms including bedroom day traders and goldbugs)
My personal view is that libertarianism is just an fig leaf for being selfish, but these people are far from stupid and I would to like to explore the common ground between rational socialists like ourselves and the libertarian speculators like flashman, techieman et al...
I am a huge fan of, true free markets, efficient economies, reduction of waste etc. But what is the purpose, is it to make society better? or is it just for selfish personal advantage?
17. techieman said...
Nick its a bit late but...
1. You have misunderstood me - probably deliberately. Is life fair? Well if its been fair to you in the past it certainly hasnt to me... but maybe i am just unfortunate or deserve what i get ... who knows? As i said stealing and being unemployed dont go hand in hand - if they did then we would have a much bigger prison population. I have been the victim of unfairness for a fair bit of my life - but its subjective isnt it? Im actually not saying tough sh1t at all, but its very easy not to know someones real views on a blog. As i said you took that way too personally and out of context.
2. We agree on the your first couple of sentences. But clearly it has something to do with the PSBR at the moment. The PSBR is the surplus of expenditure over taxes, if the banks get bailed out or the government spends more than it gets in then that PSBR or budget deficit if thats what you prefer.has to be funded ...eventually. Wasnt that the whole point of the "Golden Rule"? So either taxes have to be increased or expenditure cut.
3. OK
4. Nope disagree with the second sentence. Say you are right, and the business cycle dictates that we will have a large and increasing deficit and growth wont be enough to reduce it significantly ... then what to do? I of course want fully supported efficient public services, but are you saying that there should never be any unemployment under any scenarios? Cause thats what it sounds like to me. My passport says UK on it... does yours say Utopia?
5. I dont think the public sector is anymore or less inefficient than the public sector. I am sure we can both come up with examples to justify either position ( i agree with Number Cruncher) . However, for example, i think a while back a study was done that showed there are more MBAs [for what thats worth] in the public sector than the private sector. Nor do i believe though that one should bear the brunt of any cuts more than the other. And in fact thats not the case. As i said the private sector is much more efficient at culling resources than the public sector. Is that a bad or good thing? Well if there is to be pain (and i take yr point that you think there isnt) then surely that needs to be shared by the populace either via sadly a contraction of budgets leading to a loss of jobs or tax rises?
6. Yes - i dont need to come up with figures at all - look at whats happened to Sterling over the past few years. Its the markets that dictate the price and viability of sovereign debt. If it wasn't unsustainable then nothing would need be done about it. Which, i suppose is your point on which we can just disagree, and i can put my money where my mouth is and sell some gilts or not as the case may be.
"You haven't addressed the point about there being clear evidence that pseudo crises are created and manipulated by VIs" Frankly i dont care and am really not sure why i would need to ! I note you havent provided the "clear" evidence but no doubt you can trot out a few, and honestly you may be right. This is not something that keeps me awake at night. I dont make the rules i just play the game within those rules. If the rules change then i try to adapt to them.
As for me not addressing points - im not alone there you sidestepped my point about a general strike and the effect that would have on UK PLC. But i dont hold a grudge.
I dont really understand what you are driving at.... is it bashing bankers and championing the working man? A noble but futile cause im afraid. The funny thing is everyone i have ever met has started off with this kind of mentality but when they have become successful they forget it and bemoan the nominal amout of tax they pay.. Perhaps thats just human nature. Its rare to get someone successful that argues as you do. I am not saying you are unsuccessful - i have no clue - just if you are it is quite admirable. I am sorry if that sounds patrionising, its not means to be, but i hope you are not going to respond with some conspiraLOONY tunes..
So on that note i think it apt to say "thats all folks" :-)
18. flashman said...
number cruncher: "I would to like to explore the common ground between rational socialists like ourselves and the libertarian speculators like flashman, techieman et al"...
You were recently told off by another poster for falsely ascribing comments and thoughts to people. Please lean your lesson. All your Von Mises this and libertarian that, marks you out as a standard issue 'blog economist'. Economic adults don't talk like that. The economy operates in several thousand shades of gray and in 25 years as an analyst I've never heard a fellow professional actually mention von Mises or the libertarianism that you so frequently cite. We all came across him as students but real life has no use for extreme theorists of any hue. You tag me as a libertarian? This is just inane blog speak but if I were to play at your level, I wouldn't by any stretch of the imagination, describe myself as a libertarian. It is a extreme creed that has no place in a mature thought process. Only people with a penchant for freaky websites would classify themselves or someone else as an “Austrian school libertarian” or whatever other blog phrases that you people use. Life is far too complicated to see things in such simplistic terms. I have made several thousand comments on this site that would lead someone with an ounce of comprehension to believe that I am far from a libertarian or any other kind of “'ian”.
I actually agree with much of what nickb says (although I would temper some of it) and in my opinion, you have no right to associate yourself with his comments. I sense that he has an understanding of economic history and socialism that is entirely absent in you. If you could take the scales from your eyes periodically, you'd have noticed that I regularly talk about our national debt not being that bad in historical terms and how the subject has been politicised. I have recently posted articles devoted to the subject and anyone with something resembling grey matter would tell you that I have been vigorously arguing the subject for more than a year. Despite your tagging me as a speculator, I do not actually earn my living from speculating . I earn my living mitigating against the effects of speculation, on behalf of large corporates. In fact, I quite frequently try to talk other posters out of speculating on the markets. Again if you could clear the fog, you would have noticed my thousands of comments and explanations on the subject.
I never appreciate being described on a thread in which I have no involvement, especially when the 'description' is so ludicrously inaccurate. This behaviour is the classic “tell” of our most prolific multiple log in. As an academic exercise, I will fabricate a comment about one of your many online personas, in the hope that you will learn a lesson (remember its just an exercise and the comment is extreme to make a point).
“The number cruncher is a sanctimonious shyster who earns a living creaming off charitable contributions from unwitting donors. I found his claim to be a 'successful businessman', quite revolting in light of how he earns a living. I have worked in the city for a long time and consequently I have an unerring antennae for a rogue. My sensors are in overload and he is undoubtedly a rogue”.
19. the number cruncher said...
Falshman
You are just as guilt as I of parcelling others views up to slagg them off, and you have posted many inflammatory comments, with straw man augments targeted against socialist - so I think the pot is calling the kettle black here.
I only have one on-line persona; your being paranoid, just as you have been with others on this site.
And I run a real business, a separate consultancy business, a restaurant, a shop; the charitable donations side is just a part of what I do, and I pride myself on spending those donations wisely and efficiently. And I do a lot to make this society a better one.
You protest too much flashman, trying to protect your selfish being, which I am poking fun at, and will continue to do so, whatever you say
20. nickb said...
Techie,
Sorry but your 1-6 are a set of complete non-sequiteurs. You don't need to come up with figures! That's very convenient, isn't it?
About the general strike scenario, the govenment is set on a course of economic contraction. This will damage our competitiveness and, more importantly, society. Were there more resistance to this path we might be able to avoid it. Of course, it could be the case that it achieves no such thing, the government simply being too powerful. But at least we would have tried.
There's no conspiraloon charge merited by questioning the financial system. You pointed out yourself the iniquitous nature of the credit boom. Do you really think this recurrent phenomenon has nothing to do with the way the financial system is set up? Was Sir Josiah Stamp, head of the bank of England a conspiraloon?
("Banking was conceived in iniquity and was born in sin.
The Bankers own the earth. Take it away from them,
but leave them the power to create deposits,
and with the flick of the pen they will
create enough deposits to buy it back again.
However, take it away from them, and
all the great fortunes like mine
will disappear and they ought to disappear, for
this would be a happier and better world to live in.
But, if you wish to remain the slaves of Bankers
and pay the cost of your own slavery,
let them continue to create deposits.")
Or Abraham Lincoln? Or Kennedy? both of whom created money free of debt for roughly this reason.
Am I successful? not relevant (ad hominem). A simple explanation for people's objecting to taxes as they get more successul would be selfishness and self-righteousness, though I wouldn't want to tar them all with the same brush.
21. flashman said...
I have nothing against real socialists but for the record I don’t think that you are a socialist, in the true sense of the word.
If you think that “poking fun” at subjects and targets that you don’t understand, helps your ‘cause’ then you are fooling yourself. I can see how you might be incensed by the majority on this site and indeed the country, turning against your favoured ‘cause’ but you will just have to accept that your version of Socialism is badly out of favour. You wont achieve anything by lashing out in frustration at other posters whom you deem to be less socially worthy than yourself. The poster who recently told you off called you sanctimonious because of your frequent ‘holier than thou’ attitude. This is why I don’t think you are a socialist. You have too much judgement and hate in your gut. Bide your time and wait for another opportunity to campaign, would be my advice. I don’t think that the mood of the country will turn your way for at least 8 years or so but that is the way of it.
This is a house price site and it would be best if you just occasionally showed some interest in the subject. By choosing to use this site as a platform to attack contributors who have a genuine interest in house prices (but who you decide are against socialists), you are degrading the only viable house price platform. There are several more appropriate sites where you could talk about your favourite subjects of politics and the class system.
22. techieman said...
Nick its not i dont need to come up with figures to support an argument, as i am sure that arguments either side can easily be supported by stats - damn lies and all that. The point i was trying to make is that i dont need to do that in what i do, and really i cant be ar5ed to do the research - make of that what you will. If you want to support your argument by using figures feel free. I have seen figures used previously supporting both arguments, as i am sure have you.
I am aware of the quotes you make, and the fractional reserve nature (tending to zero reserving) of banking, which as you rightly say inevitably leads to credit bubbles and eventual bursting of them. I actually said i hope you didnt come back with a conspiraloon response, and clearly you have not.
As for your success or otherwise - i was only illustrating a point. You seem to want to take everything as a personal slight, when thats not how its meant - i dont know perhaps thats my lack of grammar thats the issue.
I am not sure if you think i support the bankers against the interest of the common man. To be clear i dont. However its debatable whether the damage inflicted by a general strike would outweigh that by maintaining open cheque economics with a "it will be alright in the end" attitude. Maybe the system is at fault since the markets wont let governments do this, or maybe we have, after all lived beyond our collective means for too long and the markets are the albeit self-appointed arbiteurs of that decison.Another example of unfairness? Perhaps.
We could doubtless back and forth the state interference or planning the economy verus laissez faire - for example i believe had there been no guarantees on deposits we wouldnt be where we are.... similarly you may believe that culling Union powers was a bad thing. I do agree that the pendulum has swung too far, but the fact was that it needed to swing - IMO and on that again you may disagree.
As for non-sequiteurs, well again thats just your point of view... i wish i could say "I agree with Nick" but i cant and im not sure it should bother either of us that i cant. If you want to call any points laughable then you would be well served by a demonstration of which are. A derisory response never helps debate, especially when some of the points i actually agree with!
Now do you think House prices will crash .... or not?
23. techieman said...
infact embarking on an economic contraction is what is to be expected as part of the cycle. The whole system is predicated on such a cycle IMO, infact a cycle within cycles. I am sure you will be aware of th e K-wave since you appear well versed in these arguments. My view of cycles is that eventually extreme moves have to revert to mean - the more extreme the more painful (such as in this case) the reversion.
In fact most of what has happened could have been easily predicted ((and has been by a few on this site) teh issue isnt really what has happened its just the timing of it. Eventually the credit bubble was bound to burst - the bigger the bubble the more spectacular the burst. Governments were bound to try to reflate by monetary and fiscal means. Had the reflation worked (arguable) well enough then the economy picks up on the back of the stimulus.
Has that happened? That really is what it boils down to. I agree its a tightrope and we may - and IMO will - fall off into the ravine below. The present incumbents have got a bit across the ravine and want to now turn back without falling off, whereas the prior lot wanted to continue the walk, with the tightrope swinging even more precariously in the wind. Either way i think would have ended up the same, i suppose its just who would have been effected thats the issue.