Tuesday, November 10, 2009

Once the election is out of the way, the markets will demand more realism

Britain's public sector faces the Geddes axe

And that is why anyone thinking that from now to the election is a reasonable indicator of trend will be surprised. Sure, gold and equities are soaring - but one thing is for sure: when the cuts come, interest rates rise and the economy sheds jobs - house prices will tumble.

Posted by growler @ 09:38 AM (1626 views)
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31 thoughts on “Once the election is out of the way, the markets will demand more realism

  • mark wadsworth says:

    House prices aside, the whole point is that there are millions of totally unproductive (or indeed counterproductive) civil servants and taxpayer funded jobs* – if they were working in productive sector then we’d all be better off, the economy would grow, taxes could be cut etc etc. Sure, this would give a disproptionate boost to house prices, but we can deal with that via Land Value Tax (enabling us to cut taxes on productive activity even further etc).

    There is no reason why this means job cuts, it just means fewer in public sector and more in private sector. So let’s bring on the Geddes Axe and get govt spending down from 48% of GDP to 36% of GDP like it was ten years ago.

    * Before people misquote me, there are about two million productive or useful public sector jobs – teachers, nurses, doctors, coppers, social workers, prison officers, street sweepers, immigration control, coast guards, firemen etc. Let’s be generous and add on as many again for back up staff, that still leaves four million whose role is not clear.

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  • [email protected]

    Spot on but unfortunately, as no political party has the b*lls to carry out these cuts of their own volition, they will have to be imposed by external forces.

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  • And the sad thing is from now until the election the government will carry on wasting both time and money pretending that there is no elephant sitting in the living room. At least if we had the election next week we could save 8 months of wasted effort and cut down the risk of a Sterling crisis.

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  • Plenty of contract staff out there too

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  • So you keep saying, mark, so you keep saying.

    Why don’t you add to your useful list scientists, environmental monitors and researchers, museum curators, staff of the art galleries, civil service (or do you really believe they do nothing?), radiological protection, ……..?

    Then when you’re left with the relatively small amount of money that could reasonably be saved in public job cuts, take a look at the private sector. Start off with the banks held up with public money (nearly all of them, directly or indirectly) and the car industry (especially in the US). Big money savings here.

    I think your criticisms of the public sector are irrational. Saying that money is being wasted does not mean it actually is.

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  • I don’t think the topic is really a public vs private discussion. It’s pretty clear that both need to share the burden. If you look at health service management as a proportion of clinical staff, the figures will show a huge swing away from clinical staff. If you look at bansters, estate agents, solicitors – there are too many for what we need. If you look at IT companies and goverment spending on this versus achievements and deadlines – there is fat. But we all have to share it.

    And that’s the point. You don’t make savings and reduce debt (regardless of where) without an impact in disposable income, unemployment and job security. Such huge government action is going to cause movements in markets and influence interest rates. The problem is that economists all argue about what effects what in different ways – but the answer is simple maths. If the problem everyone is grappling with is one of subtraction of A from B, the answer is not going to be greater than the sum of A and B – no matter what bulls##t you read in papers.

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  • OK them MW, if you don’t want to say it, I will…
    Many job functions of those in the public sector are indeed productive, but that does not mean they should be in the public sector!

    Letthemfall said, “Saying that money is being wasted does not mean it actually is.”
    – Oh, please! Saying /anything/ does not mean it actually is so, so I implore you, pick any example(s) where a comparison may be drawn and do some solid research – remember to take into account the effect of other existing legislation and any subsidies, taxation etc.. hence why US Health costs are so large for example. The only way you’ll get a better public price is if you put a big value on time to completion with an example like the US moon landing, or an infinite value on your life ( which is bull, of course ) in the case of intelligence & defence research.
    Note that I agree with your prior statement about private entities being supported by the state – think about it, what is a public body other than a fully supported private body? Answer this and I believe you will see why private is better than public. Furthermore private encourages searching a solution space using diversity; public encourages sticking to the old solutions ( due to lobbying, regulation, entry barriers, etc.. )
    Abolish the state & we’ll all prosper ( it does not negate the possibility of collective social entities by the way! )
    * sigh *

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  • Growler

    – I concur, this is not really a matter of such debate. It is how it is. If we sold everything now, we’d have no debt, but that ain’t going to happen!

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  • The housing market is unquestionably being propped up by low interest rates (coupled to stubbon sellers) and alot of people on this forum seem to be despairing that this will never change. I understand their concern, but I think it’s giving the government too much credit. Of course they’d love to be able to control interrest rates in both the short and long terms, but in reality they can only control it in the short term. Articles like this show why in the long term they either have to drain tens of billions from tax payers and cut hundreds of thousands of public sector jobs or face overseas investors refusing to buy debt which will push up those long term interest rates. Of course they could continue to print money, but that will eventually lead to inflation and higher interest rates. Frankly I find it hard to see how we get out of this mess without all asset prices crashing.

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  • Prosperous times always encourage waste in both the private and public sectors. Almost 20 years of continual economic growth has undoubtedly caused considerable (and probably equal) waste in both sectors.

    However, recessions always cause the waste to be cut.

    The private sector is forced to cut waste or it goes under. We do not have to be concerned about these cuts. They will just happen

    Public sector cuts are often a political decision and we, therefore, do not always have automatic cuts. The government might chose to maintain the waste in order to stimulate the economy (or do it less harm) in times of economic duress. Alternatively, the government might decide that immediate cuts are better in the long run. That is where we are now.

    I would always prefer a middle ground where efficiency is improved and services are maintained for a lower cost. Unfortunately, the people who claim that there is actually very little waste in the public sector are denying the fundamental trait of mankind to be wasteful in times of prosperity. More importantly, they are obstructing any progress that we might hope for. I suppose it’s quite natural to adopt this attitude if your job depends on maintaining the status quo

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  • mark wadsworth says:

    LTF, I have totted up useful/productive public sector workers (see list above) and arrive at about two million. It is quite arduous and involves an hour or two trawling the interweb.

    If you feel that “scientists, environmental monitors and researchers, museum curators, staff of the art galleries, civil service (or do you really believe they do nothing?), radiological protection, ……..?” are providing something useful (I’d argue hotly about the civil services, as narrowly defined) then please go and do your research and tell me how many there are.

    Maybe there are 50,000 such people, great, we’ll add them to the 2 million we won’t sack.

    No way can it be a good use of people’s time and energy for one-in-four jobs to be in the public sector, it’s 8 million people for crying out loud.

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  • mark wadsworth says:

    LTF, and yes of course I agree we shouldn’t bail out banks, I’ve said that a zillion times so don’t avoid the debate by accusing me of saying things I didn’t.

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  • With Crunchy the future victor gone, the infighting begins. (Asinus asinum fricat)

    Love it!

    Oh, by the way what did I say about buying sugar some time back? It’s in the archives. D’oh! zzzzzzzzzzzz

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  • 51ck
    The reason I said that is because that is what mark w is doing – repeating that the public sector is inherently wasteful without offering figures that support his assertions. Most or all of the criticisms on this site aimed at the public sector are similarly thin on evidence.

    mark w
    If you have done all this research, then why do you not include some, or point us to a study elsewhere? You accept that the health service is not a waste of money, although it is not easy to assign a cost-benefit figure. How should one then research the benefits of scientists? As I said yesterday, almost all current technology stems from science done outside the private sector. How do you value that? I imagine you regard art galleries and museums as an unnecessary cost (should be self-funding?) and of course one cannot easily assign an economic return, yet their cultural value is immeasurable.

    My point about the banks is that the waste there is large and quantifiable, and I suggest substantially larger than any waste you might find in the public sector. I have said repeatedly that I can accept there is waste in the public sector, but I do not believe it is intrinsically worse than the private. But I don’t accept the contention that certain areas of the public sector are worthless – and here many old cliches are trotted out – just because there is no direct economic benefit, or the benefit is hard to quantify.

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  • crunchy: your Christmas cracker collection of Latin phrases has let you down. ‘Asinus asinum fricat’ implies that we are all praising each other. It’s not at all appropriate for an accusation of infighting.

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  • At the end of the day it is Joe Public regardless of which sector he or she works in who picks up the tab through higher taxation in a myriad of forms.

    If you are a banker, financial “expert”, celeb or premier league footballer you won’t feel any difference of course.

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  • mr g
    Absolutely right

    While I’m in an unproductive mood, let me toss in a small response to the challenge of providing some research to back up my claim that govt-funded scientists are valuable. The digital computer was down to a public servant, as was the Web. Were it not for them we wouldn’t be able to waffle on at each other all day. Then where would the country be?

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  • mark wadsworth says:

    LTF, “the health service is not a waste of money”

    Agreed, but with the caveat that at least a third of NHS spend of £108 billion is wasted on quangoes, administration and nannying advertising.

    If you times the number of nurses by £30,000, the number of doctors by £100,000 and add on the £10 billion they spend on medicine, you get to about £50 billion. Sure, hospitals needs maintenance people, cooks, cleaners, porters and so on, and machines that go *bing* but that can’t possibly add up to £68 billion.

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  • 15. flashman, Think about it son! The end. No more time for lightweights.

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  • The machines are actually very expensive. We’re often told that the NHS cannot afford to buy all the equipment it could use.

    CAT scanners, for instance, cost millions. Then there are MNR scanners, and all the other kit that fills hospitals these days. Soon adds up.

    (Incidentally, CAT scanner invented by public scientist – won the Nobel prize for it)

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  • The main difference in public vs private is the level of service, if a private sector worker is rude to a customer they are usually fired or job under threat. When you go into your local council for help or advice, they usually treat you like sh1t and you get the feeling that you have to match all their equal opportunities requirements before they will even let you stand in the queue.

    There is waste in both public and private sector, we all know that, again the difference is that waste in the public sector is funded by everyone through taxes and a job for life culture, waste in the private sector usually means that everybody else has to work harder to compensate for the lazy bum in the office until they get noticed and fired.

    letthemfall, stop banging on about the banks, a bank is not an “independent” private business, banks work with the state and control taxes and money supply.

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  • Anyone looked at the arguments for a single-payer healthcare system (in which a single public or quasi-public agency organises health financing while delivery may be private) in the US? The US spends over $7,000 per capita p.a. on healthcare (roughly twice as much as other rich countries) and performs relatively poorly on most metrics, including 50 million or more people uninsured. The reason is a pathwork system of for-profit payers. Private insurers waste huge amounts on administrative and other overheads, billing, sales and marketing and massive executive salaries and profit, and doctors and hospitals need to maintain administrative staff to deal with the multitude of payers. One authoritative estimate is that administration throughout the system consumes 31% of that $7,000+ per capita, compared with 16.7% in Canada’s single-payer system.

    How much of what is thought of as legitimate ‘profit’ in the private sector is similar to these ‘HMOs’ – health management organisations’ – which simply interject themselves as a skimming operation between patient and doctor? How much ‘profit’ in the economy in general is down to lawyers and lobbyists rather than productive people?

    – just a couple of observations and questions to be thrown into the mix

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  • “a bank is not an “independent” private business”

    They were until they went bust. The Treasury and BoE controls tax and money. I’ll stop going on about the banks when others put public sector costs into the perspective of bank losses.

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  • icarus
    Thanks for your input. Yes, you make a fair point. Some of the “productivity” is not especially useful – marketing for one. Consider all the marketing of the private pensions industry that persuaded people to switch to these rotten money-making (for the providers) scheme. Was that value creation, or wealth transfer?

    It is a misconception to believe that private sector waste is quickly driven out by sackings and companies going bust.
    It can manifest itself as higher costs to the customer, and competition does not always solve that (especially in cartels – not totally unknown). Profit does not always equal value.

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  • “patchwork” @22

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  • letthemfall – value creation or wealth transfer? Yes, I’d say there was a lot of the latter about. Comes back to monopoly, oligopoly, privilege and economic rent – some Americans call it ‘gouging’. The other point I’d have made if I’d managed to join the discussion earlier is the extent to which the public sector cleans up the mess left by the private sector. e.g. the more food is fast or processed the more profitable and the more unhealthy it is….and the more it costs the health service.

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  • icarus
    yes, indeed. All these secondary costs are rarely accounted for, just as the returns are overlooked.

    Incidentally, I looked up some costs on the quango side of Govt spending in response to 51ck’s slightly patronising remarks, and find that it amounts to roughly 13% of all spending (4%GDP). This includes not only all the recreation stuff some get sniffy about (0.02%), but basic research, environmental monitoring & pollution control, street lighting, and many more services we would find it hard to do without. Interestingly one of the larger areas of spending is economic research. I might concede that we could do without that. Otherwise it sounds reasonable value to me.

    [No productivity was sacrificed in the making of this post]

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  • Here’s a helpful list of public-sector vacancies courtesy of Guardian Jobs, Government section.

    People in the public-sector work as hard as in the private-sector; but the work they do often isn’t necessary or doesn’t add as much value as they cost. Take the proposal to impose CRB checks on parents who occasionally look after each other’s children. Lots of civil servants will be working hard running the background checks, but will it be worthwhile? If it costs £10m for each life saved, are there better ways that that money could have been spent?

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  • mark wadsworth says:

    LTF 27 “street lighting”???

    When did anybody ever suggest that the council stops being responsible for street lighting? It is a simple fact that three-quarters of public sector workers are not “frontline” workers. If you want to add 1,000 streetlight bulb replacers to my list of “useful jobs in the public sector” then feel free to do so, but the answer is still “about two million”.

    I completely agree on pension funds, they are a huge great scam that only exists because of tax breaks. End those, cut people’s taxes and we’d all end up better off. That’s an example of a state-granted/state-protected quasi-monopoly/oligopoly.

    And private business can and will only charge more than market value if they have a monopoly, regardless of costs (and taxes on monopoly profits such as land ownership are the best taxes). They cannot just charge their costs. If one telly costs £300 to make, import and retail and sells for £400, people will buy it. If another indentical telly made by another firm costs £1,000 to make, import and retail, nobody will pay more than £400 for it. That’s a simple fact.

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  • drewster
    Could equally say same about private sector (see icarus’s post)

    mark w
    Lighting just happened to be lumped in with other stuff (non-ministry). I don’t know what you mean about front-line workers. Whatever they are, it is not a simple fact. Market value can mean as much as the business can get away with charging. Public sector will always try and provide services at minimum cost.

    The scam of pensions is not so much tax breaks as the exhorbitant charges the industry imposes on customers, hidden by complexity and obfuscation.

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  • drewster said, “If it costs £10m for each life saved, are there better ways that that money could have been spent?”
    – This is a very appropriate question. This kind of thinking shows exactly why a market is far better at making decisions than some central body. Many people will say you can’t put a value on life, but they still get in a car, cross the road, smoke cigarettes, or whatever. One person may value their own life very differently to another.

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