Wednesday 20 October 2010

Shave and a haircut..

First thoughts.

Seems that benefits will be hit hardest. £7 billion cut to welfare. Not really a surprise. Welfare is the government's work and if it has to cut then that's where the cut comes. Council spending looks like being significantly more than Osborne's 7% cut claim. Will have to look at the numbers a bit more later on.

The government said it needs to cut £83 billion in public spending over the coming four years in order to wipe out a £159-billion deficit — the largest in Europe after Greece and Ireland.

The arguments for and against are pretty clear. Cut now, say Labour, and the recovery will end and tax receipts will plunge at the same time as unemployment will rise. The government points to a record £43 billion a year in debt interest alone and worries that a % point increase on borrowing would necessitate even deeper cuts later on.

In 2008 the debt was an already dangerous £525bn. Mr Brown was trying to find some way of pretending the phony 'golden rules' were still in place. Then the credit crunch. And the debt is doubled. So Labour's wait and see is not an option. When a nation has spent two years doubling its debt trying to buy off a recession its just not an option to suggest doubling it again just to be sure.

The 490,000 job losses will hurt if those people don't find other work. { suspiciously just under the 1/2 million tag George?} Something we should remember. When the 30,000 workers of Woolworths were kicked out with 4 weeks notice and a paltry statutory redundancy, no one thought they would never work again. Surely the same with public sector workers. If you listen to Unite you'd think people were being confined to their homes forever more. In shopping centres and high streets across the UK they haven't seen as many 'opening
soon' units being readied for Christmas since 2007. Osborne is probably just about right. The recovery is on.. so why wait?

And anyway, he can't wait. The coalition cannot follow Alan Johnson's advice even if they thought it was correct. For a start they can't do nothing. What kind of chancellor would George be if he decided that on obtaining power after 13 years he considered 'It's OK. Everything was already under control.'

Politically the coalition must act early on. They must cut and pray, fingers crossed, that it all works out and the early pain can be overcome by later tax cuts and spending commitments. The weakness of a fragile coalition, the public's temporary and only semi acceptance of Labour's wasteful spending, and the need to prove Blue was right and Red was wrong have driven the government to gamble on a cuts strategy.


Dick the Prick said...

Quite agree. This was a political review rather than a proscription for the next 5 years. The Barnett formula was untouched to give the Libs opportunities in the provinces - already the Plaids & Nats have started whinging and Belfast was whinging 20 years ago for reasons which escape common sense.

Obviously, no one's got a clue of the tax implications but you can't really get softer. george only has one shot at this - if the unions are gonna go then they better go now. I think public perception of unions is whinging recalcitrants and to fold to them would be catastrophic.

It's problematic extracting union rhetoric from the evidence that they were thrown money & flexibility by Labour. For the unions to 'blame this problem on the banks' are 2 completely separate arguments. I really liked the extra 3% on public sector pension contributions but will look around for a breakdown.

All in all - err...7 ish, hmmm... yeah, pretty good stab at it. Thought George's delivery was rubbish but then Postman Pat jumped in and became quite upset for Balls & Cooper (soz, am drinking - perhaps a few more).

Wrinkled Weasel said...

Bill, I am not a regular commenter on this site (but still a fan) because my credentials, vis a vis economics, could be written on the back of a fag packet, and still have room for "Gordon Brown - the glory days".

However, what you seem to be suggesting is that there is some "nuclear" option that involves economic meltdown - lost tax revenues, unemployment etc.

America recovered from such a meltdown and became the strongest nation on earth. Sure, there were soup queues, but the whole thing was done and dusted in the same time-scale as the last British Labour Government. Less than a generation of pain, followed by astronomical growth.

So, what I want to know is, what would be so bad about an economic meltdown?

Why not allow economic free-fall? It seems to me that the only people who would really lose are city slickers who make and lose millions, merely by pressing buttons, rather than doing a proper, productive job. If they went to the wall, not a lot of people would feel sorry for them.

I'll get me Trilby.

Anonymous said...

There's considerable suspicion that the only thing that got America out of the great depression was WW 2.

There seems to be a collective reluctance to go there again for some reason

Anonymous said...

Time travel only works one way.

Moving on, I hope we are starting to etch into the cultural gestalt that it is wrong to take out debts that are repaid by your children. Taking out such debts implies you have a better use for their money than they do.

If you do not agree with this, I look forward to you giving your house to your parents when they get older, rather than the other way round.

Inter-generational debt used to be only acceptable when it comes to national survival (war)

Bill Quango MP said...

DP: Good summary. Osbo delivery, ok. Alan - dismal.
George and Co have already seen the effects of Obama's wait and see way of government. It lets the opposition attack him for waste and inactivity.
I doubt Dave and co want to take on the unions, but I'm sure they've reasoned that if they have to, then now, when everyone is feeling the pain is the time.
Hard to justify high pensions and perks when others are suffering.

Bill Quango MP said...

WW. You should comment more. I am aware of your work :}
Anon has hinted correctly about WW2. But you are very wrong about only Bankers being hit. As can seen by today's announcements it would be the poorest hit hardest.

From memory so don't quote..

Roosevelt did not have a coherent economic policy. His main aim was to prevent the hyper inflation faced by Germany and restore confidence, so encourage investment and growth. His main method, and not dissimilar too Brown's, was to bail out the banks. The fed act bailed out 'sound' banks and let the weaker ones go tits up.Glass-Steagal forced banks to separate casino from retail and restored confidence. Remember 1929 was a stock market crash that took down the banks, not the other way around.

USA was a major agricultural nation and the Farm act prevented further repossessions of farms by the banks and loan companies.
Where the depression lingered on was in unemployment. To recover, the USA needed a world recovery for its goods and services. The short term solution was very similar to new labour's.
Create a series of make work public sector jobs. Instead of diversity and PR posts it was in forestry and highways. It was all focused on big institutions ,similar to allowing councils to hire people on non jobs. Little was done for small business and so {again, very like today} large firms got construction projects, {like the Olympics} but small construction/building companies got zip.

Unemployment in the USA was around 25m in 1933 then fell 5m or so until 1937 when it was on a rising track {2m up} until 1940 when war production brought it down to only 10m and falling very rapidly in 1940. Its pretty clear that without WW2 AMERICAN prosperity would have badly faltered once again.

So... to your point. What would happen if NOTHING was done. Simple.

Weimar Germany had no money itself, owed everyone else, and could only export to gain foreign currency, by selling its commodities that it needed itself.
The effect of the crash there was hyperinflation, total wipe out of the value of any sort of shares or savings and abject poverty, anarchy and extremism. People didn't vote Hitler because they liked his moustache. Hitler promised stability and prosperity.

in 1939 German blue collar citizens, after much deficit spending to help them and the creation of millions of jobs were about 50% poorer than their English counterparts, who were themselves 50% poorer than the Americans.

Brown was right to bail, right to calm the country, right to pump money {And i was personally very marginal on that call. Worried about inflation. But that's a horror for 2012}. He was just wrong to do so with no accounting, no proper plan, and wrong to use massive amounts of printed up money for election bribes. And wrong not to mention, in fact even to deny, that there was a price for that fiscal splurging and what that price must eventually be.

Bill Quango MP said...

Anon: Agree on WW2. It saved the world and destroyed it at the same time.
Debt..Agree with you. The cost of the interest is where I am 100% with George.

Just one days interest payments {at current generous low AAA borrowing rates} would pay for the annual subsidy of all 12,000 post offices.
One weeks payments would pay for all 5500 libraries and all their staffs wages and all their books for a year.

Bill Quango MP said...

WW, quick thought.

USA industrial/military complex that exists today is entirely a product of the USA's wartime spending and the nation's fear of shutting down that spending. {the cold war helped sustain it.}
In 1940, during the phoney war, Roosevelt said he wanted 50,000 planes a year for the USA.
At the time the US air force in entirety, including all training and transport planes built since 1925 was 2500 strong.
The USA eventually geared up to 50,000+ planes a year. Incredible feat.}

Marchamont Needham said...

From memory, didn't he talk about serious cuts in housing benefit?

That underpins the buy to let sector so we may be playing with fire here.

And as for WWII - yes correct, I think Billy Bragg called it nicely:

Dick the Prick said...

Geez - you know it's over when we start rewriting Brown's history; yeah, he was right to bail the banks. I live in Halifax and had it gone tits (which, personally I was advocating - hmmm....may want to think about that) we'd have been fooooked. I wanted to break all contracts, buy them or rather step in just before the funeral march and change all contracts) but Government has absolutely no ability/ mandate/ authority (I dunno - pick a word) to run banks.

Only thing I know is - this ain't a Labour government no more so some kind of balance is restored in Dodge city. Still proper hate Brown, like. Tosser.

roym said...

"When the 30,000 workers of Woolworths were kicked out with 4 weeks notice and a paltry statutory redundancy, no one thought they would never work again"

yes but we will be faced with 4 woolies going bust per year + how many private sector jobs+ those looking for work now? These sort of numbers could start making folk jittery about spending in these new shops that are opening.

and on that what are the other sectors that will be looking to expand now there will be a surplus of (cheap?) labour

Y Ddraig Goch said...

RE: BQ and US aircraft production.

I think you will find that the actual figure wasn't 50,000 - it was 100,000. They narrowly failed to meet it (Hah! Lazy wasters.) They made the target public too so Churchill asked for "only" 5,000 of them.

And, that's before you consider their production of tanks, ships, trucks, locomotives ...

It's amazing that a country that could do all that is now so badly in debt that they may well be beyond the point of no return.

Old BE said...

Nobody has mentioned the rate of public sector retirement which is 250,000 per YEAR. That means that HALF of the retiring people can be replaced while still meeting Osborne's figure. I wonder what proportion of the public sector payroll is actually the hallowed "front line worker"? I suspect that the numbers of nurses, doctors, firemen, coppers, etc. can be maintained comfortably while allowed the back office functionaries to take up a bit of the slack.

Bill Quango MP said...

Marchamont Needham:I believe the cuts in housing benefits are to primarily ensure that people move to lower rent areas. The knock on of that is ..?

Dick: whoooa there. A Comment not a post so it was short on detail.

No revisionism here. However, Brown was right to bail the banks. How he did it, and what it cost taxpayers, was wrong. As documented here before, during and after the crisis. The Icelandic crisis was another example of bailing out the risk takers with the money of the cautious.
Northern Wreck should not today be in existence.

Bill Quango MP said...

Roym: As BE points out many of those going will be retirees or near to retirement. They come off the unemployment stats altogether. Otthers, like many lost workers in the private sector did, will take there far more generous public sector redundancy and set up on their own.
You can even set up your own schools and hospitals. If the work currently done is so vital then a private company will set up to bid for it.

Weekend Yachtsman said...

I am not an economist (otoh those who are, have not been conspicuous by their success recently), but the more I listen and think, the more I feel that the ordinary mass of the people are quite well aware that "something has to change".

The white-hot rhetoric about cuts, cuts, cuts, disaster, we're all gonna die, cuts, cuts, that you hear in the media is, by and large, special pleading and rent-seeking from the usual suspects.

Of course, thanks to El Gordo, there are rather a lot of the usual suspects, but it remains my view that the electorate as whole is quietly resigned to what it knows MUST be done.

It's a rare lucky moment when we might just have the will to do the minimum to see us through. Clearly, and unfortunately, the coalition has no intention of doing more than the minimum.

rwendland said...

Seems to me cutting ought to be focused more to low labour-usage/cost government areas. Firing a low-paid worker, who then stays on unemployment benefits for a couple of years, saves the govt little (in the short term at least).

Cutting council grants by ~25%, but defence procurement (high capital equipment deployment, salaries, imported components, profit) by ~8%, just seems the wrong way around.

[I know we are locked into much defence procurement, but not all - eg the pathetic Type 26 Frigate could have been dropped.]

Marchamont Needham said...

Housing Benefit underpins a big part of the buy to let market.

If it's reduced, then a lot of landlords will be in serious trouble.

Students are another big driver in this area - if student numbers start to fall we could see yet more grief in the housing market.

Bill Quango MP said...

Y Ddraig Goch: I think my figure is for usage by USAAF, the 100k maybe includes planes to the allies, which was most of the world.
Whatever, the feat was truly astonishing. Not only that but to train pilots to fly all those planes in that time was a difficulty solved by the private sector!

In October 1938 Gen Arnold brought in the top three aviation school representatives to request they establish an unfunded start up of CPTP schools at their own risk Congress having not approved the funding for 1938, never mind the massive expansion discussed above. The military went mental and were initially totally opposed to the scheme.
By its end in about 1944 450,000 pilots had been taught to fly by civilian pilots.

Lesson for Alan Johnson ?

Bill Quango MP said...

BE: I'm glad you brought that up. If you consider the packages that will be offered to those aged 58+ Female and 62+ male to go on generous terms, that annual figure can be trebled.
Many people will want to go, knowing that the things are going to get a lot tougher in work. I would have more sympathy but this morning, as EVERY middle two Thursdays and Saturday mornings of the month, since 2008, I work until 2pm in the office ON MY BLOODY OWN !

Bill Quango MP said...

Weekend Yachtsman: Clegg was quite good today. Being bashed by the beeb for his own flip flops, he finally just said .."Its about choice. There is only so much money. So we must make choices. That's what we are doing."

Its a good point to contrast with New Labour. The last government, from 2001 onwards, didn't make any choices. They made all choices..everyone can have anything they want. Yes, of course you can have free tuition, and free houses and free milk and free dinners and free bus travel and casualty free wars and free fuel top ups and free laptops and free... to infinity and beyond.

Wrinkled Weasel said...

Thanks Bill, for such a thorough reply. I know enough to know it is vastly complex, but do not know how to begin.

Your reply kind of sums up what I guessed, which is that the political and social consequences are too horrible to contemplate.

I never liked Hitler's moustache anyway.

Bill Quango MP said...

rwendland : isn't the problem the bosses decide on the cuts? No one wants to cut their own salary.
{except this time around, in the private sector, that is exactly what happened and kept unemployment down.}

We really need to have a military review post. I just rebought Lewis Page's book. I have a post in mind, but its not about hardware. Could you offer up something to CU?

Bill Quango MP said...

Marchamont Needham: I fancied a very leftwing girl in my electro new romantic days. Went to a 'save the whales and miners' benefit concert and I was on a definate promise. But Billy Bragg was playing so I left early and she went off with a marxist.

She's probably in banking now.

Anonymous said...

It is a wonder how people cannot see further than just the little things.

For example: Why on earth would taking money from people to give it to buy to let landlord be sustainable, not to mention even remotely fair? Why would it be normal to have people subsidised to live in places where people NOT on benefit cannot afford to live but are forced to pay for anyway?

I know a lot of people will be disappointed, but there is NO magic tree producing money for the goverment to spend.

Brown was wrong on everything, or applied the wrong solutions. He did not see anything coming, how can he be credited with anything? As far as I am concerned, it should be possible to bring crimnal proceedings against him for bringing the country in disrepute, not mentioning bankrupting it.