Thursday, 31 March 2011

The cuts...

Okay I'm lacking imagination, I probably shouldn't write when this tired, but I feel like I haven't been writing enough lately!

I was disappointed watching tonight's 10'O'Clock Live with their discussion on the cuts.  This should be something that can be debated well, yet their choice of guests left a lot to be desired.  Firstly someone from the Times who was there to defend the speed of government cuts backs, an activist who (although had perfectly good intentions) didn't fully grasp the economics of her argument and as a result said perfectly plausible statements that were just plain wrong and an economist who was also anti cuts - but also seemed to be a bit on the anti debt side of the fence (i.e. that it doesn't really exist).  The latter had an annoying method of speaking ridiculously slowly as if to make her points sound profound rather than stupid.  My apologies for not providing the names, I didn't have any way to make notes during the programme and Google is being very unhelpful!

The main criticisms I had with the points raised were mainly with the activist.  At one stage she said that the economy contracted in the last quarter in 2010 (true) but then went on to blame the raise in VAT for that.  This is completely bogus as the VAT rise came into effect on 4 January, if anything this should have stimulated demand in December as people wanted to buy when it was marginally cheaper.  The contraction was probably due to the previous Government's stimulus package wearing off, a rise in international food prices, weak export markets, the downturn in the housing market and general rising inflation - to name but a few.  

I shouldn't be too critical as economics isn't her field, though she did come across quite a bit like the classic protester who thinks things are mutually exclusive, just because cuts are being made those supporting them don't care about people who rely on social care.  Nobody gets in to politics to make people worse off, but for every decision there will be winners and losers.  The whole tax system works by robbing Peter to pay Paul - the only difference is that the main alternative being suggested is to rob Peter & Paul's children so that they don't have to suffer now.

I read an excellent post in The Spector Blog which highlights how even at the end of this Parliament, having eliminated the structural deficit in the countries budget, we will still be in a financial mess.  I don't want to be in a country where we are spending more on financing our debt than on education - I shall borrow a few graphs from the previously mentioned blog:

That will just be our interest payments, that's roughly £1,000 per person per year the Government has to pay just to keep our debt at the same level.  

 The mountain of debt we will be sitting on (not including the debt from the banks) will, in real terms, be 3 times higher than it was in 2001 (when the Labour Government deviated from the Tories previous spending plans).  As you can see after that date Labour did borrow more, despite the fact we were experiencing an economic boom - hence creating a structural deficit.

There was one question I think that was asked, or at least a point made, that we don't really need to ever pay it back.  This is simply not true as letting it spiral out of control would undermine our whole currency system.  A detailed explanation of our "Fiat" money system can be found on The Very Fluffy Millennium Dome Elephant's blog - it's a bit long winded and, like me, often goes off on tangents but does give a very understandable overview of the subject, which the author is great at doing in general.  The most crucial point though is that our system is based on the perception that our money can be traded - money is effectively debt and represents the value of goods or services that we are owed for our own production of goods or services, a barter process.  Those to whom the Government is indebted need to believe that they can exchange their indebtedness for something of tangible value (in actual fact they settle for interest payments) but should they believe they can't get it back they will want something more, they want something in return for their input.  

There has been a lot of talk that the Government is pedalling a myth with regards the deficit, it is not.  In 2010 we had a larger deficit to GDP ratio than any other OECD country, that includes Ireland, Iceland, Greece, Portugal and Spain.  Saying that - even if everyone else was digging themselves into a ditch of debt does that mean we should continue to too?  My preference is no!

I think my original point when I started this mamouth essay or rambling (if you made it to here you really need to question whether there are better things you could be looking at on the internet), was that I would much rather have had a panel in their debate that included a government spokes person, a well respected macro economist and someone from the opposition - to put their ideas forward on what could be done differently.

On a side note - Charlie Brooker did an excellent AV bit on tonight's show, pointing out just how ludicrously stupid the No2AV campaign is.

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