Jobs, debt and cuts: which and when — an election quiz
Try to stifle that yawn at the prospect of yet another discussion of cuts: if we’re not careful, that’s what the general election is going to be about. What it should be about is mass unemployment — already the UK total is nearing 2.5 million, expected to hit 3 million soon — and the other hardships inflicted on the most vulnerable people by the recession: how to start getting unemployment down and a durable recovery from the recession under way: at what point the mountain of public debt incurred in the battle to contain the recession can and should start to be reduced: and how much damage will need to be done to those public services on which the most vulnerable people in society depend when the time comes to cut government spending and step up government revenues in order to bring the public finances back under control.
On all these issues, which are mirrored in almost all the world’s major economies as a result of the global recession, there is a general global consensus among governments and economists about what needs to be done, and when: in other words, about the priorities. But within Britain there is no such consensus. On almost all the issues listed, there are sharp differences of approach between Labour and the Conservatives. At present the Conservatives are setting the agenda: it’s all about cuts. The Tories are obsessed to the exclusion of all else with the problem of the debt. Almost all areas of public expenditure should be slashed, say Messrs Cameron and Osborne, with immediate effect, in order to restore the public finances. Increasingly it becomes clear that the public sector is their number one target: public services, public service pay and pensions. Whether the Labour party goes down to ignominious defeat or takes the election to a fighting finish will depend on its success or failure in seizing control of the political agenda and presenting a more credible, honourable and practical set of aims and priorities than those currently being peddled by the Tories.
So here’s a questionnaire for undecided voters to fill in before election day:
1. Which are the main causes of the recession (tick as many as you think apply):
(a) Gordon Brown’s reckless, spendthrift mismanagement of the UK economy in the years before the recession.
(b) Labour’s waste of huge sums of public money spent on bailing out the failed banks.
(c) The development of trading in sub-prime mortgages and other toxic assets, mainly in the United States, bundled up in increasingly opaque derivatives whose real value or degree of risk eventually no-one could calculate, confidence in which suddenly collapsed, leading to massive bank failures, the collapse of the credit system, resulting in a sharp drop in economic activity and a sharp increase in bankruptcies, business failures, unemployment, house repossessions, and government spending on bank rescues and unemployment and other benefits, aggravated by a corresponding fall in revenue from income and other taxes.
(d) The massive global trading and fiscal imbalances caused by the immense scale of public and private borrowing by the United States to finance a huge trade deficit, financed mainly by the purchase of US debt by China and Japan and used to sustain an unsustainably high level of government spending and consumer credit unmatched by earnings.
(e) Global warming.
2. Which country’s government first adopted policies to contain and eventually to reverse the recession based on bailing out the biggest of the failed banks (including taking the worst affected temporarily into public ownership) and providing a massive fiscal stimulus to the economy designed to sustain and revive a level of demand that would lead to a resumption of investment and production and thus eventually to recovery from the recession? Tick just one of the following: (a) The US, (b) Germany, (c) France, (d) China, (e) Brazil, (f) Spain, (g) the United Kingdom, or (h) Zimbabwe. (Actually everyone knows the answer to this one.)
3. When the anti-recession measures described in (2) were later adopted by most of the rest of the world with the broad approval of almost all reputable international economists, which UK political party attacked them as fiscally irresponsible and a reversion to old-fashioned socialism? Tick one of the following: (a) the Labour party, (b) the Conservative party, (c) the LibDems, (d) the Greens, (e) the BNP, or (f) the Official Monster Raving Loony Party.
4. Which country’s gross national debt amounted to 94% of its GDP in 1950 and is expected to reach 101.1% of its GDP in 2011? (a) The United Kingdom, (b) the United States, (c) Germany, (d) France, (e) Greece, (f) Rwanda
(Tick one. The answer is in footnote 1.)
5. How many, if any, of the following 13 countries had a higher level of public debt as a percentage of their GDP than the UK in the last full calendar year: Japan, Singapore, Italy, Greece, Belgium, India, France, Portugal, Germany, Canada, USA, Austria, Cyprus? [For the correct answer, see footnote 2.]
6. Which is the most urgent, highest-priority policy objective: (a) bringing down the UK’s high level of public and private debt, or (b) persisting with measures to sustain and stimulate demand in the economy so that the recovery, when it comes, will be early and durable? (Only one may be ticked.)
7. In the view of the majority of international economists, which approach is likeliest to encourage and sustain recovery from the recession: (a) immediately cutting government expenditures across the board, even before recovery is securely established, regardless of the consequences for unemployment levels and for the level of demand in the economy, so as to make an immediate start on reducing the national debt; or (b) continuing existing policies of stimulating demand by pumping money into the economy, targeting as the highest priority those likeliest to stoke up demand levels by spending all additional income received, i.e. the poorest, the disabled, and pensioners? (Only one may be ticked.)
8. When it is safe to start rebalancing the country’s finances in order to begin to pay off the unsustainably high level of debt incurred as a result of bailing out the banks and fiscally stimulating the economy [oo-er, that’s a clue to the answer to question (1) — do not go back and change your answer], which of the following measures for that purpose will be most likely to be effective: (a) slashing public services and imposing pay cuts and pension reductions on members of the public services — mainly e.g. nurses, local government employees, policemen, postmen, teachers, firemen, dustmen, schools inspectors, social workers, prison officers, probation officers, etc.; (b) concentrating on continuing to reduce unemployment, thus repairing government revenues from income and other taxes such as VAT and reducing government expenditure on unemployment benefit and other welfare payments to help the hardest-hit victims of the recession; (c) increasing taxes on those best able to pay more, including senior executives receiving bonuses and salaries exceeding £100,000 a year; (d) re-evaluating all major government expenditure programmes in order of priority in terms of protecting the neediest victims of the recession, ensuring that the recovery continues undamaged, and applying the criterion of fairness (those best able to pay more do so, the poorest and most vulnerable receive more support) — and deferring or cancelling the programmes evaluated as being of the lowest priority, even if intrinsically desirable; (e) substantially reducing government expenditures by: very early withdrawal from Afghanistan, reducing the prison population by 50%, and abandoning as unaffordable (whether or not desirable) Trident, ID cards and their supporting database, new aircraft carriers, new fighter-bombers to equip the aircraft carriers, and the new prison building programme. (Tick all that you think likeliest to be effective for the purpose defined.)
9. The figure of £1.457 trillion is the UK’s amount of: (a) government borrowing for measures to beat the recession? (b) the government’s estimated budget deficit in the current financial year? (c) current personal, private borrowing by individuals? (c) government spending so far on the wars in Iraq and Afghanistan? (d) MPs’ and peers’ expenses claimed and disallowed? (Only one may be ticked. The answer is in Footnote 3.)
10. Which of the following UK political parties, i.e. those theoretically capable of forming a government after next year’s general election, is likeliest to have got the answers to the nine preceding questions right? — (a) The Labour Party; (b) the Conservative Party. (Only one may be ticked; please vote for the one you have selected.)
And, less seriously, question 11: please identify the author of each of the following quotations and the newspaper in which each one appeared (answers in Footnote 4):
According to [the independent Institute for Fiscal Studies], Mr Cameron would have to cut £54bn of spending in today’s money just to meet the Labour government’s deficit-cutting plans – plans which he says are too timid. Even if he scrapped the police, the Foreign Office, transport spending and six other government departments, it would not be enough.
A good Keynesian would respond to a call for cuts by saying that, whatever we do, we should maintain demand. That means maintaining cash benefits to the old and poor, who spend rather than save.
Necessary as these efforts to give the world economy stronger foundations are, the more immediate priority is not to stop the recovery in its tracks. Domestic public finances will be the most urgent challenge for many leaders as they return from Pittsburgh. With publics nervous about soaring government debt levels, the danger is that fiscal stimulus will be withdrawn too soon. That will hurt not only those who tighten but also their trading partners. As leaders agree to rebalance the world, they must continue to push it upward.
The government should lop 5% off every budget and every public salary for a year, no exceptions and no argument. It would be crude but fair, the price paid by a public sector that has done well over the past decade at the expense of the productive sector of the national economy. It is an expense that the nation cannot at present sustain.
Footnote 1: (The answer to question 4): the United States.
Footnote 2: The answer is that all thirteen of those listed, as well as numerous other countries, had a higher level of public debt as a percentage of their GDP than the UK in 2008. The percentages were: Japan 170.4, Singapore 113.7, Italy 103.7, Greece 90.1, Belgium 80.8, India 78, France 67, Portugal 64.2, Germany 62.6, Canada 62.3, USA 60.8, Austria 58.8, Cyprus 49, UK 47.2. Other countries whose public debt exceeded 40% included Switzerland, the Netherlands, Poland and Brazil. (http://en.wikipedia.org/wiki/List_of_countries_by_public_debt)
Footnote 3: £1.457 trillion is the total amount currently owed by UK private individuals. It has recently begun to diminish for the first time since records began in 1993. (http://news.bbc.co.uk/1/hi/business/8231135.stm)
Footnote 4: A, George Parker, Financial Times, 19 Sept 09
B, Simon Jenkins, the Guardian, 16 September 2009 (http://www.guardian.co.uk/commentisfree/2009/sep/15/labour-public-spending-cuts). C, The Editor of the Financial Times, in a first leader, 18 Sept 09 (http://bit.ly/3m0w6V). D, Simon Jenkins, the Guardian, 16 September 2009 (as B).
Some comments, and a question or two.
I don’t share your apparent confidence in the financial expertise of Mr Brown or, come to that, of most of the other intrnational economists who seem happy to follow his lead; in the country of the blind the one-eyed man is king.
It’s an economic truism as old as the hills that business goes in cycles: boom follows bust follows boom as inexorably as ebb follows flow or night day.
As the poets have it,
Thaw follows frost; hard on the heels of spring
Treads summer sure to die, for hard on hers
Comes autumn with his apples scattering;
Then back to wintertide, when nothing stirs.
Unfortunately there are no almanacs to tell us precisely when these turning points are about to happen. So when the tide’s coming in greed and complacency tempt us to believe the good times will last for ever; when the tide eventually turns blind panic takes over as if it were the end of civilisation as we know it.
There was a time, not so long ago, when Mr Brown couldn’t stop bragging he’d abolished “Tory” boom and bust. I’m inclined to think the silly man really believed that he had.
Would you be happy to have Mr Brown as your financial adviser?
I’d prefer a talented gambler like Maynard Keynes, or a sober old thing like Warren Buffet. As a financier Mr Brown’s a bit like what Jolly Jack calls a pickle-jar engineer: one who can tell you the circumference of its lid to three decimal places, but he can’t get the bloody thing off.
And of course there are lots of unanswered questions about Mr Brown’s chancellorship: why did he raid people’s pension funds when he did? Why did he sell off our gold at the bottom of the market? Why did he he allow the gap between rich and poor to grow so obscenely? Why didn’t he do anything about the pensions time -bomb? Why did he allow The Shred to be knighted “for services to banking?” Why did he introduce the 10% tax rate? Why did he abolish it?
Anyway, even Mr Brown now seems to accept – possibly the last person in the country to do so – that cuts will have to be made.
So we’re stuck with having to choose between Tory cuts and New Labour cuts. You seem to think the latter will produce less human misery.
I’m not saying you’re wrong, but why do you think this?
And why should I agree with you?
How can anyone quantify the difference between Tory and New Labour policy on this issue?
Mr Balls has just claimed we can save a billion or two by simply making our education service more efficient.
I seem to remember Mrs Thatcher making similar noises about the NHS.
And what was the result of that?
It’s a funny old world we live in.
Footsie has climbed about 40% since its nadir last March. (Even so blue-chip shares are still very cheap; you won’t go wrong if you buy now with half an eye on the next, inevitable boom.)
And, thanks to the taxpayer, the top bankers – those anyway who haven’t been pensioned off – seem to be back in business, bonuses (boni?) and all.
These people’s irresponsible behaviour was a big part of the cause of the mess we’re in
Yet perfectly innocent rank-and-file bank workers have been laid off.
Makes you wonder what New Labour’s policies really are.
Meanwhile, out in the real world people losing their jobs, their pensions and their houses, and businesses are going bust.
Brian writes: Thank you for another splendidly vigorous comment, which doesn’t really need a response from me. I would just observe that (i) the recession can’t realistically be regarded as the predictable conclusion of a conventional “boom and bust” cycle of the kind which we had become accustomed to, and which Gordon Brown did in fact indisputably succeed in abolishingf or more than a decade; (ii) I think Labour ‘cuts’ likely to produce less overall misery than Conservative ones because Labour cuts are likelier to be made less sweeping on account of Labour’s greater willingness to offset cuts by increasing taxes on the rich, and also on account of Labour’s built-in instinct for protecting the weak and vulnerable to the greatest possible extent; (iii) I would be only very slightly happier engaging Mr Brown as my financial adviser than I would any other professional politician; (iv) I think there are good answers to all your questions about Brown’s Chancellorship, but this isn’t the time or place for them (sorry!); (v) I’m certainly not going to be cast in the role of defender of Mr Ed Balls; and (vi) it’s pretty obviously unfair to portray the ravages of the recession as they affect ordinary blameless individuals and businesses as the (by implication predictable) consequences of “New Labour’s policies”; it would be closer to the truth to say that our reasonably early recovery from the disastrous situation you describe will be a consequence of not just the Labour government’s policies, but specifically those of Gordon Brown personally. He deserves great credit for these, but only apparently receives it abroad.
You say you think “there are good answers to all your questions about Brown’s Chancellorship, but this isn’t the time or place for them ”
To be serious, just for a moment, where can I find them?
Brian writes: Try http://www.labourlist.org/home.
It’s probably my fault, but I haven’t found this website very helpful; it seems to me to be more about asking questions than answering them.
Any other suggestions?
Brian writes: I’m surprised that you haven’t found LabourList helpful in answering your questions about Labour’s fiscal and economic policies. You could try http://www.hm-treasury.gov.uk/, I suppose.
Thanks for your suggestion, but I’m afraid I didn’t find anything very helpful there either.
Questions I’d like to know the answers to include:
Why has New Labour – ie Mr Brown – allowed the gap between the rich and the poor to increase the way it has?
Why hasn’t it/he done anything about the pension problem it’s more than likely we’re going to have?
Why did it/he sell off our gold at the bottom of the market?
These questions – and one or two more – have bugged me for quite some time.
I’d love to know the answers.
Brian writes: John, even if I was qualified to answer these complex questions, it’s difficult to see how they could be answered other than at book length. In any case, I can’t help wondering whether they are really questions at all, or rather a faux-naif way of making pointed criticisms of the government’s record. Maybe that’s just my suspicious nature. Maybe not. However that may be, just a few points:
1. The gap between rich and poor has increased basically because although the poorest have become less poor thanks to the energetic, but only partially successful, attack on poverty made by Gordon Brown as Chancellor of the Exchequer, the rich have become much richer, at any rate at the richest end of the spectrum. I have discussed some of the reasons for the rich becoming so much richer in my comments on the LabourList version of this post: please see http://j.mp/3TgdSi.
2. It’s not clear to me what action Gordon Brown could have taken to pre-empt the coming problem over pensions, which is due mainly to the fact that people are living much longer so that a working population which is constantly shrinking as a proportion of the total population is having to support an ever growing number of pensioners; and that much of the working population now has enforceable pension rights which are beyond the reach of government intervention. Both parties are resorting to deferring the pensionable age for state pensions, a fundamentally obnoxious measure that will only partially address a truly intractable problem. Britain is by no means alone in facing exactly this problem, which suggests that no single government or minister can reasonably be blamed for it. Part of it is that the NHS has been too successful in keeping more of us alive for so much longer. I suppose Gordon Brown could be blamed for that.
3. As for selling the gold reserves, or some of them: did you know at the time that the gold price was the lowest it was going to go? If you did, why aren’t you a multimillionaire? (Or perhaps you are?) But in any case, when the NHS, education, the transport infrastructure, and other services on which the most vulnerable in our society depend, were all suffering from scandalous neglect by the preceding administration under Thatcher and Major, and all at the point of irretrievable collapse, it would have been cruelly irresponsible to continue to sit on unnecessarily large gold (and foreign currency) reserves instead of using them for long overdue investment in these vital services. The alternative would have been either a signifcant increase in taxation or else hugely increased borrowing — and if the government had adopted either course, with gold sitting in the vaults of the Bank of England at a time when its world price had been steadily declining, the Tories and others would have been jumping up and down asking why Gordon Brown was saddling future generations with a huge debt burden, or choking off prosperity by “penal” rates of tax, while vast reserves were sitting idle in the vaults — and losing their value. Selling some or even all of it was absolutely the right thing to do, whaever subsequently happened to the price of gold.
Brown adopted the genuinely prudent policy of borrowing only for investment, not for current account expenditure, and ensuring that the current account was in balance over each economic cycle. That was basically how he achieved the remarkable and almost unprecedented success of repairing the public services by injecting huge amounts of investment into them, maintaining full employment, and keeping both interest rates and unemployment extremely low. To have maintained such success for a whole decade was a massive achievement. The causes of the eventual economic near-collapse were manifestly well beyond the control of the British or any other government (again, see my comments at http://j.mp/3TgdSi): but even then Brown by almost universal consent led the way world-wide in applying urgent and effective measures to prevent a total collapse of the banking system and then took further bold action to avert a global slump, which would have had incalculable social, human and political consequences. Whatever one might think of Gordon Brown’s personality traits and defects as a communicator, the plain fact is that he deserves huge credit for what he has achieved since Labour took office in 1997, before, during and after the banking and general economic crisis.