Will everyone please stop obsessing about debt and start worrying about unemployment?

In a Comment is Free article about the Tory obsession with the level of Britain’s national debt, Ken Livingstone aptly quotes the distinguished Conservative economist  Sir Samuel Brittan writing in the Financial Times on 1 October:

The British political classes are going through one of their occasional bouts of masochism, with party leaders vying with each other on the theme of who can cut public spending faster and more effectively. Spice is added by talk of leaks and secret plans; and ideology by arguing about the balance between tax increases and spending curbs. My own bottom line is that all this is in response to a largely imaginary budget crisis. If we have a normal economic recovery the red ink will diminish remarkably quickly. If we don’t, it won’t and won’t need to.

(The whole text of Brittan’s article should be cut out, framed, and hung opposite the desks of all those, Labour, Liberal Democrat and Conservative, currently panicking about debt, instead of focusing all their energies on tackling unemployment and encouraging the earliest and fullest recovery from the recession.)

A comment on Livingstone’s article  by ‘Freehead’ is also a useful and informative antidote to the current outbreak of Manchester Conference debt fever:

I have been quoting Brittan too, Sam’s views are similar to my own.The idea that the UK has a dire fiscal problem is absurd. The fiscal surpluses will flow very well in the next 2 years, the debt servicing cost of the marginal debt is the lowest in 300 years on the stock of recently accumulated debt. The roll over rate is the best (next to Greece) in the industrial world, the average term maturity is one of the longest (over 14 years) and double that of Germany. This means that the Brittan’s and Institute of Fiscal Studies of this world are right…..the UK has no debt problem. This is just juvenile political point scoring by the big political parties.

The UK debt burden will shrink very sharply in the next 5 years, even if, as Brittan rightly says, the UK growth rate is only normal in relation to past recoveries from other post war recessions. And, given that so far in the 9-months of 2009 the UK has received more FDI and other investment capital from overseas than ever before, given the huge boost to competitiveness from the weak GBP, and given that we have a jobless rate of only 5% (0.3% under the Thatcher trough at the height of the 80s boom) and to boot we have 4 million more full-time workers…..the chances are stacked in favour of a much stronger than average recovery in the next 5 years….especially as the next 2 years sees all the capital inflow and consumer and investment multipliers of Olympics development coming in.

No way will the currently high level of gilt debt be anything other than a temporary one of cost. There is no fiscal repayment drag in the aggregate as the growth prompted by this debt far exceeds the cost of it. The revenue stream will hugely outweigh the debt servicing cost and today’s high indebtedness – in both the gross terms and as a % of GDP are poised to slide as the economy achieves recovery.

But as this is all becoming clear, what I dont like is Ken’s willingness to lie to the population and to back an ruinous 50% tax rate for high income. There should be no such hike, it is neither just nor is it helpful. It is a very bad tax. Much better ways of taxing high income and wealth via property tax hikes, inheritance tax hikes, stopping private school fee rebates, higher VAT on luxury goods made outside the UK…..etc etc…there are lots of ways…this way hits everyone and is a stain on the liberal socialist heritage of Brown and Blair.

I for one don’t agree with the last paragraph of “Freehead’s” comment, quoted above.  Progressive rates of income tax are among the best ways of ensuring that those who can afford to pay more tax do so (here the digits on PAN card coming into play);  and there are serious problems about taxing property as such as if it was income.  Discrimination in VAT rates against goods made outside the UK, recommended by Freehead, would be protectionist and presumably in breach of numerous highly necessary EU and World Trade Organisation rules.  But the rest of Freehead’s comment is spot on, and needs constant repetition before the mindless hysteria over reducing debt washes away all hope of an early recovery in a murderous tsunami.

George Osborne’s Tory Conference speech was a tour de force:  eloquent, anticipating many of the more obvious objections, intellectually coherent, and highly persuasive, as much media comment on it already demonstrates.  But these virtues make it all the more deeply damaging.  If an incoming Tory government next May acts as Osborne now threatens to act (and there’s every reason to suppose it will), high unemployment will rapidly turn into mass unemployment and Britain’s recession will continue to deepen for years longer than necessary.  Recession and unemployment and the collapse of demand in the economy are the pressing problems: not debt.  It’s time for Labour ministers and supporters to say so, loud and clear, instead of trying to compete with the Tories on their own treacherous ground.


4 Responses

  1. David Raynes says:

    You are right that we cannot have discriminatory rates of VAT against foreign goods but in my view you and others are far too sanguine about government grotesque overspending and Brown’s abandonment of his good friend “prudence”. Remember her?  Plainly she only existed when he was sensibly following Conservative spending plans in his early years.

    Government & Departmental spending plans are like oil tankers, they take a long time to turn round. Only an economic illiterate would believe that spending can continue at the present rate or, that the reckless expansion of the public sector deficit under Labour can continue regardless.

    Plainly the sooner serious planning to reduce costs starts, the better. The UK is in danger of disappearing down the economic plug-hole, Zimbabwe style (I was there last year and it is ugly).
    One obvious reading of recent events is that the Prime Minister has been dragged kicking and screaming to the ‘c’ word, by the deliberate disobedience and refusal to be complicit, of Lord Mandelson and the
    The Government and particularly Gordon Brown, have surely been less than honest. There are bound to be, in all big organisations, savings and efficiencies that can be made and indeed activities that can be /cut/ without affecting delivery of service to customers too much.
    This is no way to run a country. If the Prime Minister’s economic judgement has, as it appears, lost the confidence of his Cabinet, he should go now.  I suggest you watch the Chancellor’s body language during Brown’s conference speech.
    His colleagues should be very clear about the need to remove him.

  2. John Miles says:

    As you suggest, it’s high time we got seriously worried about the unemployment.
    It seems to me our thinking is mostly out of date, and needs some agonising, radical reappraisal.

    Like it or lump it, we live in a capitalist, market-driven economy.
    I don’t specially like it, and only wish I could think of a better practical alternative.

    In such an economy modern technology makes it much easier, by and large, to produce things than to find a market  for them.
    It seems to follow that in any closed economic system it’s inevitable that not everybody will be fully employed. Some people argue that increased prosperity increases demand, which reduces unemployment, but, it seems to me – I’m not quite sure why –  that this is only true up to a point; anyway, I doubt if our our poor little planet has the resources to allow such an increase  to go on indefinitely.

    If you accept all this, it seems to follow that it’s pretty stupid to try to pressurise people  into work against their will or even to raise the retirement age.

    If all our economic parasites – long-term unemployed, single mums, benefit frauds, royals, crims, bishops, imams, rabbis, able-bodied pensioners, merchant bankers, Bertie Woosters and the Drones, amateur athletes, property developers etc etc – were magically metamorphosed into eager, public-spirited job-seekers, what do you think would happen?

    Unemployment would soar, wages plummet.
    Obviously many bosses would love this.
    So all these parasites are really doing the rest of us (who would rather be emloyed than un-)  a big, big favour.

    So, in  my view, it’s probably best left to the market to determine who gets what job.
    What the rest of us should do is to ensure that the residual unemployed/unemployable get  enough for them to enjoy a reasonably civilised quality of life.

    Unsurprisingly, many people in work resent the fact that they have to pay taxes to support people they see – perhaps correctly – as workshy; it’s difficult to remember that by not competing for our jobs they’re doing the rest of us a big favour.
     So we should try to help people in work to appreciate how lucky they are: most of  us, and here – for once in my life, I think I side with the majority – would rather have a job a than not. 
    Obviously some jobs are more fun than others; but most of us would probably rather have Charlie Bucket’s dad’s job – screwing the caps onto tubes in a toothpaste factory – than no job at all.

    Final point: who in their right mind would ever employ anyone who didn’t actually want the job?

  3. John Miles says:

    I wish I could share your apparent certainty that New Labour’s high-minded policies will actually bring home the bacon.

    As far as unemployment goes, I doubt if it makes much difference who gets in, and I tend more and more to agree with Old Joe Philpot – fiftyish but looking much older , childless (his three all died in  infancy) widower, ragged-trousered philanthropist and one of nature’s gentlemen.

    The hands’ dinner-time political argument was getting heated when up piped Philpot, “whose principal characteristic – apart from thirst – was a desire to see everyone comfortable, and who hated rows of any kind.
    ‘There ain’t no sense in the likes of us trubblin our ‘eds or quarrelin about politics. It don’t make a dam bit of difference who you votes for or who gets in.They’re hall the same: workin the horicle for their own benefit. You can talk till you’re black in the face. but you won’t never be able to alter it. It’s no use worrying. The sensible thing is to try and make the best of things as we find ’em: enjoy ourselves, and do the best we can for each other. Life’s too short to quarrel and we’ll hall soon be dead!’
    At the end of this lengthy speech the philosophic Philpot abstractedly grasped a jam-jar and raised it to his lips; but suddenly remembering that it contained stewed tea and not beer, set it down again without drinking.”

    Brian writes: It’s a nice quotation, John, but a basically lazy philosophy. There are fundamental differences between the core values and principles of the two major parties, even when neither fully lives up to them, and despite the impossibility of ever knowing for sure how either will perform when in power. It’s a mark of the mature and responsible citizen to be able and willing to make an informed choice between them, not to try to evade that responsibility by taking refuge in hoary old clichés (“It don’t make a dam bit of difference who you votes for or who gets in. They’re hall the same…”). No, they aren’t, actually.

  4. John Miles says:

    If it’s really “the mark of  a mature and resonsible citizen” to choose between the Tories and New Labour, you’ll have to include me out.
    I’ve not voted Tory since my early twenties, and I’d be very surprised if I were ever to do so again.
    On the other hand I find the  apparent “core values and principles” of the likes of Lord Mandelson and Messrs Brown and Blair just about equally contemptible.
    Or perhaps even more so.

    Brian writes: Almost all political decisions, certainly including deciding how to vote at elections, entail making a choice between the lesser of two evils (or identifying the least of several): it’s rare to be confronted by an easy choice between good and bad, or black and white. Finding it difficult to identify the lesser or least evil is no excuse for shirking the responsibility. Remember whom Dante consigned to the hottest circle of Hell (according to the Kennedy brothers, anyway)? You can buy the T-shirt here.