General / Off-Topic Interesting news and perspectives on the economy

[beelbeebub]

The deficit is very real, in the sense that gov spends more than it earns.
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No, it doesn't.

Hang on a minute here, this is a pretty fundamental disagreement!
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Pretty much every source I can find gives the UK gov total managed expenditure (lets pick 2010-2011) at around 45% of GDP whilst the Public sector current receipts (i.e. gov income) are around 37%, so the deficit is around 8% of GDP.
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Now if you only look at the UK gov current expenditure (stripping out investment and depreciation) the spend is only 42% making the deficit about 5%.
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Which of the two figures, gov income or gov (total managed or just current) expenditure do you dispute. Does the gov have more income than it declares? Or is the expenditure figure somehow overstated. Unless we can get to the bottom of this, progress will be stymied. I agree that if there was no deficit, then "austerity" would not be needed.

http://www.huffingtonpost.co.uk/ramesh-patel/growth-cameron-austerity_b_2007552.html
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I'm not sure about that Huffington article.
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First off it puts up some straw men,

CLAIM 1
The last government left the biggest debt in the developed world.
CLAIM 2
Labour created the biggest deficit in the developed world by overspending.
CLAIM 3
Our borrowing costs are low because the markets have confidence in George Osborne's austerity plan and without it the UK will end up like Greece.

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then knocks them down.
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However, Claims 1 and 2 are essentially irrelevant to the argument about what to do. They are claims about whose fault it is not that the problem exists.
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Claim 3's rebuttal is a bit muddled (and out of date as the article is a few years old which isn't really the author's fault). The UK is still enjoying relatively low interest rates on it's borrowing which is a good thing. Whether or not this is Osbourne's brilliance or pure chance is still up for debate.

 

[Surfinjo]

Hang on a minute here, this is a pretty fundamental disagreement!
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Pretty much every source I can find gives the UK gov total managed expenditure (lets pick 2010-2011) at around 45% of GDP whilst the Public sector current receipts (i.e. gov income) are around 37%, so the deficit is around 8% of GDP.
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Once again, we are risking getting sidelined.

In the case of the apparent deficit, the issue is what is considered to be debt and what is considered to be capital expenditure, (that which produces an eventual surplus).

The Tories are doing what they always do, creating an apparent economic crisis then using that to cut back on welfare. While reducing taxes, (whose only significant effects are enjoyed by the very wealthy) and increasing expenditure of vanity projects.

This last demonstrates that the economy is far from problematic. But more that other economies which also experienced the same problems as a result of the banking fraud are now recovering and growing. More importantly, their public services systems are growing.

The spectre of mass homelessness is an obscenity that exists as a tool of the same policies that cut services while increasing vanity expenditure.

There is no deficit. Poverty and the threat of poverty are tools to pressure the populace into accepting reduced conditions as a form of collective self sacrifice for the good of all.

Jonathan Swift would have loved to live now.

 

[beelbeebub]

I get that some expenditure is on things that are expected to provide a return I the future.
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I might spend money on a new power tool because it enables me to do more work and earn more money to pay back what I spent. Fine.
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But a gov still, at some point, has to balance what it spends with what it collects. If it didn't have to do that, i.e. if it could spend more than it collects indefinitely then logically, there would be no need for taxes at all!
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Out current tax/spend structure is such that we spend more than we collect which cannot go on indefinitely. Over the short term it is fine, but ultimately it has to balance.
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What bugs people is change. If you change a system, benefits or taxes, there will be winners and losers. But a setup that used to work doesn't always work.
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Some examples, say you have a you have a work force, only 1% your population are retired and they only live 10yaers anyway. In that environment we can give generous benefits to the retired. 3/4 you last wage plus housing costs paid and free public transport. That's fine when they are only 1%. Then as demographics kicks in, your retired population starts to grow to 5%, 10% and higher. Suddenly your generous package becomes too expensive so you either have to reduce the benefits or bump the taxes. Both will pee off someone. Cut pensions the retired go bananas, raise income tax, the working get annoyed.
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We cannot ever stay still on our tax or benefit (income or expenditure) structure. What worked in 1970, 1980, 1990,2000 won't work now.
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There are treatments that didn't exist 10 years ago for diseases that didn't exist 30yaers ago. When the NHS started treatments were cheap, now we have treatments that can cost hundreds of thousands. We have a population that is using more medical help because it's older and fatter. Clearly the structure of, the cost an the approach to the NHS has to evolve.
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Don't get me wrong, I look at some of the current gov policies and <face palm>. Some of their action will have real world detrimental effects. Some are hair brained. Some might even be vanity projects.
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But I believe the deficit (i.e. that the gov spends more than it earns) is real.
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I believe that this situation, if left to continue indefinitely or even for much longer, will impact negatively on our society.
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I believe that changes from our current earn/spend structure are required to avert the above negative impacts.
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I believe that the changes cannot be on the earn (taxes) side alone (regardless of who they fall on)
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I believe that some changes to the benefits (spend) side are necessary. Some of these changes may need to be to programmes that are no longer sustainable due to changing circumstances. These changes will inevitably result in "losers".
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The trick with the last is to try and minimise the losers. There will always be edge cases that lose disproportionately, you cannot devise a system that never produces a sob story unless you make a system that produces "immigrants in luxury" rage stories or similar.

 

[Surfinjo]

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Out current tax/spend structure is such that we spend more than we collect which cannot go on indefinitely. Over the short term it is fine, but ultimately it has to balance.

But don't you see, that's the lie. There is no deficit.

 

[beelbeebub]

But don't you see, that's the lie. There is no deficit.

Sorry, you didn't say which bit of my figures was wrong.

Pretty much every source I can find gives the UK gov total managed expenditure (lets pick 2010-2011) at around 45% of GDP whilst the Public sector current receipts (i.e. gov income) are around 37%, so the deficit is around 8% of GDP.

Just saying "the deficit doesn't exist" doesn't make the fact the gov lends more than it collects go away.
So....
1. The government collects about 37% of GDP in tax revenues
2. The government spends about 45% of GDP on services, debt payments etc
3. The above means the gov spends more than it collects
4. A government must borrow to make up the difference
5. A government cannot borrow indefinitely
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Which of the 5 statements do you disagree with?
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At the moment we can't discuss because you are refuting a fundamental set of facts, but without offering any explanation.

 

[Surfinjo]

Sorry, you didn't say which bit of my figures was wrong.

Just saying "the deficit doesn't exist" doesn't make the fact the gov lends more than it collects go away.
So....
1. The government collects about 37% of GDP in tax revenues
2. The government spends about 45% of GDP on services, debt payments etc
3. The above means the gov spends more than it collects
4. A government must borrow to make up the difference
5. A government cannot borrow indefinitely
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Which of the 5 statements do you disagree with?
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At the moment we can't discuss because you are refuting a fundamental set of facts, but without offering any explanation.

What is the current definition of debt?

Why is it that every incoming Tory government since 1951 has made this identical claim? (Co-incidentally every Republican government in the US and numerous national governments in many parts of the world have also made similar claims. It's a bit of a pattern really.)

These figures treat government finances in a simplistic way. That should be the first sign that they are suspect.

National finances are so much more complicated than this.

Business finances are more complicated than this.

Successful household finances are more complicated than this.

This approach might be OK for children's pocket money.

 

[beelbeebub]

What is the current definition of debt?

Why is it that every incoming Tory government since 1951 has made this identical claim? (Co-incidentally every Republican government in the US and numerous national governments in many parts of the world have also made similar claims. It's a bit of a pattern really.)

These figures treat government finances in a simplistic way. That should be the first sign that they are suspect.

National finances are so much more complicated than this.

Business finances are more complicated than this.

Successful household finances are more complicated than this.

This approach might be OK for children's pocket money.

Are you saying you question the spending figures? I will assume that is what you meant by bolding item 2.
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So debt payments, in this context, is the money the gov spend on either repaying bonds due or the interest on any outstanding bonds. This is about £40bn per year at the moment, roughly 5% of gov spending. It would be analogous to the mortgage/credit card/loan interest that a household may have to pay.
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Sorry, what is the claim you are saying tory govs are making (not being sarky just lost it in all the back and forth).
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I'm not sure that it is (ultimately) more complex. The "it's complex, you wouldn't understand" argument was used by bankers (and governments) to cloak iffy accounting.
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What is the complexity that allows a gov (in real terms) to spend more than it collects indefinitely?

 

[Surfinjo]

Are you saying you question the spending figures? I will assume that is what you meant by bolding item 2.
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So debt payments, in this context, is the money the gov spend on either repaying bonds due or the interest on any outstanding bonds. This is about £40bn per year at the moment, roughly 5% of gov spending. It would be analogous to the mortgage/credit card/loan interest that a household may have to pay.
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Sorry, what is the claim you are saying tory govs are making (not being sarky just lost it in all the back and forth).
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I'm not sure that it is (ultimately) more complex. The "it's complex, you wouldn't understand" argument was used by bankers (and governments) to cloak iffy accounting.
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What is the complexity that allows a gov (in real terms) to spend more than it collects indefinitely?

Yes, I do question the figures.

Your next point is the question I pose, namely, what is considered debt. Your list is what might be seen as common sense, in reality, it's all about manipulating figures.

Just as example, PFI was originally taken as continuing expenditure, but moved to public debt. http://new.spectator.co.uk/2008/09/the-great-debt-deceit-how-gordon-brown-cooked-the-nations-books/

Sorry, what is the claim you are saying tory govs are making

The claim is not about Torys especially. The claim is about all governments since at least WW2. That they have consistently manipulated figures to pursue the public notions:

1. The country is in some sort of economic crisis.

2. That this crisis is somehow the fault of ordinary people and ordinary people must carry the greatest burden for rectifying it.

3. That this supposed crisis can be solved by cutting public services while simultaneously granting tax cuts to the highest earners.

The country is not in any sort of economic crisis. What it is in is a state of deliberate economic mismanagement. The wealth of any society can only be assured by sound management and a motivated workforce. We have neither. One of the greatest problems affecting our workforce is an epidemic of mental illness. Huge numbers are affected by debilitating conditions that most are not even aware of.

The problems of mismanagement are a policy. They are quite deliberate. The farce of Supplementary benefits in the 70s, which by the late 70s made it unprofitable to work for example. The PFI which on the face of it was a short term bribe, but in reality was so obviously destined to cause a crisis. The utter failure to properly deal with either. We still have supplementary benefits and these have been expanded to numerous 'special' payments for anything from child care to paying rent. PFIs are

Thatcher is creditied with bringing down inflation. In reality all that happened was that numerous goods and services are no-longer accounted when inflation is calculated. Inflation in real terms is nearer 10%. Since the late 80s the value/cost of my house has risen over 5 times! Rent has rocketed even faster, How a home is seen as being irrelevant when it comes to calculating inflation is rather less interesting.

Almost nothing has been done about the huge loss of taxation income from Franchises, where international companies charge apparent franchise holders enormous fees which are paid overseas, thus not liable for UK company tax. This is one example of a total farce. It was ignored in early years because it was claimed that these international companies wouldn't want to come here otherwise. Now it's just tradition.

Billions are due to be spent on exclusive building projects, Parliament, Buckingham Palace and others, while our apparent problematic economy cannot afford to build public housing or pay for police to patrol our streets.

 

[beelbeebub]

Ok, now we are getting somewhere!
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If we can both agree to take the tax take of around 37% of GDP as accurate that closes one side of the equation.
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Do we also both agree that a gov cannot overspend indefinitely?
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If I assume for this post we do.....
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Now, the figure for expenditure is the "sticking point"
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I contend that it is as published (or higher, see later) at around 45%
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You contend that it is actually lower than the 37% revenue figure, i.e. around 8% of GDP or (to put it in spend terms) just under 18% of the gov't published spending is "manipulated figures" and the gov is in fact spending less than it claims.
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I find it hard to believe that 18%ish of gov spend or £200bn is able to be "manipulated". This is equivalent to the NHS budget (ish)
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The PFI/PPP trick you mention was actually the opposite, it took what would be considered gov borrowing and turned it into future costs.
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Spoiler

Actually, having being involved with some PFI stuff (peripherally), the core idea isn't so bad. It is basically saying, you build me a school/hospital etc and i'll rent it from you for 25/30/50 years, whilst you maintain and run it, then i'll get the building/asset. It's essentially a hire purchase type thing.
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Where it came unglued was that the private sector completely outclassed the public when it came to writing and enforcing contracts. Where I was looking, the public sector side simply didn't have the skills to hold the private side to account and got stuffed.
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An example would be in the original agreement the private side had to replace all the lights after 10 years as part of their responsibility (i.e. included in the rent). at around 8 years, they proposed to fit low energy, sensor lights throughout (for a fee) and argued it would reduce the energy bills. Fine said, public. So the public paid for the new lights to be fitted, when they would have been fitted anyway if they had waited 2years, then, as the building spec had improved (better lights) the private could increase the rent!
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I was consistently amazed by the incompetence of the public side. I reality, if they were sharper and had more balls, they could have given the private a roasting and made sure they got value (building and running the site would have been expensive). Instead, because the private sector can attract better personnel, the public got stuffed.
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My point is that PPI/PFI is not intrinsically bad, just that if done poorly or for the wrong reasons it can result in poor value for the public side. However, I could see that if done well, it might provide a service more efficiently than the public side could

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My take is that in good time politicians can give away goodies (great unemployment benefits, sick benefits etc) because there is lots of economic activity to bring in large revenues at lower rates plus there are fewer unemployed/pensioners etc. Now times are worse (i'll get to this in a mo) there is less money but crucially more "dependents" eligible for the benefits.
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If we only had 5 asylum seekers a year, we could put them all up in 5* hotels, with a chauffeur driven tolls and £5k a week spending and it would only cost a few hundred thousand a year (essentially nothing). No one would bat an eyelid. Ramp the numbers up and suddenly it becomes expensive so the 5* has to become a b&b, the rolls a buss pass and the £5k, £50.
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You might argue the economy is fine, but one unarguable fact is that the number of pensioners V's the working population is rising. This is simple demographics, the baby boomers are all hitting their mid sixties. So the package offered to pensioners 10,20,30 years ago has gone from affordable to unaffordable. Some have to change the package. This is why so many private companies and private sectors are making the pensions less generous because they cannot afford to keep paying the pensioners. It used to be a joke in the car industry that General Motors, who had huge pension liabilities from the generous final salary pensions it used to offer, was a pension company that happened to make some cars.

 

[Surfinjo]

Ok, now we are getting somewhere!
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If we can both agree to take the tax take of around 37% of GDP as accurate that closes one side of the equation.
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Do we also both agree that a gov cannot overspend indefinitely?
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If I assume for this post we do.....

You're still not getting it.

The figures are a lie.

There is no deficit.

There is no overspend.

There never was.

This is the claim from every Tory government since at least WW2.

Every Tory government has maintained the illusion that we are dealing with some sort of crisis. Yet the only ones paying for that crisis are the working classes.

We cannot possibly check a claim that 37% of GDP is paid in tax and since the figures are clearly dishonest, we must doubt that figure as well.

And the evidence makes it patently obvious that the Labour party is part of this deception.

 

[beelbeebub]

Whoa!!!! You are saying that the gov (well actually the civil service) is lying about how much tax it collects and how much money they spend/commit to spend?
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That's a pretty big claim and to be honest, pretty hard to believe.
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We can check the figures for tax revenue and spend they are a matter of public record, crucially they are complied not by politicians, but by civil servants who, in the uk at least, have a history of being relatively independent from the gov.
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I mean it would require the concerted efforts of several departments, all the employees of those departments over several generations of employees to pull off, with no whistleblowing.
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To be honest it's a big stretch to believe that.
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If you become so cynical that you declare that you do not believe any official figures, you basically drift off from evidence into pure belief. Any fact that disrupts your view can just be "disappeared" as "they are lying".
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Maybe Thu are lying but it's actually worse than they say! We actually need to cut even more! You can't refute that because any evidence to the contrary is just lies!

 

[Surfinjo]

No, I'm saying that the claims of continuing crisis which have been a feature since WW2 are a lie.

That this is emphasised when we realise that it is always said to be our fault, that we have spent too much and now much pull in our belts to pay off our debts.

That highlighting the obvious that high end spending, higher salaries and tax cuts are never affected. That alone demonstrates that there is not and never had been any crisis. Just continuing mismanagement.

 

[beelbeebub]

No, I'm saying that the claims of continuing crisis which have been a feature since WW2 are a lie.

That this is emphasised when we realise that it is always said to be our fault, that we have spent too much and now much pull in our belts to pay off our debts.

That highlighting the obvious that high end spending, higher salaries and tax cuts are never affected. That alone demonstrates that there is not and never had been any crisis. Just continuing mismanagement.

Hummmm......
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I think I can see what you are getting at (maybe).
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I think the series of economic crises we have had since (and before) the war are a feature of capitalism.
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It has always been prone to boom and bust. The south sea bubble, the depression, various stock crashes since the war.
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Looking at it with my engineer hat on, there are several features of capitalism, and the stick/finance/money markets that make for an unstable system.
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This leads to the system, either zooming off into "boom" or nose-diving into periodic "crash".
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On top of that you have external events impacting on the economy in a very real way. Wars, the oil crisis, the increasingly global nature of trade, demographics local and global, technological change etc.
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All of the above mix together into forces pulling the economy back and propelling it forward and sometimes both (a war is devastating for an economy, but can lead to spectacular growth and leaps forward afterwards).
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I'm not sure governments have a huge amount of control over it.
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Even China, whose government wields powers western leaders can only dream of is having a hard time taming the forces of the market.
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So I think you could say that the economic reverses that happen periodically are artificial in that they are the end result of human decisions, but I'm not sure we can control them.

 

[Surfinjo]

Seems Osborne has announced 30% spending cuts in 4 government departments.

The transport, local government and environment departments, plus the Treasury, have all agreed deals ahead of the spending review on 25 November.
The cuts will help the public finances back into surplus, he said.
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Analysis by BBC chief political correspondent Vicki Young
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Thirty per cent cuts sound dramatic but they apply only to day-to-day spending and in departments such as transport, the bulk of expenditure goes on infrastructure such as road and rail upgrades, which won't be affected.

http://www.bbc.co.uk/news/uk-34763261?SThisFB

30% of which figure? Far from sounding dramatic, it sounds suspiciously like another load of government hooey.

Wonder if any of these cuts will be made to the costs of renovating Parliament building, or Buckingham Palace, or the £million payments made to NHS managers?

http://www.telegraph.co.uk/news/health/news/10009054/The-8000-NHS-staff-on-six-figure-salaries.html

 

[beelbeebub]

As the article points out the 30% sounds more dramatic than it is. :
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The NHS figures are disappointing, as I mentioned before, my impression of NHS trust upper management was not favourable.
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The argument is always you have to pay comparable rates to private sector in order to get talent.
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In the private sector you are unlikely to get that level of remuneration without results to back it up.
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It seems that that doesn't seem to happen in the NHS. One thing I noticed was that the trust boards were very "incestuous". Lots of the board members CV's were working for other trusts or for sectors of the NHS, or as doctors in the NHS.
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Now "domain knowledge" is important, but the lack of outsider expertise was very evident. Everyone was "indoctrinated" with the NHS management ethos, which frankly seemed to suck. Lots of people moved from the trust to suppliers and back creating a cosy "you scratch my back...." atmosphere.
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It reminded m of my first job. We had peer reviewed performance monitoring. With your manager getting the final say, but the upper manger level was all reviewed by fellow upper managers. Everyone below upper management got average reviews (including the guy who was recently promoted because of his performance, the told he couldn't get a good performance review because he'd just started at the new role, therefore he couldn't get a pay rise). Strangely enough all the upper managers got fantastic reviews and fat pay rises from each other.