(No) stitch in time

That last Labour lot were an utter shower. It’s cos of them we’re in the mess we’re in, cos of them spending, make that wasting, all our money. Wasting I tell you.

Hold that thought for a mo ….. the scenes from waterworld/Somerset are truly gobsmacking as is the fact it appears to have been going on since Christmas. Clearly something should have been and/or must be done about this, except something already was – spending on flood defences in England and Wales was cut (in absolute and real terms) years ago by the current government.

This was part of the initial approach to austerity; routine spending e.g. benefits, are a bugger to cut as the Irritable Bowel-Duncan-Smith experience exemplifies. Capital spending on the other hand is relatively easy, you just cancel or postpone the building of new things like seawalls. Hence, in the early years of austerity, capital spending, even though it’s a relatively modest share of total government spending, accounted for a disproportionate share of the cuts. Capital spending on flood defences illustrates this perfectly, the total being cut 27% from 2010/11 (the last year of Labour spending plans) to 2011/12.

Now would a Labour government have done anything differently if it’d won the last election? Doubt it. But, some of the last Labour government’s spending looks a bit more sensible allova sudden what with them having started ramping up spending towards the £1bn a year level that’s been deemed necessary to cope with all the freak weather we now appear to have.

And there’s the obvious charge of short-sightedness that can be made against the current lot. Would keeping spending at Labour levels have prevented current events? Doubt it, but it might have ameliorated some of them, which, given what they’ll ultimately mean in terms of additional spending on tidying up the mess, lost economic activity and all our insurance premiums, suggests the spending cuts may eventually cost us all far more than they apparently saved *. Oh and it would have created jobs as well.

And BTW the above numbers are nominal i.e. don’t take inflation into account, meaning the reduction in spending is even bigger than it looks.

* you get the impression the nasty bedroom tax has already gone in this direction as well what with the time and money being wasted on chasing up newly created rent arrears and what not.

Pushing string

So there’s fiscal policy and then there’s monetary policy, the other side of the economic policy coin. Ideally the two work together. Now? Less so.

Fiscal austerity is doing its damndest to undermine and generally crap on demand what with the massive reduction seen in government spending on capital goods, investment and what not to preserve the UK’s AAA status. Monetary policy by contrast is at best tinkering and tickling round the edge as follows:

-          Historically low interest rates to minimise the number of indebted bods and companies failing (hmmm, what about zombie companies being a bad thing then?)

-          Low interest rates also encourage a competitive i.e, a devalued pound (take that all you dumb fucks that whined about the credit rating downgrade undermining the phallic worth of the pound, that’s monetary policy bitches)
- Low rates also also (well negative real rates) provide a disincentive to save i.e. they encourage people to spend, spend, spend in ourt consumer driven economy
- Obviously, following on from the above, low interest rates and the associated tolerance of above target inflation cheekily chip away at the real value of debt in our deeply indebted nation (shame pay growth is also negative in real terms)

-         Then there's quantitative easing or QE to encourage well its not that clear really, investment in marginally more risky, but still comfortably investment grade assets? To prop up prime asset values that benefit bods with pensions? No got a scoob really

-          And latterly the invention of all sorts of ways of cutting credit costs to, to, well what exactly?

Am guessing, judging by what Bank of England bods say, this last one is about encouraging demand by making it cheaper to borrow except, well how’d you reconcile that with fiscal austerity and what that’s been doing to the willingness to invest for years now? The answer is you can’t, the reason being because you can't.

To give an example using the key economic example of pies; make a pie cheaper then yeah, sure I might buy one, mebbe even two extra, but that’s cos I like pies. If I didn’t like pies, then whether they cost 50 quid or a horsemeat-tastic 50p, I ain’t buying any more and you’re wasting your time.

Similarly, cutting the cost of credit don’t mean shit if I don’t want to borrow new money or to quote from the latest Bank of England creditconditions survey

there was “a reduction in credit demand from small companies … (and) … demand from large firms was expected to remain broadly unchanged” So there you are then, banks don't want to lend to small businesses, banks don't want to lend to small businesses ....

Really? The Bank of England's own research into the impact of its own policy indicates small businesses aren't that keen on borrowing right now, which makes sense. Like European exports aside if you were a business dependent on government contracts would you fancy investing in new stuff right now? Thought not. Refinance your existing debt makes sense obviously, but borrowing more? Nah, no thanks.

Hence, a key and innovative part of current monetary policy looks about as effective as pushing string.

Masochistic e.rection disguise

You know an economic policy has had its credibility chips when the more politicians try to justify it the more they sound like they’re describing a masochistic e.rection.

Hence, fiscal austerity is painful, but thankfully the ConDems are up to taking the kind of big, strong, firm and tough (and blue-veined) decisions we need if we’re to cum through these hard, oh so hard times together. Indeed.

The disguise part here stems from the reality, which is that for all any politician might claim we’re all in this together, the following are the people really feeling the pain - the working poor, the unemployed, the disabled and the infirm. That they are doing so due to policies that are actively undermining the growth they’re supposed to be promoting exacerbates this bloody awful reality.

Snatching defeat from the jaws of victory

The politics of the UK credit rating are currently ghastly, all this he said, she said, nyah-nyah-nyah-nyah crap when there's barely a fag paper between the actual economic policies of the government and the opposition.

'sides its not as if George Osborne wasn't already as obviously useless as he is a shit. Rather, the downgrade is  a real opportunity for some sanity as long as all parties get the basics right of looking at what the downgrade actually does to British borrowing costs (here's a clue  - f' all), then work out how to spin the U-turn needed away from the following assumptions that have wrongly shaped economic policy:

- Cutting spending would have only limited impact on growth (see some IMF bod on how the impact of spending cuts was profoundly under-estimated in this chat on "multipliers")

- Spending needed cutting to save the credit rating because a downgrade would raise Britain's borrowing costs (more relevant than the US was the French example, now Britain is another of how this turns out not to be the case)

Then, they should start thinking in terms of (fiscal) expansionist policies that actually promote growth, a starter for ten being a government debt funded programme to build say £20 billion worth of social housing.

Moodys economic analysis should also be challenged in front of a parliamentary committee, but with the questions asked by people who know what they're talking about. The rationale for this second step is pretty straightforward - Moodys talk shit and need some hard, humiliating schooling. And it'd be fun.

The alternative is more of the same bollocks policies that are as self-defeating as they are cruel.

Tits and Tory Boy

I could be a tit and quote myself from May this year so I will “it seems like middle income bods are gonnae get clobbered left, right and centre by various VAT,NI and income tax rises and freezes and also get excluded from as many benefits as possible e.g. no more from tax credits or nursery vouchers and say the end of unverisal child benefit and what not if household income is over 40 grand a year or something, the staggered introduction of all which will progressively knock thousands off people's disposable incomes and further ghetto-ise the benefit system”.

But, aside from my having crystal balls (it was bloody obvious), what's really, and I mean REALLY impressive is how dumb the child benefit proposals are. So that’s no child benefits for any family with at least one person earning over £44k? Seems fair enough I guess, except looking thru the following hypothetical households:

Single parent earns £44k, total household income, £44k = No benefit
Two parents: he earns £43k, she earns £43k, total household income £86k = Gets benefit
Two parents: he earns £44k, she earns £15k, total household income £59k = No benefit.

So it targets higher earners not higher income households, which doesn’t strike me as being especially fair (whether the legislation will be smart enough to pick up on same sex couples will be interesting also). And oh oh, I was a schmuck on the grounds I didn't think anyone was dumb enough to conflate individual earners with households.

Then there are the raw disincentives to work it creates. In this blessed age of flexible working a bog standard two income family debate is whether someone should cut their hours to spend more time with the kids. Whereas the economics of this originally took into account the earnings forgone vs child minding costs saved, now they will increasingly need to take into account the £1,752 p.a. in benefits foregone also.

To give a practical example if Mum A on £45k p.a. dropped to a four day week, her net salary after tax and national insurance would fall from £32,860 to £26,764, however, she would keep her child benefit and potentially save c.£1k p.a. on child care costs.

And yeah, yeah, pension contributions would also fall 20%, but so feckin what given pensions are going to be raped on a continuous basis for the next decade. I mean what’s 20% less of fuck all tomorrow compared to getting 20% of your working week back today? The other funny besides stuff like people losing out when they get a promotion and/or pay rise is the potential damage it’ll do to the tax take.

So whereas Mum A on £45k for a 5 day week coughs up £12,139 p.a. in tax and NI. Mum A working 4 days only pays £9,235 p.a. and keeps her £1,752 p.a. in benefit. So a measure intended to save £1,752 a head ends up costing £4,656, which kinda matters given it indicates only a significant minority of people need to follow Mum A’s lead for the fiscal benefits to be neutralised. Eligibility needs to be tapered or banded in some way. End of.

You could at this point be cynical and suggest that actually it’s all about reworking the relationship between the state and the citizen and weening more and more people off what had deliberately become a near-universal system. Except, that’s a pile of shite because means testing household rather than individual incomes would be both a fairer and more effective means of doing so. It also implies a greater degree of vision on the part of the government than they appear to possess. I originally thought poor Danny Alexander was wheeled round the TV studios a while back to ensure the LibDems got all the stick for Tory decisions. Rather than any Machiavellian shenanigans I’d now say the more likely explanation is George Osborne really is the fuckwit “flat tax”(??@*&?!?) Tory Boy shit stain he always came across as before the election, that and he probably wears purple buckets for a bra.