Where To Cut UK Government Spending: An Alternative Approach

Thanks to Dave H. for pointing me at this IFS document:

The public finances: 1997 to 2010

Now there are two unperceptive ways to come at this document, depending on your political stance. You can claim it proves that Labour spent all the money and the Tories will sort it out. But that forgets that RPI was 18% in the first year of the Thatcher administration – the tired claim then would be to blame Big Jim. Or alternatively, you can say that the recovery is fragile, and severe cuts now endanger it. That ignores the fact that £156bn is not a feasible amount of borrowing every year for five years nor can it be justified, as I previously argued.

Neither of these approaches are useful of course, and this document is more balanced than that. My views are post-political. I have one objective and one only: balance the books. Beyond that, I don’t care who is in Downing Street. Governments of both stripes will fail to tackle the structural deficit while doing other annoying and pointless things. Labour will fail to tackle it while recruiting an unproductive army into the public sector in a version of the payroll vote writ large. The Conservatives will fail to tackle it while being antagonistic in Europe – our largest trading partners. Or maybe this time it’s different…?

People assume I am right wing because I keep wanting to cut social security. But my primary motivation for that is just that we need to cut the deficit and it is the largest slice of the pie, by some distance. So you need a smarter response than just to suggest cutting traditional right wing shibboleth items like defence instead. Because I don’t care. I think probably it would be good to help people in Afghanistan and Iraq, and maybe we do have a security threat emanating from those place, but we probably have to take that risk because we haven’t got enough money for two new aircraft carriers and a Trident replacement.

The second reason for cutting social security is derives from the question: ‘what is it good for?’ I know what I get from the NHS and the Education spend. Both are public sector monoliths which probably waste 1/3 of the money put into them, and we should fix that. But that doesn’t mean that you don’t get a benefit from every pound you put in. In education, you could double the spend and still get results. The law of diminishing returns would only bite seriously when you got to to gold plating levels. But we are a million miles away from that. You could give every child in the country 13 years of one-to-one tuition with a specialist graduate teacher paid £60k plus a £10k bonus per A-grade and you would see immense benefits from that. Likewise with the NHS – put money in, and people will live longer and better. What do I get from social security apart from bribing people who can’t be bothered to feed themselves not to chuck a brick through my window? Why isn’t it a protection racket?

So what does the document say?


“Both parties inherited large structural deficits from their predecessors: 4.8% of national income in 1978–79 and 2.8% of national income in 1996–97.”

“By year 11 of their terms in office, both governments were recording exactly the same structural deficits: 2.6% of national income in both 1989–90 and 2007–08.”

Here’s the problem:

Now the standard left response here is to say that the way this gets completely out of hand after year 11 of the Labour administration is because the bankers are responsible for a global financial crisis. In which case I desire you to point me to the section of the pie charts in
cuts which show bank bailout spending, and also why it isn’t true that the first sign of the crisis was a crash in subprime mortgages in the US. Some bankers may be to blame for that, but not I-banks, and it has more to do with excess saving by the Chinese than anything else. But there is plenty of material in the document for you to use against me if you disagree. I think it’s wrong though, primarily because the situation had got out of hand before the crisis and all of that money will come back and may even make a profit.

“On the eve of the financial crisis, the UK had one of the largest structural budget deficits among either the G7 or the OECD countries and a higher level of public sector debt than most other OECD countries, though lower than most other G7 countries. Most OECD governments did more to reduce their structural deficit during the period from 1997 to 2007 than Labour did. This fiscal position formed the backdrop to the financial crisis.”

That wraps it up for me. So what’s the answer? Slay an equal number of sacred cows on both sides. Cut defence, though it’s only £38bn so it won’t help much. Cut the NHS – even though that will do damage, it is better than cutting education in terms of being economically adverse. Do not cut £1bn out of science spending – it is futile and about the most disadvantageous choice available – the leverage multiple on that will be higher than elsewhere. Leave education spending alone. Which again, only leaves social security as the major source of cuts.

See Also:

What Is “Theory Of Mind?”

John #McDonnell’s Characterisation Of #Finance Is Misconceived

The Psychology of Successful Trading: see clip below of me explaining my new book!

The Forthcoming #Bitcoin Crash Will Kill The #Trump Demographic

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The Existence Of The Global Poor Does Not Mean We Can Address No Other Issues

There are arguments based on the fact that many people in the world are poor that says we should do nothing else other than help them. This would have extreme consequences and would be undesirable; all human life would become unbearable

Peter Singer argues that we harm the global poor. By ‘we’, he means those of us living in the developed world, and by ‘harm’ he means actively damage. He is writing in November 1971 at a time of famine in East Bengal. He observes that if I am walking past a drowning baby in a pond, I have a duty to assist even if I might get my expensive suit dirty. He is careful to specify that it is a shallow pond: I am not being required to endanger myself. He compares the aid spend of the Heath administration at that time (£14.75m) with the projected cost of Concorde (£440m, with the out-turn being £1,400m). [You can scale all those numbers up by around 10x if you want to use RPI as an inflator.]

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Thomas Pogge goes further. Everyone in the West is culpable as a result of the industrial revolution being founded on uncompensated asset transfers in colonial times. We must now assist much more than we are currently doing.

Now I don’t agree with the premises but the argument seems valid. Singer says there is no difference between helping the baby and helping someone in sub-Saharan Africa under famine conditions. I think there is a disanalogy in that as Pogge points out, it isn’t just one baby in the pond – there have been 270m deaths from famine in the 15 year period starting in 1990. You can’t save that number of babies from drowning. The 270m number is more than died in combat in the whole of the last century.

I don’t think there is any case for Jobseekers’ Allowance to be paid in this country, at least while there are any job vacancies. You will doubtless disagree with me and saying I am being too harsh, and that people have a human right to work. I also disagree with that, but it doesn’t matter. Because the question for you is how to deal with the Singer and Pogge argument if you think there is a human right to work or to subsistence at the expense of others. Then:

Why is it OK to spend money on people in Bolton to keep them alive but not in Africa?

Singer wants us to spend maybe 25% to 40% of GDP on aid. He doesn’t want to use all of it because he admits that that would be counterproductive – it would be better to retain a strong economy than overtax it. But then in a variant of the above question, which is phrased for physicists since that was whom I was in the JB with last night, is:

Why is it OK to spend £5.6bn on the LHC when people are starving?

I have given my response to this. If you want to deny my exit is conscionable, then you will need a different answer. Maybe you want to say something like ‘ we should look after the people who are already here first’. But do you really want to say that? Why does conscience end at the borders, if it exists and produces duties? Why should people fortunate enough to be born here get looked after? Aren’t you dangerously close to saying ‘we should look after the people who look like me’? Or are you saying ‘I can see that homeless person so I should help him’ while people you can see only on television who are much worse off can be safely ignored…?

So I would announce the end of Jobseekers’ Allowance in three months with a three month transition period after that. I don’t mind weakening it if you don’t think I have a right to insist that people move – the phase out can occur only to the extent that there are no jobs locally available if you like. Note that this is not Incapacity Benefit – paid to those who medically cannot work – or Carers’ Allowance – paid to those looking after someone. I have said nothing about those benefits.

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I think if we must spend this money, it is morally better spent in Africa and even the economics say so. It is mathematically the case that almost 3 of those 270m people were the smartest person in 100m. I don’t know of any reason why people with the capacities of an Einstein wouldn’t be born anywhere in the world. Shouldn’t we be finding those people and helping them? You can be as smart as Einstein and also incredibly diligent; it won’t help you or us if you don’t make it to three months old.

See Also:

What Is “Theory Of Mind?”

Jacob Rees Mogg Is Wrong To Say That Loss of Passporting Will Not Be A Problem For The City

#Norway Is Still A Safe Investment Option

The Psychology of Successful Trading: see clip below of me explaining my new book!

Problems With Quantitative Easing

So the G20 has worked out we need to stop pumping money in and start repairing the fiscal balances of governments. A good move. Even Strauss Kahn, who has been frankly a bit overly French on this, is on board with the change. Surprisingly, it seems to have been the Americans who have been dragging their feet the most.

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Still waiting for the Hungarian shoe to drop properly. Maybe that is containable since they are not in the Eurozone, but when the spokesman for the Premier says that talk of sovereign default is ‘not exaggerated’ you know things are serious.

The G20 also dropped the idea of a global bank levy, saying rather disingenuously that it would be up to individual countries to take their own steps. That’s disingenuous because the whole point is that you can’t do something like that unilaterally because it won’t be effective and it will be counterproductive.

Merkel’s ban on naked shorts (should be policy also for German holidaymakers) was a brilliant move if you were seriously interested in relocating three desks worth of traders from Frankfurt to London for a short period. If that wasn’t high on your policy agenda, then…not sure what you get.

Populist driven economic policy is generally even worse than the democratic outcomes elsewhere because people are actually actively bad at economics as opposed to merely being poorly informed and generally uninterested as in other spheres.

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So what does this mean? Markets seem to have been spooked more by poor NFP numbers out of the US than anything else yesterday, but in any case not enough may have been known during opening hours – the G20 communique is reported as of lunch time today. So we’ll see on Monday. And also whether this top cap thing in the Gulf is going to work.

See Also:

The Psychology of Successful Trading: see clip below of me explaining my new book!

UK Government Spending: Where It Needs To Be Cut And Why

Where To Cut UK Government Spending: An Alternative Approach

John #McDonnell’s Characterisation Of #Finance Is Misconceived