Tuesday, October 27, 2009

A musing on budgets

I have spotted a worrying trend amongst politicians and the media, concerning the size of government, the, frankly, colossal budget deficit and the levels of public debt.

The narrative—reinforced by Brown's £16 billion sell-off of assets (which aims to raise, over three years, slightly less than the government borrowed in August)—seems to be that the current talk of cost-cutting is merely a temporary measure caused by the global downturn.

The UK state's liabilities amount, as Burning Our Money outlines, amount to some £7–£8 trillion—a colossal figure, to be sure, but much of it is in the form of unfunded pensions and other future liabilities.

More importantly, the deficit in terms of current spending is running at nearly £200 billion per annum. It is simply not sustainable for the state to spend £200 billion more than it earns in any year, let alone consistently.

Which brings me back to my original point: the theme in the media and in policial circles seems to be that this level of debt is not sustainable in these dire times. That is true enough but it is not this that worries me.

What worries me is the continuing fantasy that this level of spending is only not sustainable because of these dire times. There are many—most notably the NuLabour government—who seem to believe that, once the UK economy is back on track, the splurge can continue.

Additionally, the other variant that I am getting is—if we could only pay down the debt and get the UK's books back in the black for just one year—that we could carry on as before.

Let me make this absolutely clear: the UK state cannot carry on spending at current levels—even were we in a boom, it would be a fucking stupid thing to do.

Let us leave aside my personal philosophy for the moment and acknowledge that, for purely economic reasons, the state is going to have to shrink.

And that shrinkage is going to have to be permanent—this country can no longer continue with the social democratic spending programme because this country cannot pay for it.

So, the debate is no longer about whether we shrink the size of the state: the debate much now focus on how we are to manage the transition.*

Because the British government cannot afford to carry on indefinitely spending £200 billion a year more than it earns. And that means a really radical cutting of the funding and services that many people might be used to—and a lot of people are going to lose their jobs.

Your humble Devil predicts that even if the British economy shows positive growth in the next quarter, the pain for many is very far from over.

UPDATE: to amplify, the Tories seem to be struggling to find more than about £20 billion to cut. They need to be thinking about ten times that number.

* Those of you who heard my presentation at the Libertarian Alliance Conference may well recall that this is a favourite theme of mine.


Beware of Geeks bearing GIFs said...

The theory that organisms have a natural size limit due to physical and biological limitations has been discussed for some time.

I would propose the same is true for an ever multiplying state.

Anonymous said...

Yep, we badly need a war.

James Higham said...

What worries me is the continuing fantasy that this level of spending is only not sustainable because of these dire times. There are many—most notably the NuLabour government—who seem to believe that, once the UK economy is back on track, the splurge can continue.

Yes, it's the [almost] mania to say all is well again when it isn't.

deft said...

"Because the British government cannot afford to carry on indefinitely spending £200 billion a year more than it earns."

Don't you mean "takes" ;)

Jeff Wood said...

Oh, they can do it all right - they just have to debauch the currency.

Then our savers and pension funds, eventually pay the cost.

Bob said...

Don't you have faith in Dear Leader?

Everything's perfectly fine! :D

thefrollickingmole said...

Jeff Wood has it right, as long as any political party can indirectly tax the poulation through "inflation" (which they all contrive to make sound like its natrual and normal) there is no effective limit on their spending.

3% inflation is effectively a 3% tax on every unit of currency in circulation. By printing money they are indirectly sloughing off the debts theyve run up onto the general population.

As little as 100 years ago (maybe even less), a man could make a sum of money, and be able to workout with a reasonable degree of certainty how much hed need to retire on.

If you hadd $200,000 in a low risk bank account earning 5% you knew you had an income of $10,000.

Now your bank is dodgy, you have to make above inflation, and your capital has to grow as well as providing you an income stream. It has been made impossible to save for retirement without adding a large element of risk.

As with immigration, this isnt accidental by the governments, its a deliberate tactic to hide how badly they manage the economic and spending side of their jobs.

Its taken me nearly 40 years to get my head around it.

3% inflation over 10 years equals an effective 30% tax on every unit of currency in circulation. Think about that and rage at the pestiferous political classes that have made this normal.

Roue le Jour said...

It seems to be standard leftie thinking that national debt is not the same as personal debt and you don't have to worry about it. They also believe there's vast sums of money still to be redistributed. Perhaps it's a mental illness of some kind.

Further to thefrollicingmole, one of my favourite books is The Count Of Monte Cristo. Dumas' stories appeal to me because of the light they shine on a very different world. In Monte Cristo characters often talk about money, particularly the amount of capital required at 3% to provide a comfortable living.

It's strange to think of a world where bank rates change about as often as the monarch, and if your grandfather buries 100 quid in the garden, you can dig it up thirty years later, and it's still worth a 100 quid!

Anonymous said...

3% over 10 years is actually a 34.4% tax

thefrollickingmole said...

I forgot to ad the creeping effects of the inflation on itself....thanks now Im even more depressed....

Henry Crun said...

I've never understood the public service mentality towards budgets. That if you don't spend all your budget this year, you will receive a lesser amount next year. Surely, managing your budget concientiously and ensuring that you make savings whereever possible is sound fiscal management. The public service seem to have confused the word budget with the word target.

max the impaler said...

Ninety-nine percent of economists know the square-root of fuck-all.There will be no recovery in the econonomy untill the man in the street has more disposable income, and is confident that his bank isn't going to collapse,his job go out of the window, that he may save enough to retire on one day, and that inflation isn't being engineered to strip him of everything he has already saved.
We are in a desperate state , and being continually threatened with 'green taxes' while at the same time being bomarded nightly to buy a new car is enough to trigger a schizophrenic breakdown.

Anonymous said...

The key issue is targeting the areas where the state has taken on things that no-one wants it to do, and cutting them out totally. Quangos, deversity co-ordinators, etc.

What we know of the tories policies is that they are the opposite - share the pain, which will hit core front line services, even though they say they the opposite. And provoke a backlash, suiting the big-state junkies.

neil craig said...

Fully agree. I also think it would be a sensible idea (ie populat) for the Conservatives to say what % of the national wealth they would ideally wish to spend & that they promise to move towards.

That is not exactly a cast iron promise & being the sort they are would probably say something unadventurous like 40%. When I did an online poll it came out at under 20% & even allowing for bias I doubt if any popular poll would make the Conservatives look extreme. There is no way that Labour/Libs could credibly call for anyhting lower than the Conservatives so it would be clear who came closest to represtning thje public. It wouldc also bring to the public's attention the fact that the state currently spends slightly over half of everything.

Roger Thornhill said...

The state is no organism, but a tumour. One that can force the body to create new and bigger arteries to divert more and more nutrients to it so it can keep on growing.

We need drastic surgery.

Mark Wadsworth said...

DK, a £200 billion reduction looks 'about right'. State spending was 36% of GDP 10 years ago and now it's over 50%.

That breaks down into about 5% for 'core functions' (law and order etc), 20% for 'redistribution' (welfare, education and healthcare) and the balancing figure is waste, complete and utter waste, money down the toilet.

Sure, we can argue over redistribution (I see no harm in clawing back land value gains and redistributing those, or even a low, flat income tax) but it's the £200 billion-plus of waste that depresses me.

NB, 'waste' is laughingly referred to as 'structural deficit'. It's not, it's just waste.

Bishop Brennan said...

Unfortunately, most Guardianistas in the Civil Service, the NHS, the BBC, unions, etc. won't get it until the UK's credit rating is downgraded and all of us pay for Brown's splurge via higher mortgage / rent payments, as well as the higher taxes to pay the extra interest.

Those of us who were sensible enough to marry Americans might have to move there, as soon as the Obamessiah is thrown out at the next election.

Lefties: vote them in with empty heads, vote them out with empty wallets. What I want to know is why the fuck I have to pay despite never voting for the cunts. I'm taking a leaf out of DK's book and voting for kicking them in the cunt (none of them have any balls).