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Sunday, 27 March 2011

March for WHAT alternative?

It's on days like yesterday that I love my country. You look at the news around the world and see protestors against their governments' policies being shot, imprisoned, tortured and eventually silenced. Here, we had so many people filling Hyde Park today that the organisers stopped counting and no one is doubting there is a decently sized movement "for the alternative" to the Coalition's deficit reduction plan. It's not a national movement and it's not a majority - 250,000 to 500,000 people are about 1% and 2% of the voting population. It's a collection of interest groups who are affected or will be affected by the policies. But that doesn't make what they are saying any less important to hear. It's absolutely vital that people of this country have the right to protest and hold the government to account, scrutinizing their policies.

However, good though they are at articulating the problems with "the cuts", I'm still waiting to hear a coherent, economically sound alternative. It is extremely important that this arises soon.

For instance, until Ed Miliband actually explains HOW he would halve the deficit in 4 years (as would have been the plan had Labour been in Government) then his contribution to this debate remains the same knee-jerk children oppositionism that seems to see him blindly flailing around shouting "Thatcher! 80s! Ideological!", in a sure-fire short-term poll raising strategy that won't get him elected in a million years.

While we're at it, can someone explain why it is OK for the UK to be paying more in debt interest at the moment than we do on national defence, and why it would be OK to end up paying more interest than we spend on our education system - which would be the case in 2015 EVEN IF we clear the deficit (remember - we need to have enough surplus to pay off over a trillion pounds of debt which could take around 50 years). That debt interest has what is known in Economics as an opportunity cost. Every penny could be spent on something useful, instead - it is spent on paying off debt. And for those today who advocate that we simply refuse to pay the debts we have - are you seriously trying to bring down the entire world's financial system?

I would also be grateful if someone can explain how the 'Robin Hood Tax' would actually help reduce the deficit. I get the idea - it sounds wonderful - tax the rich and give to the poor. Lovely. Politically and socially wonderful. Trouble is - it will raise LESS tax revenue. People will leave the country (taking the jobs they create with them) or will do what they can to avoid the tax (I'll come to THAT in a minute) or work less (because it's pointless working hard as your pay gets taken from you) and there will be LESS tax revenue. This is the difficulty of setting up a tax system. FACT - when the higher rate of tax went from 60% down to 40% in 1988 the tax take ROSE and the amount rich people paid ROSE.  So, someone tell me how it would reduce the deficit please.

Now, tax avoidance. Again I think it is a very important point and, using the figures from UK Uncut and the TUC today it would raise £25bn if it was sorted out. But, as I address in a previous article on this site (click here) that is not likely to raise as much as it might seem. The Coalition government IS attempting to close more loopholes - particularly for non-doms, but it is right that a light is shined on this area as more should be done.

Then there is this notion that we should not be spending money on the wars Iraq, Afghanistan and now Libya. It's hard to get away from the fact that when the cuts are costing jobs it is a shame we are spending such a huge amount of money in Iraq and Afghanistan. But unfortunately we are there are we can't just walk away as we really do have to clear up the mess we made.

As for Libya, I find it interesting the amount of those protesting yesterday with signs saying things like "Hands off Libya". First of all - let's not forget that all but 8 (eight) of our elected representatives voted for the Libyan operation. Let's also not forget either that there was about to be a massacre committed there. I have discussed Libya elsewhere (click here and here), but I must ask the question...if there is a moral case against cuts do those morals take a backseat when money that might be spent on you is instead spent on saving peoples' lives?

Also there is the whole question of putting "protect the public sector" in the same paragraph as "concentrating on economic growth". Which one do you want? Let's put them together - can you get economic growth by protecting all public sector jobs? If so, how? There are three ways of getting income in this economy:

1) You receive money direct from the public purse in the form of benefits
2) You receive money direct from the public purse in the form of wages for working in the public sector, which you give back in the form of taxes and national insurance
3) You receive money from private companies which you give back in the firm of taxes and national insurance

It doesn't take much to see that the only way out of those three in which the UK purse gains more than it loses is 3) wages paid by the private sector. If we want sustainable economic growth we need to empower the private sector to pick up the slack on employment and therefore growth. The amount of resources devoted to the public sector causes something called "crowding out" where resources (financial, human, land, capital, everything) are diverted from the private to the public sector. Examples could include the fact that the increased borrowing by the government to fund added government spending could cause interest rates to rise, making it more expensive for private businesses to borrow money. Another example could be where an employee, instead of working for a private company, getting paid wages and paying tax to the UK is instead employed as, say, the "walking co-ordinator" for a local authority (and don't go on about "nurses and teachers" - it's not them being cut, but it may be the person who interviewed my mother-in-law for her own NHS job that she had been in for 20 years twice  in one year when she moved from 5 days a week to 3 to 4). Or it could be that a private company can't afford rent to move to a bigger office because a public sector organisation is offering a larger rent. The point is, protecting public sector jobs is not the alternative, the case for that is completely different.

Finally, there is scrapping Trident nuclear system. I can absolutely see the case for doing this, given the sheer amount we would be spending on something that, should we ever have to use it then we are basically at the end of the world anyway. But, my understanding of the international power system is that should we not have any nuclear capability, we will literally "lose our place" at the top table of international politics. Whether that is right or not, and whether we should care, is another thing. I do care, but I'm just one opinion.

Before I conclude, I must add that too much of the argument against the deficit strategy in built on an outright lie. The lie is that the financial position this country is in is all because of the banks and nothing to do with the Labour Government's economic policy. This is a convenient lie, as it allows people to say the banks should pay to clear up the mess. To be clear, at the end of one of the longest periods of continuous economic growth in our history, the UK had a budget deficit, rather than the surplus that could and should have been built up by a prudent government during the boom part of the economic cycle. I should also point out that to fund the structural deficit (that part of the deficit not caused by the economic cycle) that existed BEFORE the recession the Labour Party were happy to borrow from the banks, and that borrowing was, in theory, put to good use. As I have said elsewhere (click here), there is no reason why a coherent case can't be made to justify this risky management of UK funds, because a lot of spending was needed to clear up the mess left by chronic underinvestment in public services from 1979-1997 BUT that doesn't mean the lie should continue to be propagated that the trillion pound debt and £145 bn deficit was caused by the banks. It was caused by the feeling on the part of the Labour Government that the boom would never end then exacerbated by the depth of the bust when it did end, and that depth WAS caused by the banks. Again, Labour may be getting short term polling gains by not admitting their responsibility for the deficit but they simply won't get elected again unless they show they won't put the country in that position again.

In conclusion. It is extremely important in this austerity age to have this level of political debate and protest, and I am proud that we are having it. But please, somebody with some form of economic literacy, explain to me an alternative strategy that actually makes economic sense, and explain how it would be done. Because I didn't hear it yesterday and I haven't heard it yet.


  1. You seem to have some obsessive disliking for the public sector, which is strange. Debt levels are historically low and the debt is quite cheap with interest paid lower than the majority of the last 30 years. It is also long term, the fact is that it doesn't have to be paid back for the most part for 13 years. Debt is a key part of government, debts are not usually reduced to 0 as this is uneccesary. Britain’s national debt has been higher than it is now for 200 of the past 250 years. Since 1750, there have only been two brief 30-year periods when our debt has been lower than it is now without any economic apocalypses during as a result.

    To be trying to eliminate the deficit in the space of one parliament makes no sense, there is no need for it, the interest payment are fairly low. Even the stringent rules of the mastricht treaty of a neo-liberal organisation like the EU leaves up only 4% above its allowed size of structural deficit.

    500,000 protesters do represent the view of the majority of Britain, to treat that number as trivial is a manipulation of what it indicates. A protest of that size is huge by any international or national standards. A yougov poll asked who supported the aims of the march 52% agreed with its aims including one in five conservative voters. To suggest it was just public sector workers representing their interests is also untrue. A significant number were private sector workers also present. Your years of reading of the Times has resulted in the in quite skewed perception of the public sector as bloated and ineffective. If this is the case these cuts should be painless yet frontline services in policing and other key areas are all being cut

    The Parallel with middle east rising is that those rising are also against the imposition of neo liberal economic policies against the will of the people as well as low wages and high youth unenployment. Yes that’s another thing, the government has not mandate, the majority of people in the country voted for 2 parties arguing for a slower rate of cuts.

  2. The cuts are ideological they make no economic sense, cutting budgets in so many areas will merely result in higher spending in the long run as low cost voluntary sector projects are cut. The knock on effect is inevitable less intervention in troubled families etc results in more expensive social work issues in the long run. They are changing the corporation tax system so it in fact there is a disincentive for companies to base operations in the country.

    The cuts are also dangerous for the economy, far from crowding out the private sector the public sector indirectly funds private sector jobs. Increased redundancies in the public sector will only result in higher welfare payouts, lower tax yields and declining consumer confidence resulting in a spiralling cycle of unemployment and lower output. The economy is still very weak with a contraction in the last quarter of 2010 this with few of the cuts having been made.

    All this is merely looking from an economic standpoint never mind the effect the cuts will have on people and families increasing poverty and social deprivation. The banks are far from faultless they did cause this crisis which cost the country far more than just their bailout. They represent the corruption of our political system, little has changed the same short term bonuses which make risks affecting pension funds and saving, this is frankly criminal and has not been dealt with. Legitimate anger has been portioned onto them many are not better than professional gamblers who contribute nothing to society but in fact have a detrimental impact.

    Then we look at the conservative party in context, they historically ideologically are opposed to a large public sector. Is it not possible they are just taking advantage of a perceived chance to cut it back? You say they are attempting to close tax loopholes but then they employ Philip Green and abandon a tax case against Vodafone as well as cutting the size of customs and revenues,

    All this opposition had come before the worst of the cuts have hit. The cuts are economically nonsensical and politically motivated pushed through by a government that has not mandate. People are opposed and the protests are only going to get bigger. There is a clear alternative; cut slower.

  3. 1. Please tell me the sources you have used for the figures and comparisons you use in your first paragraph of the top comment. I'd like to check them out. Since much of your argument relies on them I would need to see them before commenting

    2. As you well know, The Times is nothing short of "Pravda" for the Conservative Party. Even before it was 'captured' in this way I have made sure to read the Times, Guardian and Independent at least every day (also the Mirror and Sun if I can) so that I have some different views on issues. This is important so that I can a more balanced view on things. I would not encourage anyone to read just one newspaper with one political angle as they might be tricked into believing that newspaper to be the truth rather than one side.

    3. Interest payments are about to become more than what we spend on education. "fairly low" Come off it! This is YOUR money now being spent.

    4. So, 500,000 protesters represent the majority of Britain do they. FACT - more people came to the Countryside Alliance march to save foxhunting than were on the March last Saturday. Does that mean the Countryside Alliance also represented the majority of Britain? If it didn't, then neither did the "March for what alternative".

    5. A poll before the Iraq War started indicated famously that 54% of the population supported it. So...the Iraq War was justified too?

    6. "the majority of the country voted for 2 parties arguing for a slower rate of cuts".

    7. The corporation tax rates are dropping by 2% - that is an INCENTIVE for companies to locate here - how is it a disincentive?

    8. I did say quite clearly not enough was being done to stop tax avoidance. I have always agreed with the aims of UK Uncut and whilst their tactics are questionable they must keep going.

    9. The public sector does indirectly fund private sector jobs, but at a cost to the country - because no one in the public sector pays more tax than they get in salary. The actual correct way round is that the private sector funds the public sector AS LONG AS those in the private sector pay the correct amount of tax and don't lose money. Neither has been happening.

    10. Again. Yes, the banks caused the financial crisis but had we had a budget surplus when we entered it we wouldn't need any cuts now. But we didn't as there was an ideological building up of a structural budget deficit and debt by the Labour Party who thought they had abolished boom and bust. The fact the banks are still paying massive bonuses is ridiculous but much as we need to control their behaviour you also do not want to stop or block the areas of the banking industry who DO contribute to society.

    11. I think the public sector is important. As you know it provides services that the market won't and ensures that peoples needs are being met. But with the public sector in this country - the THEORY of its value doesn't at the moment match the PRACTICE. Too much inefficiency, non-jobs and people who actually add no value to society work in the public sector and they take away from those who do add value. The real shame is that people who do add value will lose their jobs because those who add none are being protected. Vital front-line services are being cut so that local authority management's salaries can be kept up and jobs saved.

    11. To end. You say there is a clear alternative: cut slower....EXACTLY what would you cut?

  4. 1)

    2)I tend to read the Guardian and the FT as well as the economist which i think gives me a fair balance.

    3)As the second link shows interest on the debt is low. Thatcher was paying an equivalent of £174 million a day in debt.

    4)400,000 went on the coutryside alliance protest. The yougov poll shows that the majority of people agreed with the aims.

    5)The Iraq war was not an issue in anyway related to this. The iraq war wasn't justified or unjustified on the basis of public opinion but on international law but lets not go back down that road. How a "deomocratic" government can impose a set of opinion based policies on a country that is against them seems quite undemocratic.

    6)Yes, the lib dems and labour who won 52% of the popular vote did so on a platform of slower cuts.

    7)This link is what i posted on a previous comment on your blog is what i'm talking about

    to which you said:

    1 March 2011 17:01
    Paul Goldsmith said...

    Not much I can add to that. Why aren't the opposition making more of a fuss about it though?

    8)Whats wrong with a bit of peaceful direct action, sometimes thats what it takes.

    9)My point here was that by cutting the public sector the recovery is endangered. I agree the private sector should fund the public sector by a question where and in what ways in the public sector bloated.

    10) I disagree the build up of debt was ideological or very unresponsible having looked at the statistics. I'm a keen believer in the sucess and ability of credit unions and building societies. I have yet to see any positive impact of much of the investment banking sector.

    11)So then whay aren't these non-jobs the only ones getting cut. Surely the government has control over this and over local authority management salaries if they really wanted to.

    I would mostly try to reduce debt through growth, would cut if there exists non-job people. Find a new indirect tax to squeeze some money out of the rich and actually go through with the capturing of avoided tax that has been so far a taken to the courts. Also how about investment in social projects which will save money through early intervention. Also reduce the amount of police overtime by reducing the amount of time arresting and processing those who use relatively unharmful illegal drugs.

  5. 4) the aims of the march for an alternative protest