In response to Britain’s loss of the AAA credit rating, George Osborne promised to ‘redouble’ his efforts to reduce the deficit.
This is like the captain screaming ‘full speed ahead’ when his ship is heading for the rocks. George’s choice of verb, which comes from poker, also hints at his understanding of the essence of his economic policy. One can only wish that he gambled with his own money, not ours.
He then went on to admit with laudable perspicacity that ‘Britain’s got a debt problem’ which needs solving. How does this tally with his attempts to reduce the budget deficit? About as well as his 2010 promise to maintain our AAA rating relates to its yesterday’s loss.
Economics is simple, and it only appears complicated because of the fog screen constantly laid by economists and public officials. These lads self-perpetuate by hiding behind the wall of formulas, charts, graphs, ratios and projections. George too is one of the chaps for whom economics is too simple to understand.
For the rest of us, it can be easily reduced to a few core propositions that any schoolchild unencumbered by learning difficulties will grasp in a second. Let’s see if any of this would break through George’s resolve to steer his inept course.
Though our debt isn’t as catastrophic as Greece’s or Italy’s, catastrophic it is. This means that for a long time the state’s outgoings have exceeded its income. Now how do we reduce the debt? By taking in more than we spend and applying the difference to paying off our IOUs.
And what does this mean? Only that instead of our budget deficit, the one George wants to reduce, we must have a budget surplus. Will George and the rest of the gang achieve this logical goal? Have they even enunciated it?
No. They continue to spend more than they earn and then declare proudly that the gap is a smidgen smaller than it was under Tony-Gordon, the worst government in British history. But for as long as we have any deficit at all, the debt isn’t going to disappear – it’ll grow. Correct so far?
Next question. How do we eliminate – eliminate, George, not reduce – our deficit first and our debt second? Things are getting a little more complicated now, but they don’t have to become convoluted.
The solution is two-fold: the government must in parallel increase its income and reduce its spending – ideally. At a pinch we’ll accept one or the other, provided that the income remains greater than the expenditure.
God has created only two ways for a government to increase its income: printing (or borrowing) more money or increasing its tax revenue. Shadow Chancellor Ed Balls, who everyone knows is nasty but few realise is stupid, says he’d borrow more. He doesn’t say at the moment that he’d increase the tax rates, but he doesn’t have to: it goes without saying. In other words, he’d revert to the criminal policies Labour pursued while in power. You know, those that got us in trouble in the first place.
The only healthy way for a government to get more in tax is not to increase rates but to make it possible for the economy to grow. Since the government isn’t directly involved in any productive activity, it can only effect growth by not hampering it. In other words, by reducing taxes, regulations, red tape, getting out of the EU (which is greatly responsible for all of the above).
The arithmetic is simple for anyone other than a politician or an economist to understand. Getting 20 percent from a man who earns £1,000,000 a year is better than getting 60 percent from one who makes do with a meagre £100,000. And getting 20 percent from someone who earns £100,000 is better than getting 30 percent from someone who earns £40,000.
The less of our income the state confiscates, the more we’ll be stimulated to earn. An economy isn’t a function of integral calculus; it’s an outcome of human behaviour. That’s why, as Arthur Laffer correctly explained to George’s American colleagues, a 100-percent tax rate will produce exactly the same tax revenue as a 0-percent rate will: none. The inference is logical: the state must get out of people’s hair and let them get on with it. The economy will grow, and tax revenue along with it.
Now the second part: reducing expenditure. We aren’t talking about a cosmetic nick here and there, usually accompanied by increases elsewhere. We’re talking about reducing government spending by at least a third, preferably by half.
This simply can’t be done without changing cardinally the role the state plays in our lives. This means eliminating the welfare state and reducing our social spending to what’s absolutely necessary to protect those who can’t protect themselves. (Note to George: ‘can’t’ doesn’t mean ‘won’t’, it’s something entirely different.)
It also means quite a few other things, such as getting rid of all government departments except half a dozen or so, dropping fully nationalised healthcare and education and so on. I won’t go into details here. Let’s just say that, unless state involvement in the economy and indeed our lives is reduced dramatically, George can double and redouble all he wants – he’ll be called and he’ll lose. More important, so will we.
For as long as he and that lot remain in Westminster, nothing of the sort will ever be done. The deficit will stay. So will the debt. The economy won’t grow enough to make a difference, if at all. The state won’t pay its way. Things will remain dire – regardless of who leads the main parties or which one of them is in power.
Colonel Pride, where are you when we need you?