Myths of UK economic policy

Now I could have said this myself, but I don't need do, because Liberal Democrat blogger, Stephen Tall, has done it for me.  Now that's someone who is no libertarian, and ought to get a wider constituency that those laissez-faire capitalists who are fed up with the Conservative/Liberal Democrat coalition's pathetic attempt at austerity and Labour's dishonest attempt to present itself as the saviour.

What are the myths?

1.  UK public spending is reducing:  In nominal terms it is rising by 8% over the term of this government, in real terms cut by 3%!  Any large business that couldn't extract 3% savings out of five years of operations would be an abysmal performer.  Moreover, in real terms spending in the last year of this term of government will be higher than every year of the Blair/Brown government except the last year.   Big swingeing cuts? Hardly.

2.   Public debt is being reduced:  No.  You see you can't do that unless you run a budget surplus, and that isn't happening or going to happen in this term.  Public debt as a proportion of GDP will be rising by 8% during the term of this Parliament, and wont be dropping in nominal or real terms.  

3.   Labour's approach would have made a big difference:  No.  Ernst & Young modelled the difference, and calculated it would have meant the economy growing on average 0.2% more across three years.  Each additional job would have cost £370,000 in debt (jobs with average income of a tenth of that).

4.   The Obama Administration has taken a different approach which has paid off:  No.  The Obama Administration after the 2010 congressional elections, cut federal spending by 0.9% in real terms.  Somewhat equivalent to the UK government.  Barely austerity at all for both, but US tax levels remain far lower than the UK's.  That's a difference Labour and other leftwing opponents ignore.

5.  There is a magic easy alternative solution:  Both recent UK governments have been Keynesian.  Both dropped interest rates to near zero levels, both printed more money,  both engaged in deficit spending. 

Now I'd argue there are solutions, and that taking a more aggressive stance to cutting the deficit by cutting spending, NOT increasing taxes (which has been about a third of the strategy), would have cut wasteful wealth destroying spending, helped keep the growth of the state interest bill under control, stopped the state competing with the private sector for investment, and meant more money would remain in private hands.  

However, no party in the UK offers that solution as of yet.  You might wonder quite why a government, that is now quite unpopular, didn't just take the hard medicine at the start - rather than pretend to do so, given people think it has already, and it hasn't worked.

Three elections - freedom's not the winner

Greece

I've never seen so much televised election coverage for a Greek election, with BBC News, Sky News and CNN all providing dedicated coverage yesterday.  This was an election about remaining in the Euro - Greek voters, more often than not, wanted to play it safe.

The Greek election result is clear - a country divided amongst those who are scared of losing their savings in Euros to those who want to demand other country's taxpayers support a bloated socialist state, and then a who lot of others who variously want either the government to take over and steal from the rich, steal from the foreigners, or the 1.59% who actually want less government.

So for now, Greece will live off of the back of hundreds of billions of Euros of money from taxpayers in Germany, Austria, the Netherlands, Estonia, Slovakia and other solvent parts of the Eurozone, and will attempt to survive with some spending cuts and tax rises - although the former wont be enough, and the latter will choke off the economy even more.  The optimist in me hopes that Greece can actually cut its deficit, balance its budget, open its economy, cut costs and move forward.  However, I suspect Greece will be racked with strikes, mass protests and continued exodus of the best and brightest, whilst the coalition between the two parties that led Greece for 30 years into this mess in the first place fractures as the vested interests both have protected fight for their cut of the borrowed bankrupt pie.

I can only hope that since New Democracy now includes a few elements in favour of less government and not increasing taxes, that the concessions that this government can get from Germany are to not increase taxes more.  That at least will stop choking the private sector more (as cutting government spending is not the same as increasing taxes).   Meanwhile the far left reality evaders, whose xenophobia about foreign capital doesn't extend to foreign taxpayers propping up socialist states, will continue to portray all of this as some grand conspiracy to make foreign bankers rich.  Those "foreign bankers" (Golden Dawn would be proud of that rhetoric) took a 110 billion write off of Greek debt so far, meanwhile foreign taxpayers have effectively restructured most of Greece's private debt into new lower interest rate loans.   However, Syriza and the leftwing xenophobic haters of capitalism just blank this out - and none have any answer as to how to bridge the gap between the Greek government's spending and its tax receipts.   The newly elected Greek government must close that gap, or will face yet another judgment in a couple of years.   The only way it might even hope to do that, and rescue the economy, is to let the private sector flourish by getting out of the way (and doing its proper job when it is expected to do so).

France

French voters have snubbed Sarkozy's party and have voted for the fancy funny land of the Socialists. The party that helped decimate the French stockmarket and chase businesses away when it was last in power in the early 1980s (as Francois Mitterand - the man who instigated the Rainbow Warrior bombing - sought to nationalise major businesses).   France will now either follow the path of Greece, in strangling its already fairly stagnant economy some more, chasing its best and brightest to London, some more, or will actually face reality and introduce reforms that hitherto were too hard for the vain git Sarkozy to introduce.

France is full of myths, one is its great manufacturing sector - which as a proportion of GDP is no greater than the UK's - another it how its mixed economy staved off the worst of the financial crisis - when in fact France has parts of its economy (agriculture and the space sectors in particular) largely propped up by EU subsidies.  

Higher taxes, more regulation to protect those already in jobs at the expense of those without them, and a head in the sand attitude to fiscal balance, will help ensure France continues to lose competitiveness relative to Germany and the world.  It is probably a decade away from its final decisive crisis, as France's generous welfare state and corporatist monstrosity of an economic policy finally collapses in on its own contradictions.  Not much liberte, not so much fraternite, and perhaps egalite of poverty.

Egypt

How's this for a choice?  Want an Islamist President who has vowed to respect other religions, the rights of women and the new freedoms Egyptians went on the streets for?  Or do you want a President from the old guard, the old corrupt militarist regime that kept a lid on freedom of speech and ensured that its cronies were wealthy and comfortable?  Half of all Egyptians chose neither.  It appears that a narrow majority of the rest chose Islamism.

Some on the left in the West who rail in favour of womens' rights, secularism, tolerance, liberal values, peace for homosexuals and the like will celebrate this, to their shame.  Others will share the concern with those of us elsewhere on the political spectrum.

The overriding of the parliamentary election by the judiciary may be worrying, but if the Islamist has won the Presidential election, it may give some impetus for others to vote for a new Parliament that isn't so dominated.

However, I am not hopeful.  The simple reality is that democracy in Egypt is more likely than not to create a state run by those who think religion and state are the one and the same, who hold views of women (let alone gay people) as being subordinate and whose views on Jews, Christians and others who don't hold their religion are less than flattering.   

The result wont be clear until Thursday, but let's be clear - it wont mean more freedom for people in Egypt.

Greek voters do have rational choices - but they reject them (UPDATED)

The two main incumbent parties in Greece, although both supporting the necessary bailout plan, are both institutions that have led the country down a path of corruption, fiscal incontinence and reality denial for too long.  Beyond them, the Greek Parliament is polluted by the likes of Marxists who believe business should all be owned by the state, and fascists who preach bigotry and racism with their faux pride and proto-violent approach to government.

However, there are parties that can make a difference:

- The Liberal Alliance advocates the state withdrawing from business, abolishing permanent employment in the state sector, privatisation and replacement of the state pension with a privatised pension system, along with tax cuts. 

-  The Drasi party supports cutting government spending and free market reforms.

Both parties ran on a single platform in the May 2012 election, but only gained 1.8% of the vote.  This time they are running with the "Recreate Greece" party which is said to share a similar approach to economic policy although being more centrist.  The hope is that the combined support of all three will cross the 3% threshold for Parliamentary representation.

Democratic Alliance would have been another option.  It supports cutting the civil service by a third, abolishing permanent tenure and introducing performance pay.  It also seeks major tax cuts with a flat tax of 20% and negative income tax to replace welfare.   However, it has aligned itself with the incumbent New Democracy Party (the non-socialist one).  Will it have enough influence to make a real difference?  I doubt it.

So the best option appears to be the "Recreate Greece - Action – Liberal Alliance". 

Together they would embrace real austerity that does not include raising taxes, but does include cutting the state down to a size that is affordable, it does mean not scrapping the Euro in favour of a junk currency and means opening up the Greek economy to be more competitive and dynamic.

The two major incumbents support more taxes, the Syriza party supports putting its head in the sand and hoping that Greece doesn't go bankrupt.

In the meantime, wise Greek citizens will be emptying their bank accounts in Greek banks.  Opening German, French and British ones, and depositing their Euros as fast as they can, and holding onto just enough cash necessary to function.   Good luck to them all.

UPDATE:  It looks like a binary choice between New Democracy (in favour of the bailout package including spending cuts, privatisation AND unfortunately tax rises) and the Green Party like Syriza Party which essentially expects to blackmail Germany into paying for its retention of socialist economics.   New Democracy retains a chance Greece remains in the Euro, Syriza is highly likely to see a complete default in late July if it can't convince the Germans to prop them up.

It is entirely plausible that neither could form a government.

That's why it remains the most principled choice to back the Liberal Alliance, for only it will support both less spending and lower taxes.  New Democracy may be less worse than Syriza, but if economic growth matters to anyone in Greece, they can't get it voting for for those who support higher taxes (let alone a bunch of reformed communists).

No Asset Purchases without a referendum

If the parties that lost the last election can demand that the Government seek an additional electoral mandate to implement the policies National stood on in its 2011 manifesto, then surely the same applies in reverse.

Every time the state buys something with taxpayers' money, it should ask permission.

Labour should have held a referendum on buying buy Air New Zealand, buying the Auckland railway network then buying the national rail network then buying TranzRail. 

If the state should gain permission when it sells assets, it should also seek it when it buys them.

Somehow, I doubt the idea will gain traction with Labour and the Greens, because to them when they spend taxpayers money, acquire property for the state - it is "good" for it is for "everyone".

In other words, the state can always accumulate more and more property with your money, but it daren't dispose of any of it.   However, none of that is really a surprise is it?

Greeks withdrawing cash

If anything demonstrates how far we are all removed from free market capitalism and an economic system based entirely on private property rights, one need only look to see the power the state has on the resource most people have as a medium of exchange and storage of value - money.

With speculation rising about the next Greek government quite possibly being led by a quasi-communist who thinks he can call the bluff of Eurozone governments in demanding that they lend the Greek government more money it can't pay back (having already received bailouts worth nearly a quarter a trillion Euro), fear is that the bluff wont work and Greece will be cast adrift, with the Greek government unable to pay its bloated public sector, unable to pay interest on its debt and pushed out of the Eurozone.

With all of that goes any talk of European solidarity, as quite rightly, Germans, Austrians, Dutch, Slovaks, Estonians and the like say no to their government funding Greece's fiscal incontinence, so Greece finds a new way to pay its bills - by printing worthless banknotes likely to be called a New Drachma.

What does the average Greek citizen do then?  Well, Greek banks get all their assets and liabilities redenominated into this junk currency, so the savings of Greek people get utterly destroyed, because of the Greek government.  Greek companies with debts with foreign banks in Euros face bankruptcy as they will be unable to pay debts using the junk currency.  

Many Greeks will seek to flee to live and work in the rest of the EU.

Except the EU has other ideas.  Greeks will be cast asunder, not only having their savings plundered and destroyed by their government, but having their fellow EU partners treating them as foreigners, not worthy of being able to live and work in other Member States.   The grand political project would be over as far as Greece is concerned.  This shameful treatment of people unfortunately stuck in a country that the EU embraced, subsidised and treated fraternally for decades, shows the real limits of the openness of the EU - when the going gets tough, they turn their back on you.

So Greeks are preparing.  With 800 million Euro exiting Greek bank accounts today, this will only accelerate.  Once they have their cash, they will deposit in foreign banks, convert it to gold or silver, or simply stuff it under the mattress.

For you see when it comes down to it, a fiat currency isn't a store of any real value if those who issued it declare it to no longer be so - for it is as easy to destroy that which you printed out of thin air.

For all the SYRIZA party is offering Greece is the promise that all can be made better out of the thin air of socialist economics.

UPDATE:  A former Socialist Defence Minister of Greece is facing charges of money laundering and is facing ongoing investigation for tax dodging.   Is it any surprise that so many Greek citizens actively avoid tax when then is corruption at the highest levels by those who want to spend their money, but make sure they use the state to enrich themselves?  Shame the political choices of Greeks are largely more of the same.