Cuts are not painful

Britain's Chancellor of the Exchequer, George Osborne, is preparing the country for austerity, mk III.

Mk 1 was the easy part, the 1% trimming of public spending to save £6.2 billion in the current year, essentially the spending the Conservatives had promised to cut. Was not much, but a taste of what was to come.

Mk 2 was last week. £2 billion worth of projects were cancelled, and another £8.5 billion deferred. Almost all of it spending approved in the dying years of the Brown regime. This included the absurd "investment" of £80 million that the government didn't have to "create" 200 jobs, although I doubt the average wage was close to £400,000 each!!

Mk 3 promises to be much much "worse" say the papers. Actually, it mostly wont be painful, if it weren't that 20% of the austerity will comprise of tax INCREASES in one form or another. Capital Gains Tax and VAT are likely targets, and it is they that will threaten the recovery, not the spending cuts.

There will be major cuts hopefully. Public sector pay is expected to at least be frozen if not cut, and public sector pensions are expected to face severe cuts because they are becoming unaffordable. Welfare benefits are likely to be frozen as well, with a scythe taken to the "middle class welfare" Labour built up to buy votes. One of the absurdities of the UK welfare state is how many recipients are on above average incomes. Hopefully it will be the end to that and more.

You see the Tories have stupidly ringfenced health and overseas aid spending for no cuts, which means it will be welfare and public sector pay that get hammered. Painful?

No. It isn't painful unless you think living within your means so you are lumbered with debt (or your children aren't) is painful. It is called being prudent. It isn't painful to stop stealing money from future generations. The UK public sector is already better paid that the private sector - yes you read right, the average income in the public sector is 2% higher than the private sector for similar jobs.

It isn't painful to wean people who are on average and above incomes from the state tit, so they actually bear the cost of raising their own children. It isn't painful for the private sector to no longer be shouldering the burden of competing against a bloated public sector staff.

Already the government is announcing new privatisations, the latest being the high speed railway between London and the Channel Tunnel.

It would be too much to hope for no tax cuts, or for the NHS to start charging for GP visits and face its own cuts, or for student fees to be at least 50% cost recovery, or for welfare to be time restricted (and only restricted to UK citizens!). However, it will be the start of rolling back the creeping (and bankrupting) state of New Labour.

Labour's lies about it are too easy to refute. It "threatens the recovery" if the state doesn't keep borrowing at record levels. Furthermore is the deceit that the deficit is about bailing out banks, when the truth is that the proportion of spending related to the banks is close to 2%. Labour is claiming it is ideologically led, as if overspending and growing the state by Labour wasn't.

The deficit is a legacy of Labour bribing voters with their kids' stolen future earnings, it was immoral then and is now. It is only moral for this government to end this as swiftly as it can, and start to confront the debt.

Note the difference with a certain government on the opposite side of the world.

Bloody Sunday reprise

30 January 1972 in (London)derry is a day that sadly will always be in infamy. A day that Catholics in Ulster will see, with much justification, as the day the British Army turned on those it was meant to protect, but also a day that many Protestants will see as a provocation by terrorists.

The report of the Saville Inquiry will be released today, and so i wont predict what it will say. However, I do have three points to make in advance.

1. For those who seek justice, seek convictions and imprisonment of British army officers who killed, it is worth bearing in mind how many IRA terrorists who also have killed before and since that day, who have been pardoned and released. Was that right? No. Does it mean the British soldiers who gunned down civilians deserve to not face justice? No. However what should happen?

2. Reflect on how utterly disgusting and repulsive it is that the Blair Administration seems to have given a blank cheque on time and money for this Inquiry. £191 million is so far beyond what even compensation for the victims and their families would be, that it shows once more what happens when governments treat those they are meant to serve with contempt. It should not take twelve years and £15 million a year to gather evidence, and come to conclusions. I don’t expect much self reflection from those who have profited indirectly from Bloody Sunday.

3. More important than all of this, consider how tribalism, this time flavoured with religious sectarianism, can completely disregard the rights of the individual. How mind numbingly stupid it is to label anyone Catholic or Protestant, when it is simply about "us and them", with the same mentality that has seen the blood of millions spilt. The same mentality as in Rwanda, Chechnya, Sri Lanka, Kashmir, Nazi Germany, former Yugoslavia and the list goes on, and on. The surrender of the individual to the group, the demonising of the "other" (outsiders), and glorification of the "group". It is only tragically funny when you consider how unlikely in most cases to find such people in Northern Ireland capable of holding cogent arguments about theology. The Northern Ireland peace process has NOT been about rigorously pushing individual rights,and reason to reject the knuckle-dragging mentality of religious sectarianism. Instead it has been about ending the fighting, keeping quiet and moving on, whilst British taxpayers have poured a fortune to prop up an economy on life support.

The malignant, evil philosophy that blends religious hatred (fired up by churches on both sides, seen most recently in the insane rants by Reverend Ian Paisley shouting "antichrist" at the previous Pope), tribalism and scape-goating has left Northern Ireland still full of many who think the poverty, desolation and decay of the region is due to what the "other side" did. Meanwhile, with a British government facing fiscal ruin, perhaps the chance exists for the 70% of the Northern Ireland economy "produced" from the state sector, to be paired back, and for the people of Ulster to start focusing on themselves, generating wealth and prosperity and treating each other as individuals, rather than members of communities that exist in their heads.

Dutch elections, victory for freedom

The elections in the Netherlands have produced two substantial winners and two losers. However, I will let you count the number of times in the media YOU see how one of the winners is portrayed.

The first winner is the new leading party, the VVD (People's Party for Freedom and Democracy) which is a party of economic and social liberalism. It is similar in mould to how ACT (NZ) presents itself. It believes in free markets, welfare only for Dutch citizens, and reductions in taxes. It appears to have gained nine seats, increasing vote from 14.7% to 20.4%.

The second winner, is the new third party, the one that will get the most publicity, the PVV (Party for Freedom). It is led by Geert Wilders, a man who the British government sought to ban because he opposes Islam. The PVV believes in substantial tax cuts and reductions in the welfare state, the abolition of the minimum wage, is sceptical about the European Union, and believes only immigrants who embrace Dutch humanist and Judeo-Christian values should be admitted. Wilders is radically opposed to Islam, which means he is portrayed in much media as being "far right nationalist". However, like the late Pim Fortuyn, Wilders is no fascist. He simply vehemently defends the social liberalism and tolerance for individual diversity that the Netherlands hold dear AGAINST those who wish to destroy it. On top of that, he would implement a radical programme to cut the role of the state. It has gained 15 seats, rising from 5.9% to 15.5% of the vote.

So between those two, 36% of Dutch voters supported scaling back the size of government.

The losers were:

The CDA (Christian Democrat Appeal), a centrist conservative party. It believes in reducing state spending, but also tougher controls on drugs, prostitution, abortion and euthanasia. It supports decentralised control of schools and hospitals, and wider European integration. It is the party of the outgoing Prime Minister, Jan Balkenende. It lost 20 seats, to drop from 26.5% to 13.7% of the vote.

The SP (Socialist Party), which believes in the welfare state, state health and education, and opposes privatisation and globalisation. It was originally a Maoist Party during the height of the Cultural Revolution. It lost 10 seats, dropping from 16.6% to 9.9% of the vote.

It would seem Dutch voters rejected conservatism in favour of small government, and the financial crisis has also seen them turning from Marxism.

Other results were modest losses for the centre-left Labour Party (from 21.2% to 19.6% of the vote), and the centrist (conservative socially, economically leftwing) Christian Union (from 4% to 3.3%).

There were also gains for the Democratic 66 Party (an unusual blend of liberalising labour markets, supporting tax cuts and market reforms to healthcare and education, combined with environmentalism, radical social liberalism and a federal Europe) which soared from 2% to 6.9% (arguably another party that believes in less government) and the Greenleft party (which is an unsurprising mix of environmentalism, former communists and believers in big government socialism) which went from 4.6% to 6.6%.

So capitalism is hardly under attack in the Netherlands when the main parties that gained support believe in more free market policies, with the only leftwing party making any gains hardly making up for the losses from other leftwing parties.

Blogging disrupted

Just to note my blogging regularity has been disrupted because of:

1. Being overseas twice in the last few weeks (with glacial speeds available);
2. Moving home;
3. Two and a half weeks to get a phone line installed to carry broadband (and no, there is no cable TV option, as Virgin Media hasn't cabled my street).

So whilst I wait another 7 working days to get POTS (Plain Old Telephone Service), after which I can get broadband, service is not going to be regular. No, I'm not getting it from BT, not only because it is an expensive and poor quality deal, but also because since BT has lobbied hard to destroy BSkyB's property rights in programming (which were built up commercially against two government owned competitors, and three government licensed ones) I figured I no longer needed to give a damn about BT's property rights on local phone lines.

Meanwhile, the British media has been focused on:
- Gunman who went on a shooting spree (but few have asked whether others having guns might have stopped him earlier);

- The Gulf of Mexico oil leak, Obama's xenophobic attack on BP to make up for his own impotence on the issue, and BP's own incompetence;

- The World Cup (which sadly is unlikely to see a New Zealand-North Korea final, as much as it would upset millions) is hyping up England and South Africa;

- The next stage of austerity, as the Con-Dem government "warms" up the British public for spending cuts perhaps ten times that already agreed (whilst the public continues to remain ignorant about what cuts actually MUST mean, such as cutting the welfare state and increasing university fees). Much good is being said about focusing on the role of the state. Few yet understand how drastic and urgent the cuts have to be, and sadly it will also include tax rises;

- The ultra-tedious contest for leadership of the British Envy, Spendthrift and Spin Labour Party, now no longer including a relative unknown who said Margaret Thatcher should have been assassinated in the 1980s. Most recently it now include Diane Abbott, who is notable for being a black woman. One of the contenders, Ed Miliband, said it showed the diversity of the Labour Party. It was pointed out to him that two of the contenders share the same mother (his brother David Miliband is also standing), and of course another man called Ed is standing as well.

Much ado about 1%

The big news in the UK yesterday was the announcement of £6.2 billion in spending cuts by the government in the current year. It's a cut that both sides of the House of Commons are not being fully honest about. How many lies or evasions of the truth are there? Let's count:

Lie number 1. The Labour Party is claiming that these spending cuts are about "taking money out of the economy" and will precipitate a "return to recession". There is no evidence that running a deficit that is as high as 12% of GDP (higher than Greece) bolsters the economy. In fact quite the opposite. After all, if running huge deficits saves the economy surely it should be steaming along, when in fact in the last quarter it grew by 0.2%.

Allister Heath in City AM proclaims the arguments in favour of continued the high levels of deficit spending are "intellectually bankrupt, pseudo-Keynesian" as the bloated state crowds out the private sector. Why? Because when the state borrows on such a scale, it does so by issuing sovereign debt. It has to do so at market interest rates to attract investors, so it attracts investment from the private sector, in everything from manufacturing to services to banks seeking deposits to boost their own leverage. One of the leading lights of leftwing journalism in the UK - Polly Toynbee of the Guardian - shows up her own economic illiteracy in saying "If Europe causes a second dip, cutting is a bad decision; if Treasury receipts strengthen, then such deep cuts so fast may not be needed." So it is NEVER a good idea to cut government spending according to socialist Polly.

You see the British government is dependent on private investors lending it money to pay for current spending. If confidence lapses in the government's ability to do so then witness Greece. One need not be a libertarian to see how unsustainable fiscal profligacy is. In a world where the term "sustainable" is a buzzword thrown about promiscuously like the favourite harlot of the age, it is curious that most don't understand it outside the platitudes of environmentalism.

So Labour is dead wrong, and largely to blame for the current set of affairs (most of the deficit is not about bailing out the banks, but about the collapse of tax receipts to prop up the bloated state built up by Blair and Brown, and overextended by Brown in recent years). Yet before the election it didn't completely shy away from cutting spending.

Lie Number 2. Labour wouldn't have cut spending. You see Labour did pledge to halve the deficit in five years, which would have meant a sustainable reduction in spending of at least £20 billion per annum. While Labour wouldn't cut spending in 2010, it would have been under enormous pressure to impose significant cuts in 2011. However, its new Great Leader will no doubt simply oppose cuts regardless of the 2010 Manifesto.

Lie Number 3. The savings are all going to cut the deficit. No. £0.5 billion of the savings are actually going to be spent elsewhere and used to start some tax cuts. The latter will be a miniscule boost to the economy, but in essence it sends the message that cutting spending means having money to spend elsewhere. It doesn't while you still have a budget deficit, especially on this scale.

Lie Number 4. The cut in spending is substantial. No. The saving of the total UK budget is less than 1%. Yes that is all that is being saved. It tells you something that total UK government sector spending is 100x this. That comes to the real issue. The budget deficit this year is £163 billion. Less than £6 billion off of that is 3%.

Shifty evasion number 5. There will be further cuts, but this was the hard part. No. Even an optimistic view about the economy, which given the crisis in the Eurozone (which is easily the UK's biggest trading partner) is unlikely, would likely generate sufficient tax revenue to cut the deficit by between a third and a half over time (time during which debt will have increased and the debt servicing costs as well). So there needs to be, at the very least, cuts 12x those implemented yesterday.

Shifty evasion number 6. Future cuts can be made through "efficiency savings" and "trimming budgets". No. Let's assume there needs to be cuts of around £105 billion in spending. You could not do that without hitting some combination of welfare, education, health, defence, or cutting public sector salaries. In other words, significantly limiting the welfare state. The "pain" has just begun, and the dirty little secret is that the UK welfare state as it stands is unaffordable and unsustainable. At some point hard decisions are going to have to be made such as:
- Will health and foreign aid both remaining untouchable areas, both with real increases in spending?
- Should public sector salaries be cut by up to 20% on average?
- Will tertiary sector funding increases have to come entirely from fees?
- Will pensions and welfare benefits be frozen or cut?
- Will middle class welfare, such as winter fuel allowances for the elderly be severely curtailed?
- Will government housing expenditure be halted?

The Conservatives probably know that, and also know that having the Liberal Democrats part of the government that does some of these will help spread the political blame.

However, the public still remains ignorant of the scale of the problem. Which brings me to:

Incompetent explanation of the need for spending cuts. George Osborne as Chancellor of the Exchequer has done a shocking job of selling the need for cuts. He hasn't explained that interest rates could rise if cuts aren't made, he hasn't explained that a bloated state does not allow the private sector to grow, he doesn't convincingly make my first point above, that continued deficit spending is NOT about keeping the economy going - it takes money from the private sector to make the state take it from taxpayers in the future.

What the 1% cut in public spending means is simply a sign of willingness to take steps to deal with Britain's fiscal catastrophe. It is seen as a first step, but sadly is being portrayed as "taking the tough decisions early".

The cuts announced are easy and obvious, although a minor point is that it is odd for government to cut spending on roads when it doesn't allow the private sector to enter the market (and already recover revenue 4x that which it spends on roads from road users).

On top of that it is nice to see the UK doesn't have privatisation -phobia like New Zealand does.

The Royal Mail is to be part-privatised (49%) to raise money and to get private investment into the firm. Far more interesting is that the government is considering a serious proposal to lease the entire motorway network to the private sector.