UK Fiscal Incompetence!

This week on Facebook: If I appear obsessed with politicians and economics it because my online research has led me in that direction. Last week I posted the following from 2008:

This is yet another indication that this government cannot continue with its policy of welfare largesse. More significantly, we now have a national spend and debt repayment economy. Yet even here, the Government is using data manipulation to disguise the true size of the debt, while promising increased public expenditure. Welfare and Unemployment

The2019 general election¹ may have been won by Boris Johnson² but in the UK there is still sign that political incompetence still reigns and that deficit financing is now the norm for the politicians that are elected to office.

The world’s current governments didn’t really need an excuse to go on a spending spree. But in the coronavirus epidemic, they’ve now got one. Expect to be showered with cash. Coronavirus is the ideal excuse for governments to blow the budget

Listen to the whole of Merryn’s interview with Anand Giridharadas on the MoneyWeek Podcast

When I spoke to Anand Giridharadas about his new book Winners Take All: The Elite Charade of Changing the World last month, it was Davos week. It’s time to take power back from the plutocrats

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1. Quantitative Easing and a bankrupt state (2011): Quantitative Easing is the method used by the UK government (past and present) to stimulate economic growth by injecting money electronically into the economy. The theory is that the sale of  British Government bonds (gilts) and high quality Corporate Bonds from private sector companies (banks, pension funds, insurance companies and non-financial institutions) provides this economic stimulus. Quantitative easing to finance the purchase of these bond sales injects money directly into companies (and into the government coffers) thus increasing their available capital.

2. Financial Repression (2012): The entire economy relies on the suspension of disbelief. So does a fairy story, or an animated cartoon. This means that no matter how soberly the financial experts dress, no matter how dry their language, the economy they worship can only ever be as plausible as an episode of SpongeBob SquarePants. It’s certainly nowhere near as well thought-out and executed.

3. Ranking Banking! (2013): The government provided a bank with a public (tax funded) guarantee. This effective insurance against going bust gave it a commercial advantage over other financial institutions. By reducing the risk, a bank can borrow money much more cheaply than if it were ultimately underwritten by its reserves, assets and shareholders. This saves a participating bank large amounts of money. The benefit of the insurance against going bust, provided by the taxpayer, now goes to pay bonuses to senior staff for “performance‟ and dividends to institutional investors.

4. The pound in your pocket (2014): In terms of a nation’s wealth, government acquisitions and disposals are invariably made for short term political gain and not the longer term national interests. These acquisitions and disposals, particularly in the UK, have resulted in significant reductions in the nations sources and stores of wealth and have led to an increased burden on the taxpayer. So where does all of this leave you and me? Certainly no wiser regarding the schools of economic thought on hard (sound) money or soft (stable) money. The nature of money would seem to engender passion in the few and indifference in the many. The world seems to be content with fiat (soft) money, which some economists contend puts the people in thrall to the government.

5. The Budget Deficit – The Record (2015): When economist, politicians and ultimately governments introduce a fiscal policy it always involves debt and taxation. Ideally the taxation revenue income stream would fund government  budgeted expenditure that included paying off the capital and interest on any ‘borrowing’. Politicians, however, buy support with promises that lead to budget deficits and increases in the national debt. The last time the UK government ran an absolute budget surplus was in 2001 and has only balanced the budget in seven out of the last 50 years.

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Referenced Articles Books & Definitions:

• A bold text subscript above and preceding a title below (¹·²·³), refers to a book, pdf, podcast, video, slide show and a download url that is usually free.
• Brackets containing a number e.g. (1) reference a particular included article (1-5).
• A link (url), which usually includes the title, are to an included source.
• The intended context of words, idioms, phrases, have their links in italics.
• A long read url* (when used below) is followed by a superscript asterisk.
• Occasionally Open University (OU) free courses are cited.
• JSTOR lets you set up a free account allowing you to have 6 (interchangeable) books stored that you can read online.

¹The shape of things to come (pdf): The general election campaign we have just entered, the fourth in a decade, will inevitably be dominated by Brexit. But the domestic policy agenda is also sure to feature — not least because the major parties appear to be aligned in their determination to pull away from the austerity decade by pursuing ambitious (code for big) new spending plans. And while Brexit will of course generate a lot of heat, it is on the domestic agenda that we must hope the parties can shed most light. That’s because the UK’s public finances are currently at a turning point, and the agenda laid out by the next government has the potential to define what happens in the UK for many years to come.

²Boris Johnson vs. British Officialdom: Tension between the prime minister and those tasked with enacting his program has revealed the clash of ideas over how to run a country.