It’s at a disastrous time like this to stop throwing money around like confetti and head to Davos.
January 2009 saw everything in the global economy get worse: stock markets down by 10% (Dow Jones down 8.8%), consumer sales down, production down, unemployment rising fast (towards a global 50 million per the IMF), and Bank Bail-outs Mark II in the US, UK, France, Germany and Ireland, and social unrest in England, Spain, France, Bulgaria, Romania, China and now Russia on Saturday.
It’s at a time like this to stop throwing money around like confetti and head to Davos and the slopes for a bit of really expensive ski-ing – as in ‘Spending the Kid’s Inheritance’ – something our Gordon’s pretty good at.
The cost of his probable £1 trillion public debt legacy makes interesting arithmetic: the UK’s population is 60 million, so that’s £16,667 debt per head; allow the same again for debt interest, which is an optimistic assumption at this level, so that’s over £30,000 per head.
Then add in the unfunded cost of state pensions, the Private Finance Initiative and the unfunded medical care costs (the NHS), which were recently estimated by Die Stiftung Marktwirtschaft, a Berlin think-tank, at 566% of existing UK public debt, and, well you’re looking at an avalanche of debt which will engulf a whole generation for twenty years.
At the après-ski talk-ins, designed to warm up those freezing hearts and minds with hot-air, our Gordon puts on a stunning performance: “We’re all off-piste now, no one knows where we are or where we go from here; I’ve checked out the economics section at the Kirkcaldy Public Library and there’s not even a chapter on what we should do next.
Even Adam Smith, that other great economist from my home town, didn’t foresee this crisis, and if he didn’t see it coming, how could anyone else!? [He died in 1790 – Ed.] But by my analysis it’s really quite simple though: this is a global problem and so it needs a global solution!” (Huge cheers.)
“All everyone needs to do is throw money at the problem until it goes away! Just like I have done in the UK, where there’s no money left – it’s all gone away!” (Sits down to more huge applause.)
The extraordinary assumption by Gordon, and now Obama, is that they can make the banks start lending again just because they’ve been bailed out with taxpayer dollars. It seems not to have occurred to their financial gurus that it was irresponsible lending and excessive leverage that got the banks into this mess in the first place, and that pouring oil onto a raging inferno of toxic junk would absolutely guarantee disaster.
What banks normally do in a recession is pull in their horns and rein back their lending and preserve their capital with their lives, as the inevitable crop of bad debts arrives on their doorstop.
It’s as if Gordon is determined to beat Nature’s cycle at her own game, because the electoral cycle is bearing down on him. He has to call an election within 17 months and provided the Conservatives don’t become a mass-suicide cult in the meantime, then our Gordon is already as good as toast, as there is no way the economy will have even re-started by then, other than in Baroness Vadera’s fertile imagination.
The Conservatives need to step up their attacks on our Go’’on’s profligacy without delay, on the simple arithmetic that every pound saved now is one they won’t have to save when in power.
For a start, they should argue strongly to reverse the ridiculous reduction of 2.5% in VAT immediately and stop another £12 billion flowing out of the Treasury for no apparent benefit, other than to assist imports in the main.
They should argue to stop yet more cash (as opposed to arms-length guarantees) going into the banks on the ridiculous notion that this will get the banks lending again.
John Varley, CEO of Barclays, has said that it will take at least two years for the system to unwind itself, before lending can cautiously resume. Saving the banks was one thing, but to go beyond that is for the government to enter into the ‘moral hazard’ zone.
And as for industries in trouble, caused solely by the credit crunch, such as the car industry, aid must be better targeted to move the unsold stock of cars and nothing else; Germany’s reluctant stimulus package pays each purchaser of a car made in Germany a princely €2,500, a real incentive that is likely to be recycled back into the local economy.
And fourthly, the Conservatives should dust off and update the three year-old James Report that identified £38 billion of annual cost savings in public expenditure, and stick a new target of £50 billion savings on the new title page.
And finally, as theirs will surely be a landslide victory, the Conservatives should give a firm target of the maximum percentage (of below 37.5%) of GDP that goes to the public sector and a general, but unquantified, pledge to reduce the overall level of taxation in their first term.
If they cannot do this soon, and if they don’t get to these markers in their first five years, then they will not deserve a second term. They should start soon, as Gordon might call a snap election, if the sun breaks through and shines briefly in his direction.
Say this did happen in the third quarter, and the Conservatives had said nothing, and Gordon has been charging all over the place and on a screen near you and glad-handing everyone important and giving a good but erroneous impression of “saving” the world…