Sunday, 12 June 2011

Flogging a dead horse

I thought the fight was over. I thought the general election and local elections rubber stamped the official history. The reason we're in economic plight is solely down to spending more money than we had during the Labour years. This is the accepted truth by the vast majority of the country, I've had conversations recently and it's seen as the only reason we're in the shite. There's books about it and everything.

Yet there's still a slow drip of stories and commentaries in the popular press that seems to want to continually reinforce this truth, almost as if you stopped saying it it might prove to stop being the case. The Ed Balls documents leak has offered another opportunity to make sure no one forgets the truth.

This story in the Mail - copied from the original in the Telegraph - makes a big play of the comment "We're (sic) spent all this money, but what have we got for it?" More proof that Labour were spending way above their means and squandering the lot on diversity playground technicians and lesbian lessons for little 'uns.

However if you take a look at the actual documents, which the Telegraph has kindly uploaded (note to Mail -  in 2011 all online news should link to sources wherever possible), you can see the quote isn't really the hysterical screaming warning that the papers are touting.

It is in fact a sub-heading clarifying why the 2006 spending review should be looking at public sector productivity if they want to achieve flat spending. That is if the amount of money spent by the government is to remain at a flat 40ish % of GDP and not fluctuate depending on tax take and whims.

So it's just a policy suggestion, coming from the Treasury, asking for a predictable spend plan, not a cut in spending. This has been made to a Labour government who, I think, have the over-arching aim to stop wealth being sucked up from the bottom of society to the top and so are within their rights to ignore it; focusing on the benefit to society instead of the benefit to the economy. It's a matter of ideology how closely you feel these two things are linked.

Strangely the prediction made in the document of a spend of 42.4% GDP in 2007/08 was way out the, actual spend was 38.9%, things aren't as bad as they thought they could be.

Not being an economist my take on this is likely to be missing some important aspects but to take it as simply as the Mail readership tends to: You should only spend what you make. So what does the government make, whatever it taxes basically. This tends to be somewhere around 40% GDP mark - very similar to the amount it spends funnily enough!

As an aside the treasury takes around 40% of wealth generated in the country, yet I pay a lot more than that in total tax probably closer to 50%. Somewhere, someone is making money and not paying tax on it...

So if you subtract the tax take from the public spend it will show how out of control spending was and is. The data can be found easily enough on t'internet (here and here) and plotting them against each other gives this...

Basically put if the bar's below the line we're spending more than we're making and if it's above we've money left over.

Going back through time Wilson pissed cash against the wall through most of his time in office as did Heath, Wilson again and Callaghan. Thatcher spent less than she made, but Major splurged. Blair liked what he saw Thatcher do and saved more than he spent. The current controversy surrounds Brown. As I said earlier popular opinion is that he spent like a 10 year old with his parents iTunes account password, the graph seems to show this isn't quite the case. His strategy was to spend what he made. Not borrow or save, he seemed to control it more or less as closely as possible, up slightly one year down a bit the next.

So if the truth is that the state of the economy is more complicated than simple excessive public spending why is there the continued drip, drip, drip of copy saying that it is that simple?

We've a conservative government and ideologically they believe that it's better to live in the best room a Travelodge has to offer rather than pay more and have a smaller room at the Ritz. So if we cut the spending, get rid of the deficit we'll be left with a glut of cash. What do you think that'll get spent on, hospitals, nurseries and care homes for the elderly or getting rid of the upper tax band?

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