Bolitics The New Condem Government

[Awol]

Jon stop trying to spin things around, as that article clearly states the party that has traditionally been the one that has privatised the big parts of public owned entities is the Tory party. Rightly so that article says selling off the family silver. Your examples are minisclue compared to those sold off by Thatcher et al, The whole principle of this was championed by the Thatcher years, something that Cameron wants a return to.

Its obviously a policy that you are not comfortable with hence your continued attempts to try and deflect "blame" to Labour.

You make me laugh sometimes. I'm not spinning anything around Ian, I'm trying to show the continuity of a policy that we both disagree with from Thatcher, through Major, Blair, Brown and now Cameron.

Seems to me that it's actually you who is uncomfortable with admitting that fact so you talk about deflection etc. All I've done is illustrated how Labour continued where Thatcher left off, and as Blair-lite Cameron is unsurprisingly continuing the policy.

This Gvmt are seemingly intent of resurrecting the speed and magnitude of Thatchers time. What next for them the NHS? or will that be done more by stealth?

By stealth, hmmm. Maybe something like PFI might work?

[snowychap]

I accept that sometimes it will be necessary [for a government] to run a deficit

When the non government sector runs a surplus.

[kidlewis]

PFI has never been value for money from what I have been told by people who get these contracts. It seems that any contract which involves the government is a sudden given that you can ask for silly money.

it's like these contracts are like wedding venues and the PFI companies are the ones hiking up the prices because they know they have the demand and desire of the government (the groom and bride to be) to pay that kind of money.

"how much would it cost to build this?"

"bout £100m"

"it's for a new building for an NHS hospital"

"oh right.....£450m"

"Deal"

[snowychap]

The myths swallowed by George Osborne

MPs on the Treasury select committee have criticised George Osborne for "misleading the public" by suggesting that Britain was close to bankruptcy. Britain's budget deficit is at present equivalent to 12.7% of GDP. The national debt has been rising, as has the cost of debt service, currently running at about just over £42bn per annum or about 3% of GDP. According to George Osborne, unless drastic austerity measures are imposed as per the government spending review, the international financial markets will lose confidence in Britain. But the chancellor's argument in favour of drastic budgetary retrenchment is a mixture of fact and myth. Below are some typical myths.

Myth 1: Debt repayment is a cost to the country

About 80% of public borrowing is from the domestic market, what economists call the "non-bank public". To those who buy them – either directly or through things like pension funds – British bonds are an asset on which holders receive a payment totalling £34bn per annum. The remaining 20% is either held by government departments or is owed to foreigners. Most public borrowing appears as a liability on the government side of the ledger, but as an asset on the ledger of domestic bondholders.

Myth 2: The taxpayer pays

We are told repeatedly that the cost of servicing public debt is paid by current and future taxpayers. But anyone who believes that has grasped the wrong end of the stick. The reason the government has had to borrow ever larger amounts since 2008 is that, in a recession, tax receipts fall while transfer payments (such as jobseekers' allowance) rise. So it is the lack of tax receipts that leads to the borrowing, not excessive borrowing that leads to more taxes. As the economy recovers, tax receipts rise and borrowing falls.

A somewhat more sophisticated argument used mainly by "financial economists" (the sort who advise Osborne) is that when government debt-financed spending rises, the public cuts its consumption by an equal amount in the expectation that future taxes will rise. This is what economists call the "Ricardian equivalence" hypothesis, first proposed by David Ricardo in the early 19th century and popularised by Robert Barro and other members of the "rational expectations" school of economics which enjoyed brief credibility in the 1970s. Bluntly, there is little empirical support for this hypothesis. (See Elmendorf, DW; Mankiw, NG (1998). "Government Debt, NBER Working Paper 6470".)

The same is true of the oxymoron "expansionary fiscal contraction"; the IMF's World Economic Outlook (October 2010) could find only two episodes out of 15 of advanced economies expanding as deficits were cut.

Myth 3: the government is broke

Liam Byrne's note in May to his successor as the UK's Treasury secretary famously claimed that "there was no money left". Clearly, this was not meant seriously. Every schoolboy knows (or should know) that government cannot "go broke" like a private business. As long as Britain has its own currency, it has the power to print money. Anyone who doesn't believe this should read up on quantitative easing, the main form of printing money at present. Governments can only go broke if they have incurred debts in another currency; ie if they cannot finance their external current account deficit (which includes interest paid abroad).

Myth 4: the government must always balance its budget

While it may be sensible for a government to attempt budgetary balance over the full business cycle, it would be folly to insist that the budget must balance every year. Although we can dampen the amplitude of business cycles using "stabilisers", unless we find some way of abolishing the business cycle altogether (as Gordon Brown once claimed to have done) in any market economy there are bound to be periodic recessions. Attempting to balance the budget in a downturn, whether through stringent cuts or higher taxes, is likely to prolong the downturn since it lowers aggregate demand; ie people lose their jobs, spend less, and in turn others businesses go broke. In extremis, cutting drastically to achieve a balanced budget in a sharp downturn, far from reducing the government deficit, can make things worse – as the Irish and Greek cases show. That is why such a measure is called "pro-cyclical": it deepens the downturn.

Myth 5: Debt costs more than stimulus

The thinktank Compass recently issued a pamphlet entitled "The £100bn Gamble". The figure of £100bn is based on assuming that the average growth rate over the next five years is a Japan-style 1.3%, considerably lower than the 2.5% average assumed by Osborne; the cumulative difference between these growth assumptions adds up to roughly £100bn over the period (about 7% of GDP). Note that over five years this is equivalent to £20bn per annum, far more than the £8bn or so in annual government debt service paid abroad. In fact, this is an underestimate, since what it does not include is the increment in GDP permanently lost as a result of the 2008 credit squeeze and the subsequent recession.

Although we will get back to our real 2007 GDP level at some point, Britain has dropped to a lower trend growth line. According to Martin Wolf, up to 10% of annual potential GDP has been lost for ever. The banks are responsible for the recession that gave rise to this loss, and – one needs to repeat the point – the value of lost output in Britain is vastly greater than the cost of public debt. Osborne's "over-egged custard" will inflict a great deal more pain.

[Awol]

I accept that sometimes it will be necessary [for a government] to run a deficit

When the non government sector runs a surplus.

Maybe I've misunderstood here but are you suggesting the government should just arbitrarily take whatever money it 'needs' in any given year from the private sector?

On reflection I'm pretty sure you don't mean that (because it would be insane) but could you clarify please mate?

[snowychap]

PFI has never been value for money from what I have been told by people who get these contracts...

So your argument is that PFI doesn't work for the public purpose and that is for two reasons: firstly, that the private sector is intent only on benefiting itself and secondly the government (with its current - the last three decades - pro-corporate orthodox thinking) stupidly believes otherwise?

The latter might be an innocent fraud, the former would certainly not be innocent.

[Awol]

Myth 3: the government is broke

Liam Byrne's note in May to his successor as the UK's Treasury secretary famously claimed that "there was no money left". Clearly, this was not meant seriously. Every schoolboy knows (or should know) that government cannot "go broke" like a private business. As long as Britain has its own currency, it has the power to print money. Anyone who doesn't believe this should read up on quantitative easing, the main form of printing money at present. Governments can only go broke if they have incurred debts in another currency; ie if they cannot finance their external current account deficit (which includes interest paid abroad).

Christ, who wrote that, Robert Mugabe/Ben Bernanke? If Governments' could simply print money with no consequence to the real economy then we really could all live in nirvana. In reality, unless you want your currency to become the new tender of Wiemar Germany then that argument is a load of old cock, "as every school boy knows (or should know)".

It rather undermines anything else Mr Irvin has to say, imo.

[kidlewis]

PFI has never been value for money from what I have been told by people who get these contracts...

So your argument is that PFI doesn't work for the public purpose and that is for two reasons: firstly, that the private sector is intent only on benefiting itself and secondly the government (with its current - the last three decades - pro-corporate orthodox thinking) stupidly believes otherwise?

The latter might be an innocent fraud, the former would certainly not be innocent.

well when you look at the fact the number one factor on these PFI companies is profit, and they think they can milk the government dry by asking for ridiculous fees then it's probably the way they go yes.

as I mention before it's exactly what countless companies do for weddings. Take my childminder for instance. she is getting married in a few months and she went to a florists to ask for some quotes on various flower arrangements for tables.

£15 per table they say.

it's for a wedding

oh for a wedding this would be £28 per table.

why, why the ****!

I think the government tie themselves down to too long a deal with these companies, in particular big projects where the company involved effectively leases it back to the government at a ridiculous fee.

I was watching inside out about these energy to waste projects they want to setup, one which the "advice given" by the company wanting to build the plant said that the council would need to send more waste to the energy plant than they do to landfill at the moment. Effectively saying, you need to make more rubbish.

An authority was also charged millions by a company for not utilising the full capacity a plant they use for energy to waste. Effectively charging them for something they haven't used.

who signs this shit?

I suppose when it's not your money your need to give a shit diminishes somewhat. and I think there are various projects up and down the country that proves that.

Surely in this current climate there are a shed loads of companies who would beat each other to death for a government project, the government/councils should be looking now to try and get some projects off the ground, or at least get a figure agreed for the project to start a few years down the line.

[drat01]

Myth 3: the government is broke

Liam Byrne's note in May to his successor as the UK's Treasury secretary famously claimed that "there was no money left". Clearly, this was not meant seriously. Every schoolboy knows (or should know) that government cannot "go broke" like a private business. As long as Britain has its own currency, it has the power to print money. Anyone who doesn't believe this should read up on quantitative easing, the main form of printing money at present. Governments can only go broke if they have incurred debts in another currency; ie if they cannot finance their external current account deficit (which includes interest paid abroad).

Christ, who wrote that, Robert Mugabe/Ben Bernanke? If Governments' could simply print money with no consequence to the real economy then we really could all live in nirvana. In reality, unless you want your currency to become the new tender of Wiemar Germany then that argument is a load of old cock, "as every school boy knows (or should know)".

It rather undermines anything else Mr Irvin has to say, imo.

Jon (again) you follow the line of the Tory party as fact. Now I am no economy expert but a quick look around at what QE actually means in this instance shows that the Guardian bloke is correct - unless of course you are following the words of Gideon to the letter

According to the Maastricht Treaty, EU member states are not allowed to finance their public deficits by printing money. That is one reason why the Bank of England will buy government bonds from financial institutions, not directly from the government.

The Bank believes this form of QE is different because it is "printing money" as part of monetary policy - to prevent deflation. It is not printing money to help the government finance its deficit.

Also, unlike Zimbabwe, this is a temporary policy: the Bank expects to sell the government bonds back into the market when the economy recovers.

[Gringo]

People who work for the public sector, sign a contract and get payment and benefits based on that contract. The govt want to rip up those contracts and force the workers to accept reduced pension benefits. Everyone who has ever paid NI similarly has entered into a contract to pay their dues in return for the future state pension. The govts want to rip up those contracts and impose new ones with a different starting dates and a new way of calculating future payments.

I think the government tie themselves down to too long a deal with these companies, in particular big projects where the company involved effectively leases it back to the government at a ridiculous fee.

Companies with PFI contracts have agreed future payment terms with the govt. The Govt has shown no interesting in ripping up these contracts and imposing new terms.

Public sector workers barely contributed to the increased deficit.

NI contribuions and state pensions did not contribute to the increased deficit.

Ridiculously favourable PFI contracts did contribute to the current deficit.

Go figure.

[snowychap]

If Governments' could simply print money with no consequence to the real economy then we really could all live in nirvana.

Except, he hasn't said that there is no consequence to the 'real economy'. He has said, "Governments can only go broke if they have incurred debts in another currency."

In reality, unless you want your currency to become the new tender of Wiemar Germany then that argument is a load of old cock, "as every school boy knows (or should know)".

No, it isn't.

You have suddenly gone to the extreme of thinking 'As long as Britain has its own currency, it has the power to print money' means there are, or should be in the mind of someone saying that, no limits to spending.

It doesn't. What it does mean is that, in fact, if all of your 'debts' are in your own currency (the issuance of which one has complete control over) then, practically, you control the means of paying them off.

[Awol]

If Governments' could simply print money with no consequence to the real economy then we really could all live in nirvana.

Except, he hasn't said that there is no consequence to the 'real economy'. He has said, "Governments can only go broke if they have incurred debts in another currency."

In reality, unless you want your currency to become the new tender of Wiemar Germany then that argument is a load of old cock, "as every school boy knows (or should know)".

No, it isn't.

You have suddenly gone to the extreme of thinking 'As long as Britain has its own currency, it has the power to print money' means there are, or should be in the mind of someone saying that, no limits to spending.

It doesn't. What it does mean is that, in fact, if all of your 'debts' are in your own currency (the issuance of which one has complete control over) then, practically, you control the means of paying them off.

In absolute terms yes he's right, but when you've printed so much money to pay those debts that the cost of imports has sky rocketed due to devaluation and uncontrolable inflation then you beggar your population. Sterling does not exist in isolation and his opinion seems to complete disregard that fact.

So perhaps I should have said that governments' can't go broke through printing money but countries (populations) can. It all boils down to the same result and his argument is still complete rubbish imo, however I suspect events in the US over the next year or so will prove that one way or another.

[blandy]

Community service is a penal alternative to custody, not a means of helping unemployed people...it's a sanction....

No. Community service when applied to people convicted in court entails doing "work", unpaid, essentially to recompense society for their misdeeds. The punishment is to have to perform tasks without recompense, and society benefits from the fruit of their labour.

For unemployed people, they recieve a benefit for their efforts - so it's not a punishment, it's a means of exchange - society gives them money, they give society their labour.

Two different things....but

The thing that I don't get is that in getting the unemployed to "work" for 30 hours a week, they are then not really "unemployed" any more - they should recieve a wage, and should benefit from employment rights. but I doubt they will.

So it's not the "punishment" angle that I object to - I think that's a false assertion, it's the idea that they should be "encouraged" to work, but will not benefit from the "normal" conditions of work.

The idea of work being created for people without jobs is not something I have a problem with. There are at many more advantages than disadvantages. The Bishop person could be countered that getting out and doing stuff is better for the soul than watching Trisha or waiting for the results from the 2:15 at Newton Abbot in Willy Hills

it's the implementation that is the hard thing to get right.

[LondonLax]

Community service is a penal alternative to custody, not a means of helping unemployed people...it's a sanction....

No. Community service when applied to people convicted in court entails doing "work", unpaid, essentially to recompense society for their misdeeds. The punishment is to have to perform tasks without recompense, and society benefits from the fruit of their labour.

For unemployed people, they recieve a benefit for their efforts - so it's not a punishment, it's a means of exchange - society gives them money, they give society their labour.

Two different things....but

The thing that I don't get is that in getting the unemployed to "work" for 30 hours a week, they are then not really "unemployed" any more - they should recieve a wage, and should benefit from employment rights. but I doubt they will.

So it's not the "punishment" angle that I object to - I think that's a false assertion, it's the idea that they should be "encouraged" to work, but will not benefit from the "normal" conditions of work.

The idea of work being created for people without jobs is not something I have a problem with. There are at many more advantages than disadvantages. The Bishop person could be countered that getting out and doing stuff is better for the soul than watching Trisha or waiting for the results from the 2:15 at Newton Abbot in Willy Hills

it's the implementation that is the hard thing to get right.

I'm with you on this. People on benefits for over a year are essentially becoming part time government employees.

My biggest problem with it though is that councils will probably see all this free labour and start laying off all their current staff and replacing it with free job seekers, making the unemployment problem worse rather than better.

[snowychap]

The thing that I don't get is that in getting the unemployed to "work" for 30 hours a week, they are then not really "unemployed" any more - they should recieve a wage, and should benefit from employment rights. but I doubt they will.

I think that's absolutely right.

[snowychap]

I accept that sometimes it will be necessary [for a government] to run a deficit

When the non government sector runs a surplus.

Maybe I've misunderstood here but are you suggesting the government should just arbitrarily take whatever money it 'needs' in any given year from the private sector?

On reflection I'm pretty sure you don't mean that (because it would be insane) but could you clarify please mate?

I mean that the two sectors must balance (the non-government sector includes the current account).

[snowychap]

...when you've printed so much money to pay those debts that the cost of imports has sky rocketed due to devaluation and uncontrolable inflation then you beggar your population...

How does that stack up with the export-led miracle that is supposed to be the secret to the sustainability of the UK recovery?

[Awol]

...when you've printed so much money to pay those debts that the cost of imports has sky rocketed due to devaluation and uncontrolable inflation then you beggar your population...

How does that stack up with the export-led miracle that is supposed to be the secret to the sustainability of the UK recovery?

Well it doesn't, does it. Currency wars, protectionism, sky high commodity prices (and subsequent asset bubbles).. unless the US can be persuaded not go ahead with a second - and possibly third - round of QE then I reckon the whole shebang could be screwed for 5-10 years.

Taking that into account my original point was that your man in the Guardian's statement that a government can never go bust because it can print more money was factually correct but intellectual nonsense.

[PauloBarnesi]

"Oh dear" my arse. If you are denying that Labour continued the Tories policy of privatisation then you're living in political la la land.

At least we seem to agree that it was/is a bad thing, even if you won't recognise Labour's role in the process.

Why party privatised the following?

Steel

Water

BT

Gas

Rail

BA

BAA

Rolls Royce

When the family silver was sold

Cable & Wireless: Oct 81

Amersham International: Feb 82

Britoil: Nov 82

Associated British Ports: Feb 83

Enterprise Oil: Feb 84

Jaguar: July 84

British Telecom: Nov 84

British Gas: Dec 86

British Airways: Feb 87

Rolls-Royce: May 87

BAA: July 87

British Steel: Dec 88

Regional water companies: Dec 89

Electricity distribution companies: Dec 90

link

Yes ALL gvmts privatise industries but there has traditionally been one party that has been massive supporters of that idea and that is the Tory party

It seems bizarre that a song and dance is made about denationalising companies that were originally private companies? i.e. Rolls Royce, Jaguar. These companies had only been privatised to stop them going bust, not because the country wanted to go into the aero engine industry, luxury car market. How can it be called the family silver, if it didn’t belong to the family in the first place?

The problem would be if they were sold off below the true value?

[blandy]

People who work for the public sector, sign a contract and get payment and benefits based on that contract. The govt want to rip up those contracts and force the workers to accept reduced pension benefits. Everyone who has ever paid NI similarly has entered into a contract to pay their dues in return for the future state pension. The govts want to rip up those contracts and impose new ones with a different starting dates and a new way of calculating future payments.

Minor pedantry - I don't believe that the employment contracts cover pension provision. It's not normal in private sector for pensions to be part of the T&Cs of someone's contract (unless they're a big cheese, of course). On the same lines, on NI, there's no legal contract.

Doesn't make the overall moral point wrong, just the detail.