Let’s be honest; we all know that cuts are coming

The Times today leads on the fact that the Civil Service are preparing ‘doomsday cuts’ of up to 20% in public spending in order to get government finances back in order after the next election. Prime Minister’s Questions of course has focussed on little else in recent weeks but the increasingly desperate struggle on both sides to open up clear blue water between investment or cuts on the Labour side, or parsimony versus profligacy on the opposition benches.

Whatever your position on the political spectrum, the size of the budget deficit is truly worrying. This year alone, public spending will constitute 48% of GDP yet only 38% of GDP will be raised in tax receipts. That gap, an eye-watering 10% of GDP, has to be met by borrowing, something that is contingent on people wanting to continue lending money to us. The signs here are looking less than favourable.

In the first instance let me be clear that I think that the counter-cyclical spending is necessary; the aggressive actions of a Labour Government have undoubtedly lessened the impact of the contraction. To paraphrase the Nobel laureate economist Paul Krugman, ‘public debt bad, economic depression worse.’ So, in this instance, the Tories incessant bleating about the size of the national debt misses the point*. However, politics cannot exist independent of economics, nor can economics ignore politics; confidence in the political system reinforces confidence in markets and vice versa. In short, it’s the deficit stupid. In setting up a false argument, and seeking clear ground between ourselves and the Conservatives we are not only abandoning the centre-ground; we risk playing fast and loose with Britain’s solvency.

And I don’t make this claim lightly. The first duty of any government is to be an effective steward of the nation’s finances. Labour must start to face up to the facts now that we are going to have to pare back spending; pet projects will have to be put to sleep, the credits cards will have to put cut up, and we will have to face an era of living within our means.

Whilst all this is happening, let’s not talk about another bankers ramp, or treat commiting ever larger slabs of money to public spending as a test of virility. And let’s not go for easy or politically palatable targets; Trident for example is actually surprisingly good value for money constituting only 3% of the defence procurement budget. Besides, defence spending only makes up 5% of public spending so talk of defence cuts all you like but even spending nothing on defence would still leave a massive hole in public finances.

We need to grit our teeth and look at the three biggest areas of spending; welfare, health and education. These are areas of great achievement for the government but we shouldn’t be blinded into thinking that things couldn’t be run more economically or that every penny spent has achieved value for money. And in the coming age of austerity, value for money is what will count.

In short, the till is nearly empty; let’s face up to cuts now rather than offer a false prospectus of ever-increasing spending. The public don’t buy it and neither should we.

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*Besides, much of the debt was accrued taking stakes in banks that will eventually be resold, hopefully at a net profit to the taxpayer.

PANIC!

It’s not often that I don my white coat in public, but the absolutely shocking coverage of swine flu is driving me to despair. A classic example of piss-poor reporting is The Sun, where the story “It could be flu” ticks the following boxes:

1. Sheer scientific illiteracy.
2. Doom mongering.
3. Engendering panic.
4. Blaming the government (naturally).

Before addressing these points, let’s just look at the meaning of the word pandemic, which is being used over and over again to lend an appropriately apocalyptic tone to the reporting. A pandemic is an incidence of disease where there is transmission between humans over a large area. So, people can catch it off each other, and people are catching it off each other around the world (which given the globalised nature of travel, is highly unsurprising- more on the global nature of disease later though). Yes, a worry, but the 4 horsemen won’t be galloping down a street near your anytime soon.

So, moving on. In no particular order, here is some of the absolute crap that I’ve read/been force-fed by 24 hour news:

“We might not have enough antibiotics to combat swine flu.”

Antibiotics kill BACTERIA (small, unicellular life forms such as TB, E. Coli, and MRSA) whereas flu is a VIRUS (not alive, just a complex biological machine that hijacks cellular machinery of things that are alive in order to replicate itself). So even if we had all the antibiotics in the world, they wouldn’t do anything for swine flu because swine flu is a VIRUS and not a BACTERIA (still following at the back?).

“Scientists yesterday warned the pig virus could mutate yet again — by “mating” with lethal bird flu strain H5N1 to become even more powerful.”

Viruses mating. Nice. To reiterate the last point, VIRUSES ARE NOT ALIVE. They replicate themselves by hijacking things that are. Yes, there is a small possibility of viruses recombining (not mating) but there is also a statistical chance of Lord Lucan winning the Grand National on Shergar dressed as Elvis. Or me winning the lottery. On which note…

“Britain’s doctors will use a LOTTERY to deicde which swine flu victims get intensive care during a pandemic”

Well, a) we’re in a pandemic already, but that’s not neccessarily cause to go and hide in a cave with 3 years supply of pot noodles and b) if we get to the point where the health service is near collapse (which we won’t) then we’re all screwed anyway because there’ll be hardly anyone left to run the country/economy. What does The Sun want? A doctor and a nurse for everyone in the country?

“MEXICO…….176 flu deaths, 49 confirmed cases, 2,500 suspected — including boy [my underlining]. UNITED STATES….1 death plus 131 confirmed cases of swine flu.”

Tragic as any death is, let’s get some proportion here. 36,000 people died in the US last year of influenza. That’s all kinds of flu. 1 person has died of this one kind of flu.

Will the newspapers be held to account for the inevitable pressure scare stories place on the NHS (people getting worried and going down the GP because they snorted whilst laughing)? Will they balls. Of course, we have to remain vigilant about disease, but the things that are being recommended (catch coughs and sneezes in a tissue, bin the tissue, and wash your hands) are things we should do as a matter of our daily routine. Basic personal hygiene will prevent all manner of sniffles and snot. And if you have got a runny nose, or found yourself enjoying the film Babe a little too much recently, then don’t panic. You won’t wake up tomorrow with trotters: chances are you have a cold. If you are worried, then get it checked, of course, but the health services really do know what they’re doing and the government has very well rehearsed plans in place should things get nastier.

On a broader note, the recurrence of public health as a global issue raises the moral imperative of lifting the world’s poor out of poverty to a practical one (these things more often than not come out of poor, overcrowded, insanitary environmnts in Mexico and Asia). In a sense more literal than any time in human history, we are all our brother’s keeper. The health of the poorest people on this planet is directly linked to the health of all of us, and until we emanciapte the world’s poor from poverty, diesease, ignorance, squalor and idleness we will continue to live in a world characterised by insecurity and fear.

Faith Schools and Fornication

I don’t often become apoplectic with rage, but the caveat in the government’s plans to introduce compulsory sex education from the age of 5, which will allow faith schools to tell kids that…

“having sex outside of marriage, homosexuality or using contraception is wrong.”

…has left me absolutely fuming.

Aside from the fact that surely it doesn’t matter if a person has 1 or 1000 sexual partners if they were all consensual relationships, that marriage is at best an out-moded institution, or that our quite frankly retarded Victorian attitudes to sex and sexuality have done nothing to stem teen pregnancy or rising rates of the clap, why oh why oh why did we get rid of section 28 if it’s OK to teach that homosexuality is wrong. Why do we even bother trying to cut STIs or have a teen pregnancy strategy if some schools are still going to allow crap to be peddled about contraception?

We are seriously letting down our young people in order to save our blushes and appease a few lunatic men in frocks who shouldn’t have any hand in running schools in the first place.

I am, quite frankly, speechless.

The myth of Tory economic competence

So, Maggie is apparently unhappy with how the PM is handling the economy. Strip away the fact that her government legislated to ban Christmas and made it compulsory to jab puppies with knitting needles. Ignore, for a minute, the fact that the big-bang loadsa money ethos of the 80s which created a culture of invincibility in the City and destroyed our manufacturing base got us in the mess we’re in and is hampering our ability to get out of it. No, let’s not dwell on the apartheid-supporting, democracy-emasculating, section-28isms, which, when we look back are kind of endearing. I mean, she never really meant any harm did she?!

Let us instead take a little closer look at one of the underlying arguments that the Lady (and many other Tories) is making. That argument is this: the Tories are the economically competent ones who have always come in to clear up the mess of a Labour government. To see if this is true, or indeed a pile of horse-shit, let’s work through post-war governments of both stripes (with tongue slightly in cheek) and hopefully try and dismantle some of the mythology around Thatcher that she somehow was Britain’s saviour.

OK.

1945-1951: Labour. Despite the fact the country had nearly bankrupted itself defeating the Thousand-Year Reich, the government managed to create the NHS, a universal welfare state, and nationalise pretty much whatever wasn’t bolted down (and a lot of things that were). Yes, there was a devaluation, but this was more than anything brought on by the ridiculously over-ambitious crash rearmament programme that preceded the Korean war. In implementing Beveridge, it aimed for a total employment figure that, whilst well meant, 30 years hence would prove massively inflationary.

1951-1964: Tory. Some good stuff might have happened but I’m not propagandising for the other side. Suez wasn’t so good, causing a run on the pound so epic that Britain was forced into a humiliating climbdown. Later, under Macmillan, the whole Treasury Team (Chancellor and Ministers) resigned because the Tories handling of the economy was, to put in bluntly, piss-poor.

1964-1970: Labour. England win the World Cup, liberalisation of laws concerning homosexuality, divorce and abortion, and the OU is founded/new universities are built offering access to higher education for hundreds of thousands of people. Another devaluation, arguably reflecting the UKs deteriorating industrial performance since the mid-50s onwards (when much of European industry was able to start competing again after being flattened in the war) and the unwillingness of governments of either party to take on vested interests and modernise. In short, not spectacularly competent on the economy, but no worse than the preceding Tory shambles.

1970-1974: Tory (well some of them would like to disown Heath but he was one of yours guys. Sorry!) Anyway, Rolls Royce nationalised, percentage of the economy controlled by the state highest ever recorded. 3 day week. Miners strike. Other bad things.

1974-1979: Labour. Industrial unrest continues. Inflation takes hold (see 1945-1951), unions don’t help. ‘Winter of Discontent.’ BUT by 1976, an ideological shift (if not shared by all Labour members as a whole) had taken place. Callaghan addresses the Labour conference and rejects throwing money at things. Healey goes to IMF and shows signs that he gets it too. In short, much of the heavy lifting for Thatcher is already going on. But boy did she put her own stamp on it…

1979-1997: Tory. That woman (followed by some grey bloke). Rather than saying, yes, Britain suffers from some serious structural problems (outdated industry, over-mighty unions) that with work, patience and courage can be turned around, she unleashes an economic blitzkrieg which, when dealing with the ossified Morrisonian public corporation dinosaurs only means one thing. Unemployment. Massive, intergenerational unemployment. Crime rockets. Homelessness soars. Riots in Toxteth, Notting Hill and Trafalgar Square. Wearing of red braces and stripey shirts made compulsory within the square mile, as are phones the size of hot-hatches. Sunshine privatised and metered back to the poor… Then Major comes along and does something. No-one remembers what exactly it is he does (except for muffing it up royally on Black Wednesday and losing an MP in bizarre circumstances). Also, the Hamiltons. Don’t forget them.

1997-?: Labour. A new Jerusalem. Death and illness are abolished. Poverty and suffering outlawed. Commentators complain when budget surpluses and proceeds from wavelength auctions are used to pay off national debt. “Surely a bit of debt doesn’t matter?” they say…

So, to wind up an overly long piece, what I’m saying is that post-war economic management by governments of both colours was pretty ropey. But, and this is a big but:

1. Labour governments still managed to do some pretty awesome things whilst we were going to hell in a handcart.

2. Callaghan (and Healey) are the ones who deserve the credit for bringing us to our senses. As Oliver Kamm puts it, “[Callaghan's] greatest single achievement was to destroy Socialism as a serious proposition in British politics. The principal turning point… in the past 60 years was not 1979, when Mrs Thatcher took office, but 1976″ (see 1975-1979 for the reason why).

So, unsurprisingly it appears that Lady T is talking rubbish.

Trident and the Generals

There’s been a lot of coverage of the call by retired generals to scrap the planned replacement for Trident. This will undoubtedly be grasped by many people (especially our friends on the left) as a further sign that replacing Trident will be a massive waste of money/militarily useless. However, there are several health warnings about the advice of the generals.

Firstly, generals will always (understandably) be a partisans for their service: Trident is a piece of naval equipment and therefore only serves to give prestige to the Navy. Ergo, the army don’t like it.

Secondly, the time frame required to replace Trident is exceptionally long: no security/defence analyst now can honestly predict the strategic environment that we’ll be faced with in 20-30 years. Replacing it is therefore a very good insurance policy: the recent resurgence of Russia is a case in point and would have taken an extremely high level of prescience to predict during the mid-nineties. Furthermore, other countries are likely to retain nuclear weapons for the time being: putting it simply, having nukes means that people listen to us. Putting it crudely, we want to retain our relative power position in the world in order to pursue a robust foreign policy where necessary.

Thirdly, deterrence is a necessary option for a country of our size: during the Cold War it was often repeated that all the Red Army needed to invade Britain was enough boots. We are a small nation in terms of population/forces we can put in the field: given that it is not inconceivable that another state power may wish to coerce us by force in the future, it’s absolutely necessary the UK possesses something that could make them think twice.

Lastly, whilst I sympathise with the plight of the army (I would like to see funding for the military increased to address pay/conditions/kit issues that the Generals rightly bring to the fore), it is frankly a bit rich for the army to talk about obsolescence when the army order of battle has changed itself so little from the Cold War period. If we want to talk about ineffective weapons systems lets look at tanks. Impossible to deploy quickly (so much for rapid reaction), only useful against other tanks (and there are much better means of killing tanks), the number of cavalry regiments remains artificially high simply for the reason that they have a greater social cachet (and therefore more friends in high places) than infantry regiments. The same goes for 90% of the artillery.

Massive resources are tied up in army equipment that has a role that can be better performed by something else. Yet, when the army last restructured the number of infantry regiments was cut whilst cavalry remained the same: to reiterate this point, the continued requirement for cavalry/artillery regiments to do ‘dismounted’ tours (i.e. as infantry) acts as a pretty stinging indictment of the current order of battle. In this regard then, the army needs to have a long look at itself before criticising other services (and there are undoubted criticism of the navy and air-force that can be made that move well beyond Trident).

So, whilst I welcome the chance for a healthy debate about the future of defence spending, I think it’s necessary for people to be aware of the problems surrounding the general’s advice. Trident is a vital part of our defence posture and needs to be replaced.

That Tory economic policy again.

“We’re going to cut public spending in order to enact a tax-cut that will cut private spending. That’s exactly what we need when aggregate demand is collapsing.”

Genius.

Revisiting Ramsay MacDonald

In the history of the Labour Party, no one is quite as reviled as the ‘turncoat’ PM Ramsay MacDonald. In the face of the Great Depression, rising unemployment, and a growing budget deficit, MacDonald proposed cutting public spending and raising taxes to defend the currency and balance the budget: this saw the collapse of a Labour government (and near destruction of the Parliamentary Labour Party) and in so doing furnished the left with one of it’s most treasured legacies: that it is only through betrayal that socialism has never been realised. Moreover, it explains the psychology of how Labour is responding to the current crisis.

Keynesian economics gained much credence in the wake of what was seen as MacDonald’s austere deflationary programme: thus the idea that ‘something must be done’ in the current crisis is perpetuated. That Keynesian economics (at least as practised) was ultimately proved wrong, that purchasing a little economic stability now stores up huge dislocations later, and that in trying to pump-prime a retail sector bloated will only perpetuate the causes of instability seems beyond the point: the most corrosive element of Keynesian thought to make a comeback is the obsession with the short-term. Rather than focussing on how to keep unemployment low today, the focus should be on what will create the new jobs of tomorrow. UK R&D spending, along with productivity, lags behind other developed countries and it is these that will impede a recovery when it comes.

The most apposite comparison is Germany (which recently dismissed the pre-budget report as irresponsible). In the post-war period Germany focussed on having a stable currency and low inflation. Britain focussed on Keynes instead, and set eye-wateringly low level of unemployment as the primary macroeconomic target. This came at a huge cost in terms of productivity which ultimately led to the collapse of much of UK manufacturing. We are in danger of making the same mistakes now in response to the credit crisis, and though it is painful for a Labour supporter to admit, we may see the destruction of a reputation for economic competence that New Labour worked hard to achieve as a Labour government once again approaches the exit door with high unemployment, a devalued pound, and a budget deficit running out of control.

So, what is to be done? I cannot claim to have any easy answers, but given a historical trade deficit something must be done to return the UK to a position of being a net exporter. We can only finance more debt if there is a prospect that we will, as a nation, have the means to service it. This means supporting innovation, cutting regulation and taxes where necessary, and promoting research and development. It also means updating Britain’s dilapidated transport infrastructure. This however, may all prove to be academic.

The continuing collapse in the value of the pound predates the news that a second bailout may be required for the banking sector. How this bailout is financed is important. It has been calculated that the UK’s external debt is now 400% of GDP so extra borrowing is going to be extremely difficult to finance unless you consider the politically toxic option (for Labour) of going cap-in-hand to the IMF (there is the other option of ‘quantitative easing’: printing new money like wallpaper in laymen’s terms but how this prevents a further slide in the value of the pound is beyond me). So, if the economic situation worsens and more specifically liquidity in the banking system dries up, Labour will be faced with the option of cutting public spending dramatically or bankrupting the country. Faced with that alternative, it might seem that Ramsay MacDonald wasn’t so wrong after all. Would the left admit as much? Of course not. However, it would be a pyrrhic victory for orthodox economics if this came to pass.

In defence of social democracy

A great piece in Tuesday’s FT by Vernon Bogdanor, Professor of Government at Oxford. I would hope, what with Miliband’s intervention yesterday as well, that there is still not only time, but also more importantly the desire (too many people are indulging in fatalism) for Labour to re-find a sense of purpose whilst still in office and renew itself for another term.

Union Insanity…

The Guardian today is reporting of a list of some 130 demands being made by the unions. Some of them seem sensible (such as measures on flexible working) but a large number vary from the ridiculous (calling for staff in city academies to be paid at the same rates as other school staff) to the insane (restoration of secondary action). I hope that the inflated nature (and the inclusion of more controversial demands) of the list is a tactical measure in order to secure the more modest measures: that there are people that can still talk of restoring secondary rights makes my mind boggle.

If you can’t beat them…

Some people say that if you can’t beat them, join them. I say that’s rubbish: if you can’t beat them, cheat.

Before I get charged with opportunism, I’ve always been an advocate of voting reform- some kind of AV system would probably do the job best- but the problem with voting reform is that the minute a party gets a majority, the minute voting reform is ditched.

So, given that experience of the last 30 years probably demonstrates that thumping majorities don’t do the parties that have them any good, perhaps it’s time to bring voting reform back onto the agenda?