The Austerity Fairy

Today I’ve been playing with the greatest toy ever created. It’s not a Sony Playstation and it’s not a Pokemon. It’s a Rubik’s Cube.

The Problem

The Problem

One of the things that makes a Rubik’s Cube so great is that the problem you are trying to solve is very easy to understand. From the time you first picked one up, you understood exactly what you had to do – arrange it such that each face of the cube was the same colour.

The Solution

The very best people in the world have solved it in under 10 seconds, putting through around 5 moves per second.

I’ve just tried making 5 moves per second and I couldn’t even get close.

Let’s imagine taking someone who could move the cube this fast but didn’t know what they were aiming at, that is they know there is a single arrangement of the cube they are aiming for but don’t know what it is so they need to try every possible permutation. I done a sum and by my reckoning, assuming they were able to go at 5 moves per second and were able to keep track of every permutation they had tried so that they never hit the same one twice, it would take them around 274 billion years to get through them all and be sure to have hit the solution.

6 seconds vs 274 billion years – the importance of understanding the problem you are trying to solve.

So anyway, the economy is shrinking again – down 0.2% in the final quarter of 2011 😦

George Osborne was not worried though:

We have the right plan and we’re going to stick with it!

In fairness to him he was half-right. We are going to stick with it.

George thinks the problem is spending. He thinks that as long as we spend less, at some stage the Austerity Fairy will show up and magic the economy back to health.

He blamed firstly, the reckless spending of the Labour government. Let’s get this one out of the way quickly with the IMF data I’ve put on here before. Between 1997 when Labour came to power and 2007, the year before financial meltdown, the UK’s debt as a proportion of its GDP was the lowest in the G7. In every single year:

Government debt as a percentage of GDP (Source IMF)

Government debt as a percentage of GDP (Source IMF)

Yes, the UK is the orange line at the bottom.

Next he blamed Europe. Wait a moment – is that the same Europe who are also awaiting the arrival of the Austerity Fairy? How’s that working out for them? Oh.

Much as George would like it, it’s actually not all everyone else’s fault. The reason George has not solved the problem is because, like the poor bugger spending eternity on a Rubik’s Cube he doesn’t understand the problem he is trying to solve.

The problem isn’t that we currently have too much spending. The problem is a lack of growth and high unemployment. Let me explain further.

In normal economic times when employment is high, if the economy starts looking a little shaky the Bank of England can cut interest rates. Lower interest rates make people want to save less money and spend more. When people spend more the economy picks up. Even Robert Peston knows that.

We are not in normal economic times though. Interest rates have been at an all time low for almost three years and you know what? No one is spending. For the rising number of unemployed this is understandable but for the people who kept their jobs why would they be saving more and spending less with such low interest rates?

It’s fairly simple. In an economic depression, even those people with jobs are scared that they might not have jobs at some time in the not so distant future. What would happen if they were made unemployed? Probably they wouldn’t walk straight into another job so they save. Even with crappy interest rates they save.

We have reduced interest rates pretty much as far as they can go but have still not got people spending again and we have therefore become stuck in something that economists call a liquidity trap. We have nowhere to go with interest rates so as long as the economy is weak no one will spend and as long as no one will spend, the economy will be weak.

This is the problem. Understand that much and the solution is a bit easier to grasp – you plug the gap with government spending until employment goes back up to healthy levels and people are spending again. When people are spending again, then you reduce it.

Even if George were able to grasp the economic problem, it would lead immediately him to a political one. How would he possibly explain to the public that for the past 20 months he had pursued exactly the opposite strategy of the one he should have? It would be political suicide. He’s not going to do that.

Better to take David by the hand and skip off together down the road to nowhere in search of the Austerity Fairy.


Economic Bloodletting

In older times bloodletting was a common medical practice. A doctor would treat a poorly patient by pumping out a few glugs of blood in the hope that it would cure them. The patient would then decline a bit and the doctor would say, “It’s more serious than we thought!” And he’d pump out some more blood. The patient would then get even worse and this bizarre cycle would continue, often until the patient died, at which point the doctor would say, “Well we did our best but they were clearly beyond saving.”

In 2010, the coalition government inherited a poorly economy. (Can you see where I am going with this?) They decided that what it needed was less spending. Less spending they claimed, would have the economy back on its feet in no time.

They predicted that with some much needed spending cuts, economic growth in 2011 would be 2.6%. Then a couple of months later with an even more sickly economy they predicted that with some more spending cuts, 2011 would enjoy economic growth of 2.3%.

November 2010 came though and the patient had deteriorated. 2011 economic growth was now predicted at 2.1% – despite economic bloodletting things were looking bleak. What this patient really needed was… bloodletting.

By March 2011 they had downgraded the annual growth from 2.1% to 1.7% but maintained that the patient’s only hope was spending cuts.

By November, the annual growth prediction was downgraded to 0.9%. We’ll soon see what the real figure was but it is clear that like the quacks of ancient times, the government is unwilling to recognise that there is any link between the treatment and the illness.

Some will disagree that this policy had anything to do with the worsening economy. What is indisputable however, is that the government’s policy of austerity has not led to the economic benefits that they predicted it would.

So let’s think about an alternative policy. Another option is that when the economy is weak we should pursue policies that encourage economic growth and employment. When unemployment rises, there are two immediate consequences. Tax revenues drop and government spending on benefits increases. Then public spending decreases because fewer people have money to spend, and those in employment save more because they are worried about rising unemployment. When public spending decreases, the economy weakens further, the whole thing becomes self-perpetuating and if unchecked we end up where we are today in an economic depression.

The government would say that you can’t spend your way out of recession. They say it all they time. It’s entirely incorrect though – government spending increases economic growth. So a better way of doing things might be to increase spending during a recession and then cut it back once the economy had recovered, employment had gone back up and tax revenues had gone back up. You could also supplement this with some taxes on the wealthy. So we have found a policy that is better than the government’s. Great! Let’s get ’em!

Oh, hold on. Where’s the opposition gone?

Oh dear.

The Labour party it seems, have decided not to take a stance against the spending cuts. Well, I think they have decided that. If I’m honest I’m not absolutely sure. For the past 18 months they have sort of said that they oppose them but have never really laid out a clear alternative. Now Ed Balls has decided that they would not commit to reversing spending cuts whilst maintaining that the government is cutting “too fast and too hard”.

Well I am confused. If they think we are cutting “too hard” but wouldn’t change the policy of cutting exactly this hard then what exactly are they proposing? Labour seems to have moved from a bit wishy-washy to some bizarre conflict of agreeing with government policies whilst saying they are bad.

If I were Ed Miliband, every time David Cameron said during PM’s Questions, “you can’t spend your way out of recession!” I would stand up and read bits out of a first year Macroeconomics text book to him.

And it doesn’t stop at economic policy. Opposition to the government’s proposed health care reforms have come more from doctors than they have from the Labour party despite the government’s argument being shown to be based on completely false statistics. We have a Secretary of State for Education who thinks we should fire more teachers for poor performance. If I were in opposition I think my criteria for firing secretaries of state would include trying to spend £60m on a boat for the Queen and £400,000 on personally inscribed bibles.

In my frustrated state, I am quickly running out of parties to vote for:

  • The Conservatives –  Implementing poor policies with no end in sight
  • The Labour Party – Unable to convey an alternative
  • The Lib Dems – Presumably I don’t need to explain
  • UKIP – Xenophobic
  • BNP – Racist
  • Green Party – In no way prepared for government but might have to look at them now

Ed Miliband’s time is running out to provide coherent opposition to what is going on. He was a good politician in government but for whatever reason he has been positively ineffective in opposition. A recent poll said that the UK public trusted the coalition more on economic policy than they did the Labour Party. I am in no way surprised by this. While I think the coalition policy is bad, it is at least coherent and clearly communicated. Rather than think of a better one, Labour seems to have given up and said, “That’s popular, let’s say that too!”

And say it they did. In a completely incoherent way.

The Conservatives might be poor when it comes to forming policies to gain economic growth, put people into jobs, or improve education and the NHS but never underestimate their brilliance when it comes to making a crap policy sound like common sense.

It is a fragile brilliance though and as their dumb marketing machine rolls forward we can see quite a few gaping holes at which to aim our wrath. I really do believe that a few carefully placed, well-argued policies could derail the whole thing but sadly I see no sign of them on the horizon.

And so, I am making one last, desperate, heartfelt plea:

Could the real opposition please stand up?


How Not to Organise a Referendum

Another week, another cow pat for David Cameron to create, position, and step in up to his neck. This week’s cow pat is of the Aberdeen Angus variety and it is of such depth that his comb-over is barely visible above the crust.

Yes, you’ve guessed it, it’s the subject of Scottish independence and David has decided that this week is a good week to dictate to the Scottish Parliament exactly how and when the vote should happen. If Scotland tries to do it at a non-Westminster approved time, or use a non-Westminster approved phrasing of the questions, then he will see them in court.

If David had phoned up Alex Salmond and conveyed this message in a private conversation then I imagine Alex would have become a bit cross. Fortunately David decided to announce this through the media, thus avoiding any possible dispute or anger on the matter.

Shockingly, it didn’t go well.

Alex, after he finished laughing and estimating the huge swing towards Scottish independence that David had just caused, announced that he would hold the vote on his terms and it would be in 2014 to coincide with the 700th anniversary of the battle of Bannockburn.

If I were a skateboard driver I think I might say that David had just been “pwned.” I don’t drive a skateboard though so I think I’ll settle for him being made to look like a half-witted colonialist.

What was David thinking? He has unpreparedly set himself up against a man who, throughout his entire political career has been preparing for one thing and one thing only – Scottish independence. Additionally he has decided to try to put this man in his place by using the tactic of a posh Englishman in London telling him exactly how his referendum for the Scottish people is going to work. In a debate that could last for the next two and a half years, David has put himself on extremely shaky ground from the start.

Let me move on to talking about Alex Salmond.

Firstly, he looks like Baron Greenback from Dangermouse:

Baron Greenback from Dangermouse

Baron Greenback from Dangermouse

Alex Salmond

Alex Salmond

That is not critical in this debate but I thought I should mention it.

Secondly, although I do not support Scottish independence, I do have to admit that Alex, unlike David, is an extremely competent politician and David taking him on at his specialist subject through some dogma in the media is like me and my mum taking on Manchester United at football.

Every poll I have seen in my lifetime has shown that the majority of the Scottish electorate would prefer to remain part of the UK. If David keeps on his current course however, he may well reverse this in time for the referendum, whenever it may happen. The cynics among you may have spotted another reason for this perceived incompetence. Following the 2010 UK general election, from Scottish constituencies the Labour party had 41 MPs in Westminster. How many did the Conservative party win? Give yourself a pat on the back if you answered 1.

A UK general election without Scottish seats would make a Labour victory much, much harder than it would be otherwise. Although Cameron can’t be seen to be the man trying to break up the union, could it really be that he is more cunning and competent than he is letting on? Could it really be that he is exercising a campaign to actually encourage Scottish independence through a massive double-bluff? If so I was wrong earlier and he is truly a politician of unparalleled skill.

Oh but wait a moment – how would you explain these?

In complicated situations such as these we should look to Occam’s Razor. And that strongly suggests that on this and other important matters – David Cameron has no idea what he is doing.


Crappy New Year

As far as the economy goes, 2011 was a bit of a poo. It was also the year in which my already extremely shaky faith in politicians hit an all time low and so, as we enter a new year it is natural for us all to look forward and wonder what 2012 might bring.

So where better place to look than David Cameron’s new year speech? I’ve just watched it on YouTube. If you’d like to you can do so here or read the full transcript here. If you can’t be bothered then don’t fear, I have a selection of the best bits below.

On 2012, David says this:

It must be the year we go for it – the year the coalition government I lead does everything it takes to get our country up to strength.

I’d kind of assumed he was already going for it in 2011 but it seems as though he wasn’t. It does beg the question as to what exactly he was doing. Was he perhaps biding his time? Was he just waiting for the economic depression* to reach a certain level of calamity before calmly springing into action? Or perhaps he was just lulling it into a false sense of security?

Anyway, let’s not dwell on that. We are “going for it” now so let’s look forward:

The coming months will bring the global drama of the Olympics and the glory of the Diamond Jubilee.

It gives us an extraordinary incentive…to look our best: to feel pride in who we are and what – even in these trying times – we can achieve.

I know that there will be many people watching this who are worried about what else the year might bring…The search for work has become difficult… I get that… I know how difficult it will be to get through this – but I also know that we will.

This all sounds deeply uplifting until you think about it – at which point it makes absolutely no sense whatsoever.

I’ll start with the Olympics. I am glad that we have the Olympics and I even have some tickets for the tennis. I’ll also watch loads of it on the TV and cheer on the UK’s athletes all the way. Having said that, I don’t really understand the link David is making. What has getting excited about the Olympics got to do with finding a job? Is he implying that unemployed people just need some motivation? I hope not but either way I don’t understand it.

About the Diamond Jubilee I’ll be honest and concise – I don’t care. I absolutely could not possibly care about anything any less. The country’s most privileged family celebrating another milestone for the length of time they have been living a life of ridiculous luxury is I think, if anything, demotivating. If I were unemployed and having severe difficulty in making ends meet I’m not sure the royals having another party at the country’s expense would be the motivational catalyst that propelled me back to employment.

Back to David:

Too often our schools aren’t up to scratch, our hospitals aren’t always clean enough and our police don’t catch criminals. Brilliant and committed people work in public services – but somehow the system stops them doing their job. So we’ll change it.

Ok, but tell me how. The current government has cut funding for education and the police without providing any coherent policy on how, with less funding, those services will be improved. We’ve heard the big society idea about parents running schools but I don’t think too many people found it coherent. I find the policy of changing schools into “academies” to be at best confusing. The news is full of teachers’ concerns about this policy and rather than offer a clear explanation to ease these concerns, the government instead chooses to label the teachers as “ideologues happy with failure“.

If a government chooses to cut funding for education and the police whilst at the same time maintaining that education standards will rise and crime will go down, then the public deserves a very clear explanation of exactly how this will be achieved.

(I do appreciate though, that in 2011 the government hadn’t started going for it yet, so perhaps a good explanation is just around the corner.)

The NHS on the other hand does have a protected budget but the government’s justification for reform is one of the most shameful examples of misleading the public I have ever seen. I wrote about that here.

Onwards and downwards:

I will be bold about working to cure the problems of our society. While a few at the top get rewards that seem to have nothing to do with the risks they take or the effort they put in, many others are stuck on benefits…

David said exactly the same thing many times in the run up to the election but in the 20 months since he took over he has done nigh on nothing about the former problem of the few at the top (other than attempt to cut inheritance tax on the very rich) and in dealing with the latter has responded by cutting benefits and public services. In this respect, not only has he not been going for it, he has been going for the exact opposite.

So none of his speech so far made sense. What rabbit was he going to pull out of the hat that would possibly address all of the glaring holes in his arguments?

I profoundly believe that we can turn these things around. That’s what I mean by the Big Society…

I lost the will to live at that point.


* Yes, I said “depression” – the word that politicians around the world have been avoiding like the plague. It’s been three and a half years. Perhaps in 2012, their New Year’s resolution should be to wake up and call it what it is.