I've probably mentioned on this
blog before that when it comes to economics I'm no expert, but fortunately
other people are, which is just as well, when I began wondering just how other
countries go about tackling their own national unemployment problems. After
all, Britain has a problem with unemployment, but in comparison to the likes of
Greece, Spain, Italy, etc. our problems are minor one, although the fact that
we still retain our own national currency, whereas they do not, possibly plays
a significant part in explaining the often vast differences.
Anyhow, from the limited amount
of reading I was able to do on the subject, some experts believe that there are
a limited number of ways to help reduce unemployment within a modern economy,
through public spending, through interest rates, or through taxation, although
one would also assume that you could also affect employment through a
combination of these three measures.
Public spending is thought to be
the most direct method of affecting employment, whether through the
introduction of public works projects, through education, or through direct
welfare payments, which is said to be the quickest of the alternatives, simply
because it's the easiest and fastest to set up and disperse to the end
recipients. Studies in America suggest that those in receipt of welfare
typically spend their entire incomes on basic commodities, such as food, heat,
light and housing, making little if any provision for savings, or God forbid
paying down any other existing debts. The thinking goes that because these
consumers spend virtually every penny they have, then that is good for
retailers and manufacturers, who sell more and produce more, thereby requiring
more staff to sell and produce more products; which therefore increases the
country's overall tax yield and also increases overall employment.
In a similar fashion, but over a
much longer time period, public works projects, like schools, roads, municipal
buildings, housing, etc. also help distribute wealth around the economy and
reduces overall unemployment. However, more studies in the USA seem to indicate
that schools actually create more jobs for each billion dollars invested in
them, simply because, as well as directly employing teachers, cleaners,
builders, electricians, etc. in building the school, college or university,
there is the added bonus of the additional educational benefit that these
places of learning have on the pupils who attend them, creating smarter, more
skilful and better qualified future workers for the nation. Of course, the only
major downsides to this sort of public expenditure is the length of time that
they take to come to fruition; and the sometimes high costs of financing them,
which has to be done at the cost of a much higher public spending deficit; and
the costs of supporting it with interest payments. Interestingly, the same
American studies, also concluded that the worst area of public spending for
actual job creation was within the defence industries, where basic project
costs and specialist salaries tended to make such spending excessively high.
The third area of financial
control that governments can use to try and reduce unemployment is through the
tax system, with lower personal, corporation and unemployment taxes being used
to promote personal spending. More money in your pocket usually means more
money to spend on other things, including holidays, consumer products, home
improvements and the little luxuries in life, which suitably boosted by this
additional consumerism should lead to greater economic activity overall, higher
employment and increased tax yields, all of which are once again good for the
country as a whole.
As has been mentioned though, the
one big financial downside to such generous government spending, such as public
works projects, tax cuts and benefit increases, is that the money to pay for
them has to be borrowed and repaid over time; and clearly the trick is to pay
down these debts, whilst at the same time benefiting from the additional jobs
and economic activity that the government investment has bought and paid for.
Now, as I say (again) I'm not
expert on these things, but it seems to me that just as you can have two
entirely different approaches to personal debt, so you can have two entirely
different approaches to national debt. The first approach, is don't have any
debt, or if you have to borrow at all, do so for the shortest amount of time
possible, before repaying it in full. That's a bit like those people who own
Credit Cards, but make sure to pay the full balance off at the end of every
month, so that there's no discernible debt to speak of. The second approach, is
to have debt, but keep it manageable, accepting that you're paying a little bit
of interest, but that's a price worth paying for having the funds you want,
when you want them. That's a bit like the Credit Card holder who only pays the
minimum, or a little bit more every month, so that they pay their debts down
over a period of time, not straight away.
For me, that's how our present
coalition government are behaving, making a choice between paying off the
Credit Card as quickly as possible; and in doing so, damaging the economy, as
opposed to paying the debts off over time and helping the economy to recover in
its own time. Clearly, even for a five year fixed term government, there will
be instinctive need to clear as much of the country's debt as possible, before
going to the country with the claim that they've rescued the economy from near
ruination, which was never the case to begin with. In over 300 years of
borrowing, the British government has never failed to repay its debts, or meet
its international obligations and it was unlikely that this was ever likely to
be the case following the last Labour government's period of office. In fact,
rather than the coalition's austerity measures being driven entirely by any
sort of financial imperative, one might suggest that they were mostly driven by
political dogma and ideology, the Coalition choosing to pay off the nation's
Credit Card at the end of the month, rather than defer some of the pain and pay
a little more than the minimal amount, just over a much longer period of time.
Ironically perhaps, according to most reports, despite all of their posturing
and prevaricating over the country's enormous debts, the coalition's austerity
measures that have caused so much pain to so many people, have achieved very
little in real terms, as our current financial deficit remains as high as it
was nearly four years ago, when they first entered office.
Although much of the government's
money comes from the people of the UK through taxation, a significant amount of
their revenue also comes from borrowing, ostensibly in the form of securities,
bonds and bills. Some of these government backed bonds or gilts can be redeemed
in as short a time as 0 to 7 years, while others can be redeemed after 7 to 15
years and others again only after 15 years, all of them with the appropriate
amount of interest being levied on top. The point being that government
borrowing is certainly not conducted in 5 year blocks, whereas this current
administration seem bound and determined to try and squeeze years of borrowing
into an almost impossible timescale, to the extent that they're likely to
irreparably damage the entire economy for the sake of their own ideological
dogma.
Going back to the point that some
American studies have suggested that increased welfare payments can help reduce
unemployment by creating an increased demand for products and services that then
create a need for more employees, thus reducing unemployment. One of the first
acts of the coalition was to savagely downsize the public sector workforce in
the UK, the very sort of local people who would have spent their salaries
locally; and the they wonder why local economies suddenly fail. Without those
hundreds or thousands of reasonably well paid workers, local businesses and
local employees begin to feel the effects of a much diminished local economy,
to the extent that businesses close, people are made redundant and far less tax
is generated and raised. I know it might seem like a fairly simple analogy, but
if you think of the economy as a balloon; and the government decides to
arbitrarily to let some of the air out, then commonsense would suggest that the
balloon is going to get smaller.
'Speculate to accumulate' is a
fairly common and well known mantra, one that the coalition government is more
than happy to suggest to the privately owned "for profit" sector, but
seemingly reluctant to adopt for its own operations. Whilst clearly recognising
the private sector's reluctance to commit billions of their own money to
necessary schemes, without first receiving government assurances about
potential coverage for possible future losses, rather than offer the
guarantees, this government simply offers worthless platitudes. A good example
of the coalition's lack of commitment might be deemed to be the housing sector.
It's estimated that we need something in the order of one million new homes
just to meet the current demand for housing, whilst at the same time it is
costing the national exchequer about £22 billion per year for housing benefits,
40% of which goes into the private sector, often to Buy-to-Let landlords who
use the money to further extend their own personal property portfolios; and at
the same time help to inflate the property market generally. Now, the Insurance
company Legal and General have proposed building five New Towns at a cost of
around £5 billion; whereas the Labour Party have pledged to invest up to £10
billion to help meet the cost of the planned 1 new million homes they would
like to build between 2015 and 2020. Either one, Legal and General or Labour,
or even both, just how many jobs and how much good is it going to do the
national economy if these projects came to fruition. More jobs, means more
fresh money, means more demand for goods and services, means more new
businesses and opportunities, means more new workers, more money, more taxes.
So here's the question: what
would happen if one of the political parties vying for our vote in 2015 was to
commit themselves to undertaking a fully costed new house building program, to
undertake a fully costed infrastructure project, designed to improve our
nation's transport systems, to undertake the construction of new schools and
technical colleges to improve the skills of our native workforce, to undertake
the formation of enterprise zones, where small and start-up businesses could be
encouraged and supported, to undertake a regeneration of our traditional
fishing and manufacturing communities, to undertake a refurbishment and
regeneration of our native energy sector, to undertake the establishment of
manufacturing centres for renewable energy devices.
And what would happen if, instead
of raising the capital for these new programs using bonds over 5, 10 or even 15
years the government in power were to spread the costs over a 25 or 30 year
period, the same sort of time period that a householder might purchase their
home. Again, what would happen if the government of the day were to share the
financial cost with the private sector based on a long term equitable return on
their investments. Just how many new jobs, new opportunities, new businesses,
new taxes would such programs create over the next few years, thousands, tens
of thousands, hundreds of thousands, millions? Instead of paying £20 billion,
or £30 billion in housing benefits to greedy landlords and at the same time
artificially hiking the prices of existing properties through the roof,
wouldn't it be better to just build the houses and homes that we need, with the
added bonus of creating hundreds of thousands of new jobs and regenerating our
entire national economy?
Time and time again the theory
that the private sector will eventually provide and often at a much reduced
cost to the public sector has been proven to be untrue, not least with
transport, with hospitals, with schools, with energy, in fact almost any sector
that you care to name. It is a lie, a myth, a fallacy, a fable, it simply isn't
true, because if it was we would have some sort of evidence to prove the case
conclusively. That being the case, then governments like the one we have at
present are not the answer to our country's problems, as they are too
short-sighted and too ideologically bound to be brave or daring enough to put
their hands in their taxpayer funded pockets and do what any sensible person
would do.
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