Monday, November 24, 2008

Economics and bullsh*t

Business and economics are absolutely definitely not my field of expertise. Saying that, I sniff enormous amounts of bull dung in both the print and broadcast media about the current situation. Lets see if I can distill the bits that worry me the most.

1. Its all the fault of global markets/capitalism. As far as I can tell, the people at fault in the current crisis are a) us, or rather, the people who got mortgages, loans and credit cards that they should NEVER EVER have been given; b) the financial institutions who were strong-armed by politicians and social engineers to give the aforementioned mortgages and loans to very bad risk individuals; c) the credit card companies who failed to rein in the more egregious spending of overtly greedy and imprudent people; d) the banks who dealt in financial instruments they barely/didn't understand; e) last and very much least the government regulators who oversee the financial markets. I single out the latter as being virtually not responsible because their job is NOT about stopping stupid people from doing stupid things, it is about preventing illegal and unethical behaviour. Stupidity is NOT their remit.

2. Its the job of government to fix everything. This notion is in the interests of both the (powerful) heads of failing large companies and the (powerful) leaders of government who know an opportunity to extend ever further the reach of government. Not represented in this situation are the interests of the tens of millions of mainly poor people who will be picking up the tab while these dismal failures are rewarded with taxpayer money. Utterly absent is the notion that failure is a necessary and restorative result of stupid and ill-judged business behaviour. Failure is for people with small businesses and no political clout ONLY.

3. Fiddling about with tax and interest rates is 'fixing' the problems. The current crisis is big. It doesn't seem terminal, but it does seem like it will be at least a couple of years coming back to equilibrium. Like all big structural problems, it is almost completely useless to think we are in control of the fix. Just like taking aspirin to get over a cold- the cold will disappear after four or five days regardless. The only thing we might do if we tinker about a lot, is screw up things that aren't broken at the moment. That will almost certainly happen with the rediculous 'remedies' currently being touted by Gordon Brown (a temporary cut in VAT and tax rates that then morphs into an INCREASE in VAT and tax rates, combined with enormous unsustainable government spending).

4. We must SOLVE the credit crisis. It seems that mostly what is happening is make-work and displacement activity. Displacement activity because the issues that are the genuine responsibility of government, which require measures to solve them, seem to be at the bottom of the to-do list. What is the government doing about the disastrous inflation/generosity of public sector pensions? What is the government doing about reducing the rediculously high head-count in the public sector (6 million or so people)? What is the government doing about benefits bloat? What is the government doing about the permanent benefits culture endemic in Britains cities? What is the government doing about about public housing, many of the tenants of which are better off than I am; while genuinely needy people are housed in temporary housing because the public housing stock is unavailable?

5. Too big to fail. I am definitely not the only person beginning to think that too big to fail is absolute bullsh*t. Margaret Thatcher single-handedly revived the British economy by systematically destroying/privatising/breaking-up most of the countries enormous state-run industries. The results, slow at first, but much faster during the second half of the nineties and the first eight years of this century, are that Britain is now in the top six economies in the world; in 1978 Britain was bankrupt. Only very recently has the deadly python-like grip of the Labour parties taxation and benefits regime started to squeeze the life out of the British economy. It was inevitable, but the British voter is too stupid to work out the broad-brush trends, sadly. As labour costs have increased, working time decreased, holiday and maternity entitlements grown, taxation and the burden of bureaucracy increased, the economy has started to wheeze and strain. Sadly, although Mrs Thatcher did for the large nationalised industries, she did not take a big axe to the government make-work departments and the staggeringly huge welfare system. We need a new Mrs Thatcher. Dave?

6. We are the ones who will fix your broken lives. Many of the pronouncements about the credit crisis actually assume that it is credible to imagine Gordon Brown and his weirdo chancellor fixing our broken lives- paying our mortgages, providing us with jobs, making the banks loan money to people, flying tall buildings at a single leap, yada yada yada. Gordon Brown has always struck me as one of those terribly, terribly clever people who can't see the plain facts directly under his nose. Increasing the tax rates on rich people to 45% is an ABSOLUTELY GUARUNTEED way to chase many of them to off-shore hideaways, so the British exchequer gets exactly zero of their money. Labour did it before, and thats what happened. But hey, don't let exact parallels in the past spoil your whizzo plan, guys. Not only that, but telling people in advance that your tax cuts are temporary is a very very very bad way of encouraging people to spend lots of money in the next few months. People are generally pretty dumb, but they're not that dumb. All in all, I wouldn't trust Gordo and his pals to find their own arses with both hands. Let alone the enormously complex British economy.

7. The end of the world is nigh. My final point is this- so far, most of the terrible, terrible things that night after night the BBC and every other news outlet insist are going to happen haven't. No effort is made to discriminate between trends, which admittedly often look awful, and actual performance, which is much much better. Until last month BRITAIN WASN'T EVEN IN RECESSION. You could have been forgiven for thinking that actually the whole economy was bust, the banks were silent and empty, the last few businesses drifting into insolvency and the breadlines stretching beyond the horizon. Thats because the media insisted every single day on every single bulletin that it was so. Why? God only knows. What do the media get out of these Jeremiads? Nothing that I can discern. So why do they continue to do it? Boredom? A perverse delight in bad news?

I could be wrong about everything of course. But then thats the difference between me and our politicians. I KNOW I'm fallible.


Adrian said...

"Britain is now in the top six economies in the world; in 1978 Britain was bankrupt"

I don't know what criteria you are using for "top", but in 1978 Britain was the world's 5th largest economy.

And today it is .... the world's
5th largest economy.

However, when Mrs T left office, in 1990, Britain was a lowly... 6th!!!

Plus ca change, plus c'est le meme chose.

Edmund Ironside said...

Well, I don't want to quibble (ok, I do) but 5th is definitely in the top 6... I take your point though. We haven't really been racing up and down the world leagues, which does underscore both that I am not an expert on these things and also that the Government of Britain only has an occasional and relatively peripheral influence on the economy of Britain.
I'm pretty sure I got my stats from some credible web site, but I can't find the page again. Shame on me.