Wednesday, November 26, 2008
Time To Choose The Good Way
No blog yesterday - Tyler was too depressed by the BBC/C4 coverage of Monday's horror show.
They seemed to buy the government line pretty well whole: entirely out of the blue, those crazy yanks blew up the world financial system, and with it, the global economy. Brown/Darling have heroically launched a massive fiscal rescue package to reflate the economy and stave off another Depression.
All right thinking people like it. Bishop Snow likes it, and even had Victory posters of Gordo as Winston Churchill stuck up round the C4 News studio. Will Hutton likes it. Anatole likes it. Everybody likes it.
Except of course, the heartless Tories. And those selfish small traders who've spent the last two days calling radio phone-ins to whine about having to change a few price tickets and pay extra duty on diesel.
Yesterday, the IFS gave us some much more sensible analysis.
We won't dwell on the horror highlighted by their debt and borrowing analysis - BOM readers are only too familiar with that. But one point they make quite clearly is that even the government now recognises its public spending habit is totally unsustainable.
How do we know that?
Because they've been forced to accept spending cuts as the only realistic hope for reining in their massive borrowing.
As we know, the pre-election fiscal "giveway" so praised by Snow et al, is swamped by the fiscal takeaway/bombshell planned for later. According to the IFS, in 2012-13 the planned takeaway will be running at £22.5bn pa, or getting on for £1000 pa per household.
But the interesting thing is that most of that - £18.6bn - will come not from tax increases but from spending cuts (relative to previous plans).
Now, you might think that we'd applaud that, and in broad terms we do - our dire economic outlook means the need for growth stimulating tax cuts is greater than ever. But the way the spending cuts are being lined up is a re-run of every Labour public spending crisis we've ever had.
In particular, the heaviest cuts will fall not on day-to-day activities, but on public investment programmes - the very thing Brown has always slammed the evil Tories for.
As we learned during the Wislon/Callaghan years, in terms of value for taxpayers' money, this road is known as The Bad Way. It comprises successive waves of arbitrary cuts, starting with the easy ones like capital spending, and culminating in across the board percentage haircuts for all spending departments. Rationality goes out the window, public services get whacked, and taxpaying consumers pay the price.
But there is another way. It's called The Good Way, and now is the time to choose it.
The Good Way comprises the grasping of nettles. It comprises breaking up the big public service monopolies and harnessing choice and competition to drive improvement (see many previous blogs).
Because right now, we no longer have that oh-so-seductive alternative of simply pumping in more cash. There is no more cash. And as we saw so graphically in the 70s and 80s, The Bad Way with no cash, is no place for anyone.