Wednesday, December 10, 2008

Going Green And Scaly

Is this what you want?

BOM readers will be familiar with the green and scaly option.

It goes like this: do you want to install our recommended CozeeHomeTM pay-nothing-til-next-September double glazing solution, or do you want to die from hypothermia this winter? And do you want to make smallvirtuallyimperceptible changes to your disgustinggasguzzlinglifestyle now, or do you want to die in a globalinfernofamineflooddisaster in 2033? And do you want to support the right-minded, commonsense, all-men-of-goodwill policies we are pursuing, or do you want to go green and scaly?

We had a good example on BBC TV News last night. Their Economics Editor Hugh Pym (who I'm sure used be one of Bertie's chums in Jeeves and Wooster) explained the difference between Labour and Tory fiscal policy. It turns out that Labour policy involves a £20bn investment (sic) in the economy, whereas Tory policy does not. Tory policy involves not helping the hard working families down in the village. It means standing by while they starve to death.

Clearly Hugh thinks this "investment" will have a pay-off. But will it?

For one thing, it's actually pretty small, even peripheral, in terms of the crisis now engulfing the village. Many of the villagers have borrowed far too much - more than any other village for miles around - and their panicky priority now is not to go on spending, but to pay down their debt. £20bn against a £1.5 trillion personal debt mountain and massive job uncertainty, is not going to change that priority. Especially as the hard-pressed village money-lenders are now calling in their loans.

Second, this "investment" is very short-term: it will all have to be repaid in a couple of years. Indeed, the main message of Darling's recent maxi-Budget was not his investment, but the appalling realisation that the public finances are in far worse shape than even the pessimists had supposed.

We've blogged before on Ricardian Equivalence - the idea that public debt is deferred taxation and so debt funded tax cuts fool nobody - and last week veteran FT commentator Sam Brittan passed his damning judgement on Darling's budget:

"The November 24 pre-Budget report turned out, at best, a damp squib and, at worst, counterproductive. Little of the discussion was on the fiscal stimulus but rather on the subsequent tax increases required "to pay for it". If an old-school economist had deliberately tried to arrange a demonstration against fiscal policy, he could hardly have done better."

We disagree with Sam's contention that Darling should have just kept quiet about the post-election fiscal tightening - we surely ain't that dumb - but he's right to call for the establishment of a more sustainable fiscal and monetary framework (including a set of Friedmanite fiscal rules emphasising the extent to which taxpayers are willing to fund government services).

In any event, there is widespread agreement that the demand boosting impact of Darling's package is likely to be quite small.

The much more pressing problem is the availability of bank credit. As the National Institute for Economic and Social Research puts it today:

"The Government faces the real risk that, despite the measures it took in last month's Budget, output will fall more sharply than it expected to the end of next year. The main problem that it needs to address very urgently is the availability of bank credit..."
In this world, the truth is that fiscal "giveaways" are almost irrelevant in terms of lifting the economy. But on the other side, they do increase our public debt, making our longer-term path to recovery even more difficult.

So why weren't Dave and George able to get that across on the BBC?

Part of the explanation is that nobody has quite found the right words.

But more fundamentally, as we've blogged many many times, the tax-funded BBC is a left-leaning statist organisation. They will always see public spending as "investment", and they will always see themselves as taking the part of the helpless villagers against the barons.

Or taxpayers as the rest of us call them.


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