Wednesday, September 09, 2009

More Wishful Thinking From The Left


Fab gear, but Jezz not so hot on government debt

The Jeremy Vine Show on BBC R2 is not something Tyler usually tunes in for. But yesterday, several BOM correspondents emailed to say they'd nearly exploded with rage over an item on government debt. Nick N says:

"I was working, and didn't hear it all, but what I did hear was terrifying. The JV show is perhaps the most insulting bilge ever broadcast. It seems to believe that it can make problems go away by simplifying everything to the level of a two month old foetus. Aaaaaarrrrgh!"

Naturally we had a listen (here, just over 1 hour in).

It turned out to be Jezz interviewing BOM's old friend Richard Murphy, the left-wing campaigner for higher taxes (eg see here). Not that you'd know that from Vine's introduction, which positioned Murphy as a tax expert who would explain why we don't need to worry about our massive government debt burden.

Murphy put the left's case very clearly:

  1. Our government debts are not nearly as big as some other countries
  2. They are manageable, especially when you remember that a substantial chunk comprises the debt of our nationalised banks, which will eventually pay itself down
  3. We should not panic - we are not bust
  4. Anyway, the Bank of England is riding to the rescue by ensuring we have higher inflation, which will slash the real debt burden
  5. Our problem is not too much public spending, but too little tax revenue
  6. We can and should increase tax revenue via a substantial increase in the taxation of banks and anyone earning more £100K pa - "middle England will not be hit"

Let's take the points one by one:

1. Debt level - while it may be true that we are only eleventh in the latest ranking of outstanding government debt relative to GDP, our annual borrowing rate is adding to that debt much more quickly than our principal competitors. The OECD forecasts a UK government deficit of 12.8% of GDP this year, and a staggering 14% next. In both years we will be borrowing more than any of the other 28 developed economies the OECD forecasts - higher even than the basket cases of Iceland and Ireland. Here's how we look against the G7:


Moreover, these official debt figures exclude the massive off-balance sheet Enron liabilities we've blogged so often (eg see here). In terms of the future burden on taxpayers, they are just as real as borrowing via gilts. But when a listener phoned in to ask about our £1 trillion plus public sector pension liabilities, Murphy answered as if he hadn't heard the question. Instead, he talked about how government debt interest is A Good Thing because it pays the private sector's pensions.

2. The debt is manageable - yes, it is manageable... but only so long as the markets retain confidence that we will not default via inflation (as we've blogged many times). And only so long as we don't mind coughing up increasing amounts of debt interest (ie paying ever heavier taxes without getting any public services in return). In reality, the markets have us on credit watch for a possible downgrade and subsequent stampede for the exit (eg see this blog).

As for the notion that the debts of our nationalised banks will somehow pay themselves down, we presume Murphy has overlooked the constant stream of write-offs on the Crock's putrid loan book (eg see this blog). In total, the IMF reckons bank write-offs will end up costing UK taxpayers $200bn, and we reckon it will be even higher.

3. We should not panic - we are not bust... as the Captain of the Titanic famously observed.

4. We will be rescued by higher inflation - ah, the true agenda of the left in all its magnificent and brutal simplicity. As we've blogged many times (eg here and here), the left hates private savers, and so for them, inflation is a positive blessing. Murphy, along with much of the Labour Party wants nothing more than a good dose of inflation, not only to erode some of the government's debt mountain, but also to redistribute wealth from the undeserving rich (or at least the widows, orphans, and pensioners who've been foolish enough to keep their savings in the post office, or a fixed pension annuity).

5. Too little tax revenue, not too much spending - the OECD says UK government spending will be 54% of GDP next year, compared to "just" 45% in the pit of the last recession. True, it's still higher in North Korea, but the OECD average for 2010 is put at 45.7%. Government spending is absorbing far too much of our GDP for future prosperity.

6. Increase taxes on banks and rich guys - yes, of course, why not? Well, because either they will devise cunning ways to get round the higher tax rates - as they've generally done in the past - or they will simply pack their bags and leave, taking their tax payments with them. That's why not.

Unfortunately, few of these counterpoints got raised by Vine, and Murphy was given a free ride.

But then, this is the BBC. And the big assumption underlying Murphy's arguments is a basic tenet of BBC philosophy - more government is A Good Thing.

For example, according to Murphy, government debt interest payments are A Good Thing because they go towards paying our private pensions. No mention of the fact that someone has to pay taxes to fund those interest payments, or that government borrowing crowds out borrowing by private companies, and therefore crowds out productive investment.

As far as Murphy and the BBC are concerned, we can't trust the private sector and the free markets to do the right thing. From investment, to banking, to healthcare, to education, government always needs to step in and take control (and see this extraordinary anti-market harange of Steve Forbes by the BBC's Steven Sackur on Hard Talk). It is a constant drip-drip-drip of Big Government propaganda.

What can we do?

As we've blogged many times, it's hopeless trying to reform the BBC. The only solution is to break it up and privatise it.

Unfortunately, there's not much chance Cam will summon up the nerve to do that. But he should at least push ahead with flogging off R1 and R2, which by no stretch of anyone's imagination can be described as public service broadcasting.

And then we'll see if there's a commercial market for 15 minutes of op-ed from Big Government promoters like Mr Murphy.

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