Economics journalists are ga ga ?

Green shoots ? UK economy on the upturn ? Have the journalists gone stark raving bonkers ? The serious press is reporting a multitude of stories about the recession bottoming out. Take off the blindfolds dear scribblers.

No, I am not going to deny the possibility of finding little upbeat stories – some of them are factual and some are planted. It is the sheer stupidity of the editorialising around these stories. Of course it is possible for any government to create economic growth, by borrowing and printing money and pouring it into the economy via government spending and by messing around with banking capital ratios.  This is ‘easy peasy’ – but it also why governments have annual and aggregate borrowing or printing limits. It is anti-democratic to allow any government to seek an election victory by borrowing and printing huge amounts and splashing out – either artificially to avoid economic decline or artificially to create economic growth.

By 2013 the UK government’s borrowing will exceed 100% of GDP. Yes, that’s more than 50,000 quid for every person in work. In case there is any doubt about this, imagine the effect on the economy of every employed person in the UK getting a 50,000 tax rebate. If we are comparing this with the borrowing increases since 1997 that would mean a tax rebate of more than 30,000 quid per person – hard cash for people to spend in the shops or doing up their houses. Most of the money washes through the economy. Is it not surprising that there is growth. Sure some of the money has been used to prop up the banks, but they still have not come clean about the quantity of bad loans on their books (ie they have not ‘faced the music’ fully yet). The money is ‘out there’.

Have the financial press forgotten why Keynesian economic stimulae were all but abandoned ? It is not that it doesn’t work. It was the negative effects that derive from the politics. Politically-directed stimulus money gets ‘captured’ by the politically strong (doctors ?). The productivity of the spending declines as the strategy degenerates into paying people to do little. Lending declines as interest rates rise and credit ceilings come into play. Above all, the assumption that governments will ‘save’ money by spending less than they receive in taxes, in the good times, is almost always a wrong one.

Maybe the financial press has forgotten about the concept of the ‘quality of economic growth’. For economic growth to be ‘of good quality’, it must be sustainable environmentally, widely felt across the economy rather than amongst a small elite or economic group, and above all fiscally sustainable (ie not a temporary artificial creation of wild spending and borrowing by government).  After the unprecedented mega-spending by the UK government, the hangover will come. By splashing out as if there is no tomorrow there will be growth – that is almost certain. Indeed even Sterling will rise temporarily as the government uses its vast borrowing to buy back its own Sterling-denominated IoUs (gilts).

Then what ? Panic, probably. Well, that may not matter if you are a Labour politician. It will be after a general election when almost certainly, Labour will be in opposition. But….as they bequeath the job of emergency spending cuts to the next governmemnt, while they shout ‘Cuts ! I told you so !’ from the sidelines, they will slither away from the job of sorting out the UK finances and recovering from the mass unemployment now just starting.

Judging by Vince’s  ‘Storm’ book he is painfully aware of this too, and says so in slightly coded language – often too subtle for the UK financial scribblers. Advisers to Cameron and Osborne no doubt say the same thing, and indeed they can read the detailed but polite text (ie not the spin) of IMF and IFS reports as well as anyone with a will to read between the many, many lines. But dear David and George are of course paralyzed by the ‘traction’ that the Tory cuts jibe seems to have with the popular press (and maybe the public – that is not clear yet).

What a sorry mess. So much for a more open and honest style of government, my dear Gordon !

Paul

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