Britain's Trillion-Pound Horror Story (Ch. 4 last night)

[Eric The Viking]

I've some nervousness about posting this: Mods, if you deem this inappropriate, please delete it and accept my apologies.

I couldn't watch all of this programme last night, but I streamed it from the C4 web site this morning (about 1h10mins).

I found it very, very sobering stuff. More so, because, having done my own calculations in the recent past, I was shocked to find I wasn't far wrong. I think, if anything, they were being optimistic about the actual figures (I've calculated £110,000 per head in the recent past, based on CSO numbers, although that did include the bailout, which apparently now nets out).

Although having a smattering of economics, I found myself disagreeing with very little of the analysis. I think it was a bit simplistic in places, but that was its intent - to state the problem in very easily understood terms.

It's rather disturbing that almost none of the mainstream media, commentators or news reporters seem to have picked up on it. I'm left wondering if nobody dared...

 

[RogerS]

I haven't watched the programme but didn't Bremner, Bird and Fortune do a feature on adding up the debt and arrived at the same figure? That was a year or so ago IIRC.

 

[Lons]

I've recorded it but almost scared to watch it. Might have a couple of drinks first :shock:

 

[Max Power]

I didn't catch it unfortunately but anyone harbouring any illusions that drastic cuts aren't necessary should be made to watch it (Mr Rim where are you :lol

 

[jeffinfrance]

cuts aren't necessarry, revolution is!

has anyone any idea how much money one trillion is?

have a look.......

http://www.pagetutor.com/trillion/index.html

on avearge (last 10 years) your government got through between one and a half and two piles of crisp 50's like that EVERY YEAR

think you've had good value?

THE GOVERNMENT GETS WHAT THE GOVERNMENT WANTS.

oh, and before you blame it on the benefit cheats that cost you around 1 to 1.5 billion a year.......did you know that there are over 10 billion in benefits unclaimed every year?

jeff

vive la resistance

 

[gnu]

Yes I did watch it and suppose it was a bit simplistic and sensationalist. The Hong Kong comparison isn't quite as straight foreward as it seems. Naturally if you drastically reduced the public sector and the welfare budget the would be a lot more money but as we don't make anything these days where are we suddenly going to find 10 million jobs for all these former public sector workers many who are have limited skills.

 

[Digit]

If you give a man a fish he will eat for a day. But if you teach a man to fish he will buy an ugly hat.

Oh you Philistine you! :lol:

Roy.

 

[dickm]

Maybe someone who knows more about national economics can explain to me why, when the SIZE of the economy is measured by the sum total of purchases, it makes one blind bit of difference whether the purchases are made by Govt, by Joe Bloggs or whoever?
I get really cross when I hear folk pontificating that "care of the elderly", or whatever "costs the economy x billion per annum". All they are doing is measuring one particular flow in the economy which they then define as BAD, primarily because it's often state expenditure, rather than private which is GOOD. I wonder if they would suddenly go quiet if such expenditures were entirely private, and therefore contributing to some billionaire's second yacht?

 

[Eric The Viking]

Maybe someone who knows more about national economics can explain to me why, when the SIZE of the economy is measured by the sum total of purchases, it makes one blind bit of difference whether the purchases are made by Govt, by Joe Bloggs or whoever?
I get really cross when I hear folk pontificating that "care of the elderly", or whatever "costs the economy x billion per annum". All they are doing is measuring one particular flow in the economy which they then define as BAD, primarily because it's often state expenditure, rather than private which is GOOD. I wonder if they would suddenly go quiet if such expenditures were entirely private, and therefore contributing to some billionaire's second yacht?

That C4 programme explains pretty well. Basically, public sector expenditure is highly wasteful, and it takes value out of the private sector, including personal worth.

I did some sums earlier today, incidentally:

The national debt now actually runs to around £121,000 per head of population (the C4 number is roughly correct at £873bn, but doesn't include massive amounts of 'off balance sheet' debt, which takes the total to £7.9tn.

Balance sheet debt is growing a a phenomenal rate, roughly £450m/day, largely because of compound interest on borrowing.

The above figures are derived from ONS numbers, and don't include private debt in the economy: overdrafts, credit cards, loans and mortgages. People guess at these, but I haven't seen the latest numbers (need to go back to the ONS web site, I suppose).

 

[jeffinfrance]

****,

you are right. makes not a blind bit of difference who spends the money, it still all goes to the billionaires 2nd yacht.

lets not forget, it's the rich who own all the:

pharmacutical companies
hospitals (healthcare trusts)
defence (thats a laugh) companies
pension companies
mass transit transport systems
energy production and distribution companies

and the bank of england!

of all the above that you owned when you were born (apart from the bank of england......you've never been that lucky!), about the only infrastructure you still own, is the road network and you don't own all of that. roadside parking will soon be completely privatised. then, the same firms will be in charge of handing out speeding tickets and other motoring offence sundries.

 

[Jason Pettitt]

Okay, you've pickled my interest. I couldn't quite bring myself to watch the whole thing, but with my slightly less than a smattering of economics have to say I found the whole thing very, very silly.

Before I get started I don't want to give the wrong impression. I do believe 'the economy' is in all sorts of messes.

Second things first: The Public sector doesn't produce anything.

Martin Durkin tells us that the private sector is a 'wealth producer', while the public sector is a 'wealth consumer' – and thus the public sector with it's useless bureaucrats, social workers and modern art instillations is little but a burden upon the good, hard working, wealth creating private sector – and thus growth in the public sector is bad and unsustainable.

But the relationship is nothing of the sort. Martin confuses 'wealth' – the stuff that adds value and makes us better off, for 'taxable profit'. In James May parlance, this is a 'silly school-boy error'. Unfortunately it looks like Mr Durkin bases the whole of the programme including what look to be some very exciting ideas for solutions on a bunch of silly school-boy errors.

It's true that the Public Sector does not create taxable profit – the Public Sector is run on a not-for-profit basis, but by investing and managing education, health, and basic infrastructure the Public Sector (sometimes in partnership with the private sector) creates wealth in the real economy by contributing a healthy, educated workforce and basics like security, a transport system, energy, waste disposal and water.

Even though the private sector is dominated by private interests, I think other models like cooperative employee ownerships are a bloody fantastic idea and I'd really like to see more – so I'm going to call it the Profit Making Sector – it's the Profit Making Sector's job to turn the value and conditions provided by the Public Sector for everybody to use into goods and services that produce a taxable profit – a share of which goes back into the public sector via taxes and pays for education, health, security and infrastructure.

So the relationship isn't linear as described by Durkin, but is more like circle – it's what economists like to call an 'economy'

Of course there's a big discussion that can be had around how wisely the public sector does its job and whether it's doing the best it could – and it's popular to accuse the public sector of being a bit rubbish - and that's right and proper because we all own and contribute to The Public Sector.

But it's not all one way – though we don't talk about it quite so much the Private Sector is pretty rubbish in many respects too and has a nasty tendency to externalise its costs, often leaving the Public Sector to pick up the tab.

Obviously I wouldn't dream of making a political point here, but I do find making divisive generalisations about lazy, good for nothing public sector teachers and nurses and honest, hard working, wealth creating private sector insurance brokers and bankers kinda unhelpful – unless you want to divide a population and turn them on each other because it makes making 1.5million of them redundant a little easier, politically speaking.

And finally, lets' not forget another simple truth that helps show how the world doesn't quite work the way Mr Durkin would have us believe: profit is taking value out of the economy for individual benefit. Of course, one could always take one's profit to roger the restaurateur while patronising his establishment with one's presence. Very droll.

First things second. How much is that debt in the window?
So what about the debt? Don't ask me, but it's about £850billion – £1trillion if you round it up to the nearest trillion. The thing is, I don't think it's reasonable to slap on top of that what the programme calls 'hidden debts' like pension liabilities. In fact I think it's barking. The reason is that things like pension liabilities go hand in hand with the fact that all those pensions are paid to people who are, in the interim, doing 'work' and thus adding value to the real economy.

Slapping costs on the bill, but forgetting to add the benefits of work done is, in James May parlance, a silly school-boy error.

Of course Mr Durkin thinks that all that work somehow doesn't count because it's public sector. But we've already discussed why that's a silly school-boy error


But how much is one trillion pounds? It certainly still sounds a lot – but what does it mean in context? Well if you laid 1 trillion woodlice end on end it would reach almost half way along Martin Durkins' nose. Meow.

How Much is that bailout in the window?
Not content with over egging the size of the national debt by a factor of 5, Mr Durkin reduces the size of the Bailout, also by a factor of 5 or there abouts. Quantative Easing currently stands at ~£300 billion and counting. A tiny bit of the national debt. About a 3rd. Of course it doesn't matter because the Banks are part of the private sector, which is good, because banks create wealth and never ever take value out of the economy in the form of profits. The fact that the Banks, instead of using Queazing to start getting finance back into the economy are just sitting on it is neither here nor there and certainly not something Marting Durkin wants you to notice – possibly because it doesn't tally with some of the things he's going to tell you later about how the private sector is sweet and angelic and never chews the furniture.

Is the public sector getting too big?
Martin Durkin tells us that the public sector is, over time, growing. And what's more, it's also failing to get smaller and put itself 'back in its place' after it's done some growing. I'm not a hard-nosed economist, but if I were I'd have to ask the question: 'so what?'

Obviously association isn't cause, but if I were to plot public sector growth against, say, a plot of life expectancy or some other measure of well-being one might start to wonder if a growing public sector isn't such a bad thing. We're living longer, we've got access to health care, we've all got nice cars on the drive (or a nice bicycle in my case), igadgets, big tellies and ever increasing number of possessions with which to demonstrate to each other how well we're doing.

I'm not sure Mr Durkin has made his point very well.

Obviously I wouldn't dream of making a political point - but while we're doing ok for big tellies, secretly I wonder if that's really such a great measure and maybe we might not be doing so well in other areas – but that's a story for another thread.


But shouldn't we be producing something?
So there we all are, running around providing each other with services like window cleaning (unless you're in the public sector in which case you're too busy rogering restaurateurs), but what are we actually making? Mr Durkin makes the point that, while we're buying products in from foreigners, it's very difficult to sell services like window-cleaning back out again. Surely this can only go badly?

Actually the UK produce lots. It's just that we just produce it somewhere else – because it's more 'economic'. Managing Directors don't produce a lot either, they get other people to do it. As do middle management.

Adam Smith was a clever chap – the granddaddy of industrialisation and the face that adorns the other side of the £20 note. One of the 'expert commentators' was even from a free market think tank called 'the Adam Smith institute'. Mr Smith noticed that a skilled blacksmith could make 50 pins a day, which wasn't very many. His big idea was to divide labour into trivial steps. Rather than have a blacksmith create a whole pin, the process was divided into stages and a single worker would work endlessly repeating one stage while another worker attended tirelessly to the next, and another the next and so on until complete pins were produced. Thus a factory could could produce 5000 pins in one day.

Adam Smith was a clever chap, not only was he an industrialist he was also a philosopher. Though he never did get around to explaining why we needed quite so many pins, he did conclude his magnum-opus – 'The Wealth of Nations' - with a caution: that while division of labour could greatly increase productivity, it would also turn the act of labour into a living hell. Which I guess is where other countries come in - especially seeing as we do like to have an awful lot of possessions, but don't like to pay much for them.

Secretly I think we should produce more, but not because the economy is at imminent risk if we don't.

Very quickly there was some rant or other about monopolies and something about tax being theft. The problem with monopolies is, of course, that they can abuse their position without checks and balances - unlike public sector they are not democratic. Tax is not theft, it's a something else that economists like to refer to as 'tax'. Theft is an anti-social act that leaves me worse off, tax is a social act that leaves me better off. There was something about taxmen rogering restaurateurs too. Very silly.

Well thank you Mr Durkin, the first half hour of your programme has certainly made me appreciate the rest of my life – and it's really too short to hold out for another 40 minutes. Did anyone notice if Mr Durkin managed to slip a random ditty about Marxist plots into this one?

 

[Eric The Viking]

@Jason:

This could get long-winded, so I'll keep it as concise as possible.

Thing one: As I expect you are well aware, there are two Keynesian multipliers operating in any fiscally-based economy (like ours): one is the conventional one, recirculating added-value. The other is the fiscal one, recirculating the removal of value through taxation. The bigger the tax-take (proxy for the public sector overall) becomes, the bigger the inefficiencies resulting from the second.

Thing two: Keynes notwithstanding, the fundamentals of non-inflationary fiscal policy remain the same: cover your debts with income. It is thus important to include:

• o Unfunded pensions debt (central and local govt.)
  o Unfunded state pensions debt
  o PFI scheme debt
  o Nuclear decommissioning
  o Network Rail costs

Because in corporate terms they are current and future liabilities, and spending commitments. These 'off balance sheet items' add up to a national liability of about £7tn (7,000,000,000,000). The whole mess is around £8tn.

Where the 'off balance sheet' items differ is that, whilst they are liabilities, some of them don't accrue interest now, since they haven't yet been 'called-in'. If we cannot fund them when we have to do (or did) them, and we can't remotely do this, we will have to borrow more to pay for them at that time. That is why future liabilities are shown in ordinary business accounts, they're part of giving a fair appraisal of the value of the firm. Incidentally, the economic contribution of yet-to-be pensioners is already included in the books, every year: you're double-counting.

The only alternative is simple: print money, and/or devalue. This debasement of the currency literally destroys an economy, as it removes wealth. If I remember correctly, only two democratic countries have survived inflation greater than 20% for a protracted period (Israel, and I can't remember the other one!). All the rest have seen simultaneous economic collapse and the breakdown of civil society. Israel's survival wasn't achieved on its own, either.

Thing three: The public sector is significantly inefficient, and money is often not directed to public goods at all, but either simply wasted completely (entities taking other entities to court, EU fines, huge projects that fail (govt. run IT), reorganisations and rebrandings, inter-departmental competitions, wars, etc.), spent on things the majority would not wish it spent on, such as BBC executives' salaries and perks, or used on because-we-can schemes (we have an unnecessary £40m bus lane planned at the end of our road - I kid you not!). Many of these things have a negative effect on the economy as a whole - in other words they actually reduce economic output, compared to what would be possible if they didn't exist. Traffic queues caused by poorly planned road schemes are a prime example.

So now I'll shut up: I'm old enough to remember double-digit inflation in the 1970s and Healey at the IMF. Today's problem is several orders of magnitude worse, and too big for any IMF loan to fix. I visited Israel during its high inflation period: you had to go to the bank twice a day to draw money, as its value decreased so fast.

Weimar is now legendary, but was reality nonetheless.

Regarding the programme, I would respectfully suggest you do 'hold out' for the remaining 40 minutes. Mr. Durkin was relatively complementary about Stalinist economies (in comparison to ours), and didn't mention Marxist plots once.

 

[Jacob]

... The Public sector doesn't produce anything........

Of course it does you silly boy!
It is the countries biggest producer of services and infrastructure (health, education, roads, armed forces for a start). If these don't count as production then most of the private sector doesn't produce anything either.
In the process it is directly the countries largest employer, and employs even more, indirectly, as the private sector's largest client.

 

[RogerM]

I'm not going to be drawn in to the arguments above, but I think one of the most shocking things was that not a single one of the MPs questioned had the slightest notion about the size of the National Debt, and neither did they understand the difference between the budget deficit and the National Debt. And these are the guys who try and kid us that they can get us out of the mess we're in.

 

[studders]

All I really got from the program was that all the past chancellors know exactly what the problem is and who's to blame. Not them of course. :roll:

 

[beech1948]

Just a thought re benefits.

Benefits paid out to the employed by the Government are simply a subsidy to support poorly paid jobs. The benefit is to the private sector who pay wages which are too low. The rest of us don't get any benefit from this.

What should happen is that these employment benefit( tax credits ) should be recovered from the employer thus making the whole thing free of Government costs.

Al

 

[Max Power]

:shock: Were All Doomed I Say Doomed :shock:


:lol: :lol:

 

[wobblycogs]

I don't think anyone would argue that (at least some of) the infrastructure currently provided by the state such as hospitals and eduction indirectly leads to wealth creation. Without hospitals we would have a generally more unhealthy and less productive workforce. Without education we wouldn't be able to sustain high level, high profit, jobs. The argument though is that the government is not necessarily the best provider of these services and they could be provided more cheaply and to a higher standard by private companies working in a competitive arena and for profit.

The point nay-sayers of this film seem to be missing is that although the UK is still a rich nation over the last 100 years we have become comparatively poorer, by virtually every measure, when looking at the rest of the world. There is a direct correlation between the growth of the public sector and the decrease in relative wealth. Notice that I didn't way there is a causal link, I suspect there is a causal link but I leave it up to economists to prove that and if the public sector isn't the cause what is?

I don't know if the programs proposed solution (flat tax) is the right solution or even if it will work but it's clear to me that the current thinking of constantly raising taxes in an effort to buy our way out with more government services is not working. Personally, I wouldn't put the flat tax on the individual I'd put it on companies. There are far fewer of them so will be cheaper to tax and they are, after all, the source of wealth.

From a very personal point of view, as the part owner of a small business, I can say we've held off employing additional staff simply because we can't afford to pay them and pay the tax bill that goes along with them. Combine that with legislation that means that once you've taken someone on it's virtually impossible to get rid of them and it becomes easier to just outsource work abroad.

 

[dickm]

This pre-dated some of the latest schemozzle, but someone may find it interesting
http://www.open2.net/blogs/money/index.php/2010/03/09/the-economy-a-21st-century-god?blog=5

The point being that, while most of the arguments about "The Cuts" are supposed to be about economics, they are really about ideology. Do we want a society where there is reasonably uniform satisfaction of human needs, or one where the few get enormous satisfaction of their wants.
I know which I prefer.