Obviously, the eradication of the deficit within a parliamentary term is necessary to avoid a Greek-style sovereign debt crisis. It is not an ideological shrinking of the state.
Chancellor Osborne’s ‘war on welfare and waste’ means that higher education can no longer be viewed as the provision of a public good, largely financed through public funds. In place of public funding, universities will enter a lightly regulated market operating in accordance with perfect competition theory. Why should subjects that can not demonstrate economic utility receive any state support?*
A £4.2bn cut in funding will create the most expensive public degrees in the world but the market will ensure they’re the best. A ‘streamlined’ system may reduce the number of people getting a university education but there is a fundamental conflict between quality and equality, and anything else is political correctness.
When read in isolation £4.2bn seems like an awful lot of money to be cutting when, in fact, it isn’t:
- There was a £3.3bn overspend of the military budget in 2009/10, which included £2.7bn on 16 Typhoon fighter jets (in addition to the 144 on order)
- The Rueben brothers, owners of
- HM Revenue & Customs has allowed Vodafone to avoid paying £6bn in taxes through an avoidance scheme that the court of appeal, and HMRC itself, recognise as unlawful
* The Browne report assumes a 40% cut in funding, but the ring fencing of science and technology subjects is likely to translate into a 80-100% cut in funding for arts, humanities and social sciences subjects.
We should all read 'The Economist'-know thine enemy.
ReplyDeleteThey do know their theory though.
In a recent Leader they described Europe's 'Debt Crisis' as a conflict of the large manufacturing based economies of Europe (including services) and those economies that rely on Agriculture for a large part of its GDP. The European Central Bank and Sovereign States have agreements to keep Interest rates within certain boundaries, this assists the manufacturing and service economies, allowing them to produce goods for cheaper and export, thus allowing mark ups of healthy balance sheets. Agriculture dependent economies have limited markets (usually within the EU because of the higher costs of production), competition is encouraged in just the same way that low interest rates encourages investment and competition in manufacturing. Costs fall, but due to the taxes involved in exporting produce outside the EU, little makes it. Otherwise the Common Agriculture Policy (CAP, which amounts to two thirds of the EU’s budget) subsidises farming within the EU, creating inefficiencies and false markets. Destroying external competition irrevocably. The CAP seems to be the manufacturing countries way of sharing a bit of its wealth to its victimised cousins.
Of course this affects Sovereign Indebtedness.
The UK has a sovereign debt of 68.1% of GDP, average for a developed nation, with many the countries with much lower sovereign debt being those with large natural resources like Russia. Out of interest France has a ratio of 77.5% and Germany 72.1%. You have to speculate to accumulate as the saying goes.
Perhaps an equivalent would be to buy a house with a 25 year mortgage, which you spent a full half of all your earnings paying off. You would have a debt relative to income of 1250%. Relative to the amount you were earning (equivalent to a countries GDP) of 2500%. Surely a company who invests in a new factory, new machines, extra raw materials and ongoing costs such as staff salaries is in a similar position. Over time costs are hopefully recouped as the company is more competitive and trades more. This indebtedness at a national level is the result of the spread of borrowing and investment over time.
Our import and export trade is worth $825 billion a year. It is true we have a deficit of trade. This is why we have inflation, its like a pressure release and has to be monitored carefully, hence Gordon Browns prudency and strict rules governing its level. Constantly rising costs negates debt over time, it’s just a clever shift.
The UK has a AAA credit rating: ‘An obligor has EXTREMELY STRONG capacity to meet its financial commitments.’
Other factors include Foreign Direct Investment (FDI), we have the second largest FDI in the world after America, so lots of money is invested in the UK economy from abroad.
This is why countries that depend on agriculture within the EU are failing, such as Greece, Ireland (though brewing is a big export) and Portugal and Spain are close.
Just as a sideline, Adam Smith, the definer of market theory described Capitalism within a series of rules. Competition, as described above is key to the smooth running of this system and the rules allowed this. Smith was a teacher of Moral Philosophy and wrote that the upkeep of these rules and hence the Capitalist system was in the hands of those who controlled and invested capital. He believed that these interests would pursue the good of the economy as a whole, rather than skew it for their own ends. Unfortunately, without this moral steerage all 10 rules would be undone. He also based his theories on the Labour Theory of Value, quite unimaginable today.
A modern counterpoint could then be strong governance, something we do not see and will see less and less.
Rambling away now.
ReplyDeleteAnother point is the cyclical nature of markets, from what I remember the average time between boom and bust is three years in a developed economy, ‘ re-adjustment’. This is a natural occurrence in a system of perpetual growth, the necessity to which was, hopefully, demonstrated earlier with the inflation comment. During the boom years the state should strengthen its position with tax money it draws from growing business, for when there is less investment in the ‘bust’ years borrowing can be made by the state to invest and stimulate growth. (this is generally done through Bond’s) Investment would typically be in infrastructure, in all senses of the word, and the failing to do this can be seen in our languishing world position for infrastructure as described in our ‘Working With Planners’ talk.
Ireland has just over cut its budget and the knock on effect of unemployed paying less tax and costing the state in benefits has led them further into recession.
Ok, will stop now, sorry for getting carried away, was trying to remember some of that but this is how I understand it at 1 in the morning.