Bad times are just around the corner.

This is another guest article by Graeme No3, one of our regular contributing writers. Brave man that he is, he’s straying into a discussion of economics which if you’re anyway familiar with the field, is more a matter of luck and judgement rather than the exact science so many of its supposed experts like to represent it as being. Graeme has way too many smarts to think otherwise but he pursues a line of thought in the article that I find intriguing and William of Occam would find more than reasonable.

You’ll have to make your own mind up, so let the discussion begin. Please bear in mind that there are just as many schools of thought in economics as there are in psychology or dare I say it, religion.

Having thrown a lump of cerebral red meat towards you by one guest author, I’m going to take the opportunity of introducing you to a new guest writer to the blog – Grace. At her own insistence, her piece appears under the “fiction” section of the blog, though to my mind it has that truthful granularity that can only be autobiographical. Given that I’d nagged her for so long to give me an article, I fully expected something scientific and casually atom-smashing but she always does her own thing every time. Anyway, I loved the piece. You can find it here.

Two articles in one weekend, you won’t know yourselves. I’m really spoiling you pointers and setters, so you be good to them.



Spending money is my delight,

I do it morning, noon and night;

and if any benefit it fails to make,

I’ll keep spending, for spending’s sake.

– Traditional folk song of the Neo-Keynesians


It is a truth universally acknowledged, that no government spends its money wisely, and is in want of advice. Almost as common is the belief that the government can and should spend more, especially on the particular interests of those offering the advice. Most economists, especially those employed by the Government, agree with the idea. No government department ever declares that they need less money or fewer public servants to achieve their aims. No charity, no group of volunteers, no campaign exists that needs to be convinced that more government money will help their cause. Adopting the old adage “the squeaky wheel gets the oil” they deafen the air with cries for more.

But how did western nations become the home of Oliver Twist impersonators? Where did the notion come from that there is a bottomless bag of money to be handed out? From a poor remembrance of what John Maynard Keynes said. Faced in the thirties with a seemingly endless depression, Keynes proposed a solution, i.e. the government should spend money it didn’t have, and generate economic growth.

To enhance the appeal of his idea he developed the theory of the Multiplier, i.e. every pound spent would generate 4 or 5 times as much spending by the public, as money circulated, and since the private sector was 4, 5 or even 9 times bigger than the public sector, the idea was plausible. Thus the previously unemployed recipient of largess would pay the baker, who would pay the butcher who would pay the candlestick maker etc. Keynes even facetiously suggested employing men to dig holes and others to fill them in again, as a good way of circulating money.

Keynes realized that expanding the money supply would result in some inflation, but he thought of the idea as a temporary fix, and that a buoyant economy would soon bring increased income for the government which would then pay off the deficit. He was opposed by ‘orthodox’ economists, who tended to have the ear of the relevant Cabinet. But their advice when followed stifled the economy; Australia applied the orthodox advice rigidly and rapidly achieved 30% unemployment.

In the UK the dole queues were perpetual, and many other countries suffered. After Hitler rose to power Germany followed an expansive course, seemingly with success. Orthodox economists predicted collapse, but Hitler had other ideas about how, and by whom, the debt would be paid. Roosevelt tried a similar scheme in the USA with vastly less success, possibly by the vast expansion in Departments, Boards, Commissions etc. working to stifle action. When Hitler got his war, all governments started spending furiously and unemployment was reduced to nothing. Debt skyrocketed to enormous levels, and so too the size of the public service.

After the war was done and Keynes was buried, a ‘re-interpretation’ of the Keynes idea was gradually adopted. This in essence was that governments could control the economy and boost growth by applying a permanent deficit. That this would cause permanent inflation was noted, but it would help repay the war debt with lower value currency.

A few economists opposed this, Hayek in particular with The Road to Serfdom.  C. Northcote Parkinson followed in the later 1950’s with his books Parkinson’s Law and The Law and the Profits, pointing out the tendency of Public Expenditure and the Public Service to grow, regardless of the work to be done. Thus his table showing the decline in the number of ships and men in the Royal Navy, matched by a decline in the number of dockyard workers but an increase in the number of clerks in the Admiralty.

Both were ignored and Politicians on all sides seized on the neo-keynesian way with alacrity, for who wouldn’t want a booming economy, especially after the years of the Great Depression, coupled with the chance to play Father Christmas to millions. Money for the poor, the sick, the retired, the disabled and anyone else who made a claim on the public purse.

They soon found themselves in similar position to Eastern countries where they tried to rid themselves of an excess of snakes, by offering a bounty on each one handed in. The excess never dwindled but a never-ending supply of snakes poured forth from the new breeding farms until the government terminated the scheme. So it was with public welfare, giving some people money meant that everybody wanted some. The extra expense was fought with extra regulations, enforced by extra public servants, which meant extra expense and higher expenditure.

Like many a drug addict, the Government soon found that it had to boost the deficit to stimulate the economy, which was proving more and more sluggish. Not only was productivity suffering as more and more people tried to get “free” money, but inflation was rising. Apparently unnoticed by the neo-keynesians the public share of the economy had crept up to 50%. The multiplier had accordingly declined to 1, and higher deficits led to higher inflation but no growth. Stagflation had been discovered, or more correctly blundered into.

Desperate for more revenue those public service monopolies such as water, power etc. were ‘encouraged’ to raise their prices. Being publicly owned much of the extra revenue disappeared into little empires. After all, if a public servant manager’s salary depended on the numbers under him, why was there any reason not to hire extra personnel to “ease the work load”. That no easing ever came, was no surprise to those few who understood Parkinson.

Then the western nations had some unexpected luck. A sudden drop in oil prices should have reduced inflation, for a time. And from the late seventies there was mild warming, at least in the Northern Hemisphere, which improved agricultural output and this, as any farmer will tell you, depressed price rises. In the USA a heretical band of economists called the Friedmanites had temporary control as they espoused their creed that government bureaucracies were inefficient, and claiming that private bureaucracies would be more efficient, if only they controlled those underperforming assets.

Many a Treasurer and Chancellor seized the opportunity to sell those money-making public monopolies, doing a good imitation of the more improvident ancient french kings.  The banks were also deregulated and soon a feeding frenzy of financial sharks made those waters highly dangerous. The general public failed to notice any reductions in their bills.

Now flushed with money did the Governments pay off some of the accumulated debt? (Well, Virginia, remember the bad news about Father Christmas and the Easter Bunny?). What the economy needed was more government spending and more bureaucracy was the advice of the bureaucrats. Inflation continued, with every failure being met by an increasing number of regulations and bureaucrats. Slowly, remorsefully the grip of the red tapeworm strangled freedom. Economic life became difficult and, as Parkinson had predicted, more effort went into minimizing taxes than into generating more.

Those rich taxpayers who could, emigrated or at least arranged for their income to reside in more welcoming climes. The middle classes were squeezed until they too demanded welfare. Natural population growth ceased as people lost hope in the future. Lower economic growth reduced the revenue.  There was not enough money left to keep expanding the Public Service hordes, indeed some suggested the numbers be reduced.

Some new excuse was needed to keep the money flooding in.  A new bigger, more expensive, and less accountable, bureaucracy had been developing in western Europe, with the bureaucrats posing as “sea green incorruptibles” in charge. This required an excuse for more spending and fortunately some big opportunities became available, as they always do for those careless with other people’s money.

Global Warming looked like a winning strategy, as who could deny “The Science” and the fight to “Save the Earth”. Well, as it turned out after FOIA released the e-mails emanating from the University of East Anglia and exposed “The Science” as a third-rate concoction by third raters, quite a lot of people. Scientists who had been busy with their own work, and had taken the claims on trust, turned their eyes onto it and were dismayed, and outright condemnatory.

Physicists denounced the “physics”, Chemists dismissed the “chemistry”, Statisticians wept at the “statistics”, Geologists sniggered at the enormous ignorance of the geological past. Historians and archaeologists became interested and fumed that these climatologists must live on another planet, not the one they had painstakingly uncovered. For their efforts they were labelled skeptics or deniers and ignored. Politicians, bureaucrats and rent seekers continued to plunder the public purse because “the people want action”.

Conference after Conference is held, each more futile than the previous one. Of course it does benefit the host cities, as tens of thousands of customers who don’t care about the cost descend upon them, to the joy of the local Tourist Bureau and assorted locals eager and available to service the visitors.

For every politician basking in the limelight there were 30 or more bureaucrats in the background negotiating nothing, except where the next round of meetings is to be held. And these Conferences are but the visible tip of the iceberg, for there are all the preliminary meetings which have to be held in agreeable places, all expenses paid of course, to discuss what is to be discussed. The EU bureaucrats talk to the UN bureaucrats, who talk to those from the USA who talk to the Chinese who smile inscrutably.

The money flows out but nothing happens, except more meetings. Again and again unfortunate, overworked public servants have to be dragged from their offices to go to luxury hotels in foreign climes and spend their allowances in expensive places where their desires are accommodated (or so they say), while they negotiate the terms of the next meeting.

And there in lies a problem; the chance to leave the boring task of passing round pieces of paper, and take a luxury holiday abroad at no expense to themselves might distract from any initiative to look closely at the problem. And for everyone departing temporarily for exotic locations, ten would be contriving to get selected next time. “Go places in the Public Service” acquires a whole new meaning.

Nor should the benefits of increasing numbers of bureaucrats have on the careers and prospects of the bureaucrats be ignored; a larger Section can be expanded into a Sub-Department as fast as approval is forthcoming, and the salaries rise in unison. The numbers of Environmental Officers have expanded as fast as an aggressive cancer, until local Councils now have whole offices “taking action because the Public demands it”.

Somehow the Public is so unaware of its demands that they have to be constantly reminded of this need for action. The local bureau speaks to the national bureau who speaks to the public broadcasters, who are quite receptive to broadcasting “climate change propaganda” and the idea of more taxpayer-funded lengthy Conferences abroad, which they are paid to attend.

Those who had quickly realized that man-made Global Warming was largely nonsense were, and still are, wondering why its exposure has had little effect, and why the spending continues despite a complete lack of progress or benefit to any except those involved. What of the politicians, the Guardians of the Public Purse (apart from those muzzle deep in the trough)? Why have they not protested on behalf of those they claim to represent?

Simply because they are surrounded by those who benefit. The Minister in his office might have a few of his own Staff, but he is largely advised and controlled by the bureaucrats. Even those supposedly loyal to him are more interested in presenting him as “a man of action” i.e. appearing in the media announcing something (spending money) to murmurs of approval from those who benefit.

Nor is it likely to change, as the grandchildren of the original neo-Keynesians are now in office, or advising them. Brought up believing in government and spending as the ONLY answer to any problem, educated by convinced teachers and at universities where dissenting views are suppressed, it is probable that they cannot conceive of any other approach. The spending will continue until it is impossible to continue doing so. Many governments are putting their faith in more spending causing rising inflation. Others worry about deflation, especially since the drop in oil prices should work its way through the economy, depressing prices. More spending is their solution, as they try to goad the population into more debt. But therein lies a problem.

President Clinton decided on another way of spending, ordering banks to lend money to people who would never pay it back. The banks decided to disguise these junk loans and sell them to the gullible, only to find 12 years later that they themselves were left holding the parcel. Those smart, over-paid, bright people employed by the banks had sent them bankrupt. As can be expected, the banks had made a few little errors elsewhere and the public also got to pay off a few bankrupt countries as well.

The bureaucrats rushed into printing money and lending it at zero interest to the banks, so they could recover their losses from the public. Bankers’ pay and bonuses soared while the general public struggled with extra costs, especially for the expensive electricity now supplied. The public has no money to spare, indeed is usually in debt, and is less and less enthusiastic about spending what they haven’t got for the benefit of those with plenty.

Various governments have decided that the answer is to continue to print money and hope for rising inflation. Should they miscalculate then their currencies will join the Zimbabwean dollar in limbo. If they are wrong and deflation sets in, they will have the impossible task of repaying debt, now worth more, from reduced income.

A default on debts is the likely outcome, and a general global financial crisis.

Should that happen, democracy will be destabilized as extreme parties of the left promise the restoration of government largesse, and right-wing nationalists blame the EU and current governments. The EU will disappear, and the Euro will have to survive, if it can, without Germany. The UK will leave but not split up. Imagine Scotland with declining oil fields and declining prices, bereft of English subsidies and no-one willing to buy that expensive wind power. They would have to rely on whisky and hope that global cooling revives Harris tweed sales.

For England, the original home of parliamentary democracy, there will be no more money left to spend. On present trends an unelected coalition will rule from the House of Lords. They won’t need armed force, thanks to all those repressive measures introduced over the years by the bureaucracy; arbitrary detention, banning notices, all those “rights of true born englishmen” strangled in red tape will finally be revealed as no protection for democracy.

There will remain the irony that what started with the ground nut fiasco has ended with the global warming fraud. Hayek and Parkinson will be banned as subversive, as will George Orwell’s 1984, from the same time. Those who remain will have to derive what comfort they can from the thought that there won’t be enough money left to pay the pensions of retiring public servants. Schadenfreude anyone?

15 Responses to “Bad times are just around the corner.”
  1. Blackswan says:

    Brilliant work G3 – easily digestible food for thought. You’ve distilled the essence of the Big Picture into what is so blindingly obvious. Government snakes chasing their own tails – and if they ever catch those tails, the snakes (and our economies) will disappear up their own fundamental orifices.

    But who cares? It can be our grandchildren’s problem. What a bloody awful legacy to leave those who trust us to care for them and their best interests.


  2. Roy Edmunds says:

    The key to understanding money and the creation of money is to understand what money is. Money is whatever you conceive it to be and can be agreed upon by others in your community. Most of our money today consists of electronically generated figures representing money as $250,000.00.
    When an individual walks into a bank and applies for a loan the bank does not have $250,000.00 sitting in a corner of a vault.
    The bank carefully examines the applicant as to what it is the individual wants to do with the money, whether they have a deposit, are they a saver, good job, regular income, good record of repayments etc. etc. etc.

    The bank then creates the credit, which gradually transforms into credit in other bank accounts as the original credit is distributed. It is all so far in the form of electronic blips.

    Eventually the bank has to do a reconciliation. If the bank has a deposit it has the real cash. If the bank has the title deeds or some other title to real estate it has possession of an asset and control of that asset until the debt is paid.

    Usually the debt is repaid at interest. This means the borrower repays more than the original amount borrowed ….sometimes a number of times over.

    This means the bank can cover its own overheads.

    But although more money has gone out and into circulation and as a result done more business
    than its original value, it is now starting to go out of circulation and the opposite starts to occur as fewer dollars do less work.

    So the bank has to lend more out constantly to enable money to remain in circulation. It does also by paying its own bills and wages etc. But the only restriction on what is leant is on the work done by those repaying the loans and what is paid for the work done.

    Once the government checks and balances were removed on the capacity of banks to lend and to merge profitable banking with high risk derivative investment banking the path toward The Greater Depression was re-set.

    The Greater Depression has been coming since the end of WW II. Von Hayek was one of the Mont Pellerin Society who wanted a return of the fascist system …..Mussolinis corporatism.

    We are in the midst of this new global fascist system which instead of a new world order ” it is more like disorder”….said Pres. Clinton…and was immediately attacked in the British press.

    The usual suspects are at work… usual.

    Money is being found for war….as the Pope commented in 2104….World War III has begun “piecemeal”…was the word he used.

    When the creation of money is left entirely to private interests you will always have the boom bust and war cycles….it is cruel….it is unnecessary….but the greed of powerful men is such that to
    attempt to introduce sovereign credit will be opposed with swift powerful resistance….and
    murder is never out of the question. For further reading go to John Perkins ‘Confessions of an economic hitman”…….


  3. Gault Falcon says:

    Great piece. It seems so obvious, but apparently to only a minority. There is no incentive to succeed and no penalty for failure. Could the conditions for disaster be more perfect?


    • Graeme No.3 says:

      Roy Edmunds:
      thank you for your reply which raises a number of points. Firstly I am not an expert on Von Hayek but the little I’ve read of him seems to be rather more interested in liberty than fascism. He may have been what you say, or was he the victim of character assassination?

      On the banks I think you need to separate the Savings banks from the Merchant banks (to use old fashioned terms). The latter certainly make risky decisions, but my idea was to try and show that the riskiest bet they can make is “safe” government bonds. At least the banks keep an up-to-date record of their liabilities and potential loses, and don’t rely on a “bottomless pit of money” coming in forever.

      The point of the multiplier is that as governments have expanded their role in economic life, they have squeezed the productive side. When there was 5 or 8 workers in private life for every public servant, then the costs were bearable. Now when it is one for one, the only way the system ‘works’ is by increasing government debt for the next generation.


      • Roy Edmunds says:

        It appears however,from news reports, that the household debt is a problem. Also the merchant banks derivative exposure is linked to the housing bubble as well.
        Government could go back and look again at the old 1911 Commonwealth Bank powers of Sovereign Credit creation….for infrastructure….and with care repay the credit from the taxes gained through increased employment….care needs to be taken that this increase in demand does not lead to over heating….and also deals would need to be made with China as demand increase would create blow outs in trade….so China would have to agree to buy more at our prices or the whole so called free trade will develop into imported inflation on top of increased demand created by our own sovereign credit. The problem is also that I think we would have to go cap in hand to the World Bank to gain some kind of permission to have our Reserve actually operate as a Central Bank which powers were lost in1959 from the old Commonwealth Bank and not transferred to the new Reserve Bank in 1960….this means the 1911 Central Bank called The Commonwealth Bank was eliminated although given the order of creating full employment….how it can do that without sovereign credit powers is difficult….especially for large scale infrastructure projects….
        Wages are going backwards which is typical of supply side economics….but it also reduces demand….so the vicious cycle continues as it has in Japan….Prof Steve Keen predicts our malaise could continue for another 20 years…..who knows….it is a slow wind down….a slow grind toward austerity…..cheers, Roy


      • Graeme No.3 says:

        we are in a great depression as all the excesses of the previous 60 years are ‘purged’ by deflation and debt removal (by all means short of paying it off). Those with private debt will suffer, and there will be much unrest. The appeal of Trump AND Sanders in the USA electoral process is an indication of what is coming. Can democracy survive? I suspect it will be driven underground as the elites struggle to maintain their positions, until there is an explosion. I hope that freedom and sanity will prevail.


  4. Retired Dave says:

    A very good piece Graeme, but sadly rooted in truth and reality, so you must be a denier of some sort! I completely agree with your overall thoughts.

    How one sees the economic disaster of the last two decades in the UK is largely a function of your political perspective. I describe myself as a libertarian and like Pointy I refuse to be put in a box of other peoples making. I express some views that get interpreted as “left wing” and I utter some views that get perceived as “right wing” – so am I in the centre?? I think I am just fair minded – others will disagree.

    I think we who largely agree with your analysis Graeme do have to be aware of how we are manipulated to view events in a given way just as many are directed to global warming alarmism. The constant and continuing drip feed about banksters for instance has long since ceased to be a helpful way forward. The criticism has spread to anything vaguely “financial”. We all know that some greed and stupidity took place that required public (our) money to put right BUT –

    As that well known right-winger Alistair Darling (for the non-UK people, he was the last LABOUR Chancellor of the exchequer) said in his 2011 book – the City of London has paid more revenue to the UK government in the last three decades than North Sea Oil. In the best year, around 2004/5, financial services paid in 27% of ALL revenue. It is still paying in close to 20%. Try filling that gap added to the chasm that already exists in the UK finances.

    It is usually ignored that the Government loves bankers’ bonuses – the bigger the better. They are taxed at around 60% in total and in effect are a transfer from bank to government coffers. Is it better for the bank to keep the money? Depends on whether you have bank shares I suppose. On top of that the individual usually buys himself a new car and the government collects another chunk in VAT, Car Tax and Green Taxes. The rest of the money usually gets spent and the chancellor collects 20% VAT on that. It isn’t black and white by any means. Those of the greed and envy persuasion are against bankers’ bonuses even if stopping them made us all worse off. It is a left wing hangup.

    And then there is the portrayal of banks as some capitalistic entity cut off from the working man (and woman), but pension funds own a huge number of bank shares – of course nobody is interested in the performance of their pension fund are they? Once again it is not all black and white.

    I have read the first two books by the Undercover Economist – Tim Harford. They are excellent for anyone like me with only a lifetimes experience of economics, but no real knowledge. His take on National Health services in the first book will challenge those who believe that our way (UK) is the best way – despite being presented most days with evidence that it may not be. His views on the “crash” are also interesting in the second book . You realise that some of what was presented in the media as deliberate greed was in reality put in place as a safety valve that turned out to be a monumental mistake. He compares it to “safety” devices on the Piper Alpha oil rig that turned a minor accident into a major disaster – Well worth a read.


  5. Is it true that God created economists to make palm readers look good?


    • Blackswan says:

      If a pessimist says a glass is half empty, and an optimist says a glass is half full, an economic rationalist says … we need a smaller glass.


    • Graeme No.3 says:

      Economists read their palms. It was noted by Winston Churchill that when asked for advice they would say “on one hand this…but on the other hand that…”
      That’s why Winston asked for a one handed Economist.


    • Old Rooster says:

      “The only function of economic forecasting is to make astrology look respectable.”—
      Though often attributed to Galbraith, as early as 1988 in U.S. News & World Report, the earliest publications of this statement, in The Bulletin (1984) and Reader’s Digest (1985) attributes it to Ezra Solomon.

      Probably a cheap shot but doesn’t mean it isn’t true. Could apply equally to Weather and Climate forecasting.


  6. Reblogged this on gottadobetterthanthis and commented:

    The only question is how long.


  7. durango12 says:

    One has to judge economics to be a failed project, regardless of whether you consider it “science.” Here we are 200+ years after Adam Smith and most of those trained in the field either distort him, dispute him, or denounce him. The fact is that they can’t even agree on what causes economic growth: demand that can be driven by government, as the neoKeynesians love to argue, or supply that is created by new products and services sprung from the efforts of entrepreneurs. It is the latter of course (just think about what one new Steve Jobs would do for the world), but we are saddled with the former because such jerks can be hired as consultants for government which seeks to rationalize ever more ways to make itself bigger.

    Alas the governments are in the ascendancy, and things will need to get much worse before we can start over again. They will.


  8. Old Rooster says:

    Phew! From the introductory pic I thought we were in for a discourse on bimetallism!😱

    Instead we have been treated to a fairly comprehensive and succinct, though not laconic, round up of where the Dismal Science (as Carlyle coined it) has failed. Not so much in theory but certainly in practice. Neatly we are led to the comparison with the new contender for the title though perhaps it is the Science of the Dismal—dismal method, dismal ethics, dismal outcomes. The parallels are many. In the time of my own studies I developed a particular loathing for the Econometricians, whose oh so clever mathematical manipulations became useless if one relaxed any of their assumptions (the killer was often if one dropped the assumption of perfect knowledge of the market). To me the greatest disappointment of all was the regard that was accorded Milton Friedman the Monetarist. I never found his theories convincing without knowing quite why. Then one day someone told me that his much vaunted thesis was based on figures for a particular seventeen year period for the US and in no other case could his model achieve a satisfactory goodness of fit. Sound familiar?

    Loved the tie in to the works of the incomparable researcher of bureaucracy, CN Parkinson. His Law of Delay is a great read too.

    Thanks for a meaty article G#3. I’ll be chewing over this one for a while.

    PS If only Keynes had followed up his General Theory and The Economic Consequences of the Peace with a brief monograph (Holmes style) on the Economic Consequences of the Piecemeal Application of theTheory! No—the snake oil salesmen would still have stuffed it up!


    • Graeme No.3 says:

      Thank you for your comments.
      My impression is that Keynes really didn’t think his theory would be the subject of adoration generations later. He wanted to eliminate what seemed to be a permanent state of depression in the UK economy (don’t forget the USA had the roaring twenties but the UK had the General Strike and depression from 1920 through to the late thirties) and I think “padded the idea” with a lot of intellectual posturing to make it seem acceptable.


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