Bad times are just around the corner.

Posted by Pointman on February 13, 2015 · 15 Comments 

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.

Pointman

—-<0>—

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?

©Graeme No.3

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