UK Conservatives warn against borrowing
I was interested to read in the Telegraph that the Conservative Shadow Chancellor, George Osborne is attacking Gordon Brown for his reckless plans to increase Government borrowing.
What fascinated me most was the level of debt:
Under the rules, the Treasury is only supposed to borrow a maximum of 40 per cent of the country’s gross domestic product.
So the UK debate is about whether exceeding 40% of GDP is prudent, while in NZ Helen and Michael preach the end of the world if it is 22% instead of 20%.
Of course Helen is also on the record as having advocated more borrowing when debt was 57% of GDP, so her position on this issue is so flexible, she could get a gold in gymnastics at the Olympics.!
No TweetBacks yet. (Be the first to Tweet this post)
Tags: George Osborne, Gordon Brown, government debt
August 21st, 2008 at 10:07 am
Gold indeed… by legislatively disestablishing silver & bronze and retrospectively changing the entry rules so that she was the lone contestant.
The 20 vs 22% has nothing to do with reality. It’s about creating a perception of impending calamity in the minds of people who can’t think past next weeks lotto draw.
August 21st, 2008 at 10:23 am
I just love those bendy Gymnasts!
The UK is in deep trouble.
There is a PM who has stated to-day that he is the right man for the job.
The polls all have a different message.
The Socialists have completely squandered the prime economic position that they inherited.
Imagine in the UK, we get a Polish worker that gets an NI number. He works and is able to get child allowance for the kids back home.
He decides to go back home, and the support continues!
Magic
August 21st, 2008 at 10:39 am
I have no problem with borrowing – as a basic principle if the returns on the investment are greater then the interest you pay then it makes a lot of sense. I just have a problem with the GOVERNMENT doing the borrowing. Leave it to the private sector and you’ll get a cheaper and more cost effective alternative. Take the fibre to the home plan – John Key calls it a “great investment” but if it were really, there would be private investors jumping up and down to put money into it, who can argue with that?
Also, I take issue with the constant quotes about Helen defending high borrowing, this was a different time and situation. At the time the poor were getting hurt in a constant battle to bring down interest rates – don’t get me wrong I completely agree with the actions taken, it was for New Zealands long term benefit, but it does make sense for a Labour leader to question this, it follows the Labour ethos. Better than a National party who will seemingly do anything to get into office (keeping interest free student loans, working for families etc)
August 21st, 2008 at 10:46 am
“….. Under the rules, the Treasury is only supposed to borrow a maximum of 40 per cent of the country’s gross domestic product.
So the UK debate is about whether exceeding 40% of GDP is prudent, while in NZ Helen and Michael preach the end of the world if it is 22% instead of 20%.
Of course Helen is also on the record as having advocated more borrowing when debt was 57% of GDP……..”
And yet, the man responsible for NZ being in such an improved condition today, Roger Douglas, is widely reviled. The socialists have had 9 years of fun with the hard-won consequences of years of responsibility, and look what they’ve done to things like increase in rate of growth, and energy efficiency per unit of production.
The sickening thing is that these realities will really bite when some other government is in office, and we will continue to seesaw between governments that do all the fixing up of the economy suffering the electoral consequences of the irresponsible regime that preceded them, and irresponsible regimes that set about squandering the gains and reversing all the most important indicators, only losing office when the negative turnaround is too deeply entrenched for the incoming government to have any maneuvering room on fiscal policy.
DUH.
August 21st, 2008 at 11:11 am
This is winnable. And if English cannot win this he should not be a politician representing the centre-right cause. But looking at his performance on the taping scandal I am not confident he can win this issue, not confident at all.
August 21st, 2008 at 12:01 pm
PhilBest, that is how politics works. The truisms are:
1. The trendy social liberals generally spend their time decrying the evils of the capitalism, without being clear that the profits of capitalism are exactly what allows them to spend their time decrying it’s evils. They spend the fruits of the capitalist economy, the conservatives on gaining power usually consolidate that position – they don’t reverse the social agenda. Ideally (to me) the balance is a right wing government making the economy more productive and flexible, then a left wing government working for social freedoms without screwing the economy up too much.
2. The democratic system generally encourages governments to take from the many to give to the few. The system slowly clutters up with special privileges – this election a group over here of 5% of the population get a special deal. Next election, another 5% somewhere else. Eventually you get to a point where more of the population is getting special deals than are getting nothing, and the country is in trouble. Then a government like the Lange/Douglas government comes in, and builds agreement that if we removed all those special privileges in one go, although we’d individually be worse off in not having our special privilege, the result of everyone else losing their special privilege as well would mean that we were actually better off. The problem is how long it takes the system to get to that point – Labour have been chugging away creating privileges, and I suspect that Key and English will be big government right wingers – they’ll also spend some time buying interest groups off. The influence of Dunne, Peters, the Maori Party and/or the Greens will accelerate this – they all exist purely to gain concessions for special interest groups.
August 21st, 2008 at 12:43 pm
PaulL covers the politics well. In economics you could say this is similar to the classic regulatory economics problem of rent seeking behaviour. The cost of concession sought by a group is small when spread across the economy as a whole (your individual marginal cost is small i.e. an extra few dollars for “more police, nurses, doctors, environment – enter worthy cause here).
The cost to you (individually) of pushing back on the concession is high (you need $x thousand to lobby), organising as a group (where the total cost of the concession actually is significant) involves more time and effort than is probably worth the individual marginal cost. So worthy cause group receives there concession (rent).
Then you have the next rent seeker (insert worthy cause here) – add x to your marginal cost, but again you have the same collective action problem. Repeat the game several times – eventually the mariginal costs to you build up and move from being a small cost to a significant total cost on you and the across the economy.
End result the system is unsustainable as either everyone has become a worthy cause and no one is paying, or everyone has left the country. What happens (and is observed historically) is that you then have governments tear down the regulatory barriers and remove rents (remember removal of subsidies in the 80’s). Economy grows again and then you Paul’s cycle starting again.
You can see this pattern having happened in NZ. Why do you think Mai Chin set up here legal practice with Mr Palmer using a Washington lobbyist model? She saw a market opportunity with the new government and did well out of it as a first mover, this has been followed by other legal practices and consulting firms. You have to admire her foresight.
August 21st, 2008 at 1:28 pm
Ugh..
Must. clear. mind. of. images…..
August 21st, 2008 at 1:42 pm
Paul you have got it wrong. The balance is a right wing government making the economy more productive and flexible, and working for social freedoms without screwing the economy up too much.
Let’s face it the left wouldn’t know freedom if it bit them on the arse
August 21st, 2008 at 2:18 pm
pmp: traditional politics, not the mess we have today in NZ. The reality is that MMP creates more interest group politics. Although, it would be fair to say the removal of the pork barrel marginal electorate politics has removed a different group of special interests.
Why the left have decided to be interested in controlling peoples social lives to the same extent that the right traditionally do, I don’t know. It is quite anti- the position the left would traditionally get. Corruption and the desire to retain power I guess.
August 21st, 2008 at 2:31 pm
You guys would be interested in THIS little assessment:
“Good Form:
Monarchy, the rule of one man in the interest of the common good.
Bad Form:
Tyranny, the rule of one man for his own benefit.
Good Form:
Aristocracy, the rule of a group in the interest of the common good.
Bad Form:
Oligarchy, the rule of a group for its own benefit.
Good Form:
Republic or Polity, the rule of the better part of the people in the interest of the common good.
Bad Form:
Democracy, the rule of the worse part of the people for their own benefit.”
From “Leftism Revisited” by Erik Von Kuehnelt-Leddihn
August 21st, 2008 at 2:36 pm
Can NZ afford to service a similar %age of debt to the UK?
(Just to steer the thread away from “Leftism this – leftism that, mutter mutter Socialists mutter mutter”
)
August 21st, 2008 at 2:57 pm
RRM: short answer would have to be yes – as it is %age of GDP, so automatically takes our income level into account. The better question is whether NZ can afford not to invest in infrastructure – can we continue to grow our economy with the infrastructure bottlenecks we have. If the infrastructure projects:
– genuinely have a positive business case (not some bullshit govt business case, but a real business case)
– for reasons of scale or risk, cannot be undertaken by the private sector, and
– that risk or scale issue is reasonably addressed by government action.
then I don’t see how we could not do them. The government is prepared to make us all use energy saving lightbulbs because it’s in the long-term interests of NZ to save energy, despite the up-front capital cost that imposes on citizens. This is exactly the same decision writ large. I don’t see how you could support the lightbulbs without supporting the infrastructure.
I of course argue that it is entirely logical to support the infrastructure without supporting the lightbulbs, but that is a different argument.
August 22nd, 2008 at 3:12 am
I support small government. If the government backs off having to provide everything in the New Zealand economy then it wouldn’t need much in the way of debt anyhow. The path to prosperity is clear. Minimal taxes, small government, let the private sector deal with most public needs, and let people be free to succeed or fail by their own initiative.
ACT is the only party even remotely supporting these positive ideas for a better New Zealand. Time to make that positive change. The “tea break” is over!
August 22nd, 2008 at 9:51 am
Which is worse? Borrowing against Revenue cashflow for major infrastructure change, or just increasingly taxing the populace to give benefits to the lost and unfortunate?