[OPE] Martin Wolf: "There is no alternative, again" A Critique?

From: Jurriaan Bendien <adsl675281@telfort.nl>
Date: Fri May 08 2009 - 19:03:28 EDT

Tackling Britain's fiscal debacle
FT May 7 2009

In 2010, according to the European Commission's latest forecasts, the UK
government will be spending 52.4 per cent of gross domestic product and
receiving just 38.7 per cent of GDP in revenue. It will, as a result, have a
gigantic general government deficit of 13.8 per cent of GDP. Worse, the UK's
cyclically-adjusted deficit will be 12.2 per cent of GDP. These are numbers
one would expect in a time of war. (...) The painful conclusion must be that
the UK has lost control over public spending. It has to get it back again.
Whether they like it or not, UK voters will have to elect a government
willing to achieve this end. Government solvency is at stake. The next
government will, as a result, find itself in a war of attrition with its own
servants. If David Cameron leads the Conservatives to victory, as many
expect, he will have to be tougher than Margaret Thatcher, elected prime
minister three decades ago. (...) The Treasury forecasts a rise in public
sector net debt from 36.5 per cent of GDP in 2007-08 to 76.2 per cent in
2013-14. It is likely to end up higher. A prudent government would not only
wish to halt this rise but also to reverse it, to renew the fiscal
flexibility it is using up. Government spending will have to be cut down to
size. (...) The next prime minister is likely to end up quite as hated as
Margaret Thatcher was. But, as she liked to say, there is no alternative.

Mr Wolf argues that the Brits will have to vote in an austerity government
"like it or not", an elliptical way of saying that it doesn't matter what
you vote, you are going to get an austerity government. I don't doubt that
Mr Wolf is correct about the severe implications of public deficits - in
money terms, Britain clearly suffers the worst from the financial crisis -
but is there really no alternative? Of course there is!

For starters, instead of trying to make quick profits from financial
speculation and property deals around the world, British capitalists could
invest much more in developing their own country, and create new industries,
generating new income, jobs and tax funds. And if capitalists don't do it,
because it isn't profitable enough and too risky for them, the state can
lead the way. If neither capitalists nor the state (who control most of
society's capital) can do it, a revolution could bring a new polity to power
which has mass support to reorganise society, so that things work well
again. So, in truth, it's never the case that there is no alternative! We
can look forward to a tremendous amount of financial-political innovation to
get out of the mess.

The problem in financial terms for the British state is, that laying off a
large number of workers works out extraordinarily expensive.

In addition to tax revenue lost, there is:

(1) the payout of unemployment and social security benefits to consider,
(2) the loss of aggregate monetarily effective demand with a negative
multiplier, and
(3) the additional cost of all kinds of social problems caused by
joblessness, which, although solving them employs people who pay taxes, is a
net cost to the state.

In addition, there's the political problem of a large-scale loss of goodwill
and state legitimacy.

But even in regard to this serious problem, there are many different
alternatives since many different kinds of financial and organisational
restructuring are possible; the crisis could indeed be viewed as an
opportunity to improve things based on global best practice.

Assume though, just as example, a median UK gross income of 27,000 pounds
per year and a basic income tax rate (including national insurance) of say
23%, then that implies an income tax revenue of about 6,210 pounds, leaving
a net income of 20,790 pounds. But in fact the amount of tax is greater,
since one also pays indirect taxes: property tax, VAT tax (17.5%), motoring
tax, council tax etc. In fact over a third of total UK tax revenue comes
from expenditure taxes. So, in fact the total annual tax you pay out of that
gross income (direct and indirect tax) is probably more like 10,000 pounds,
just a bit more than one-third of the gross income.

Then, if you assume an annual dole payment of minimally about 3,120 pounds
(or perhaps double that amount if there's family dependents to support), you
have to conclude that, on average, for every job lost, the UK state coffers
must lose an amount of money close to half of the gross salary earnt with
that job, and the private sector loses an amount of sales equal to about
one-third of that gross salary.

This would of course also imply, that for every public service job lost, the
budget saving to the state would be also about half the salary. But then
you would have to conclude that effectively, even if the state lays off a
lot of workers, the net financial gain from this operation to the state from
the point of view of expenditures just cannot be very significant.

Suppose that you have a net loss of 2 million UK jobs, then on the
previously mentioned figures, the direct net financial loss to the state
must be something like 27 billion pounds a year, and the direct loss to the
private sector is about 18 billion pounds net, roughly 45 billion altogether
(well, about four-fifths - not all - of the UK unemployed get benefits, but
you also have to factor in a "negative multiplier effect") and so (this is
just a very approximate estimate) the real financial loss to the economy is
probably more like 60 billion pounds, it starts to look very much like about
20% of the total annual salary payments to all British public servants. You
can make the calculation more precise, but anyway it is not small bikkies.

But guess what. Britain is still very much a class society... and so we can
expect that the approach taken to the fiscal crisis will respond to class
priorities. It's just that I think they will reach the conclusion that in
order to cut state expenditure intelligently, laying off a lot of staff is
simply not going to help them very much, financially, socially and
politically, and therefore, that the largest budget cuts will not be in
staffing but in other areas (they will cut staff, but not as much as you
might think).

More or less the same thing can be calculated for most EU countries, which
probably influences the stance of the more rational EU politicians.

Part of the problem is that, for the developed capitalist countries in the
Triad, two-thirds to three quarters of the total outstanding debt nowadays
is business-to-business debt, not consumer debt - if millions of jobs are
lost, and wages are capped, quantitatively it cannot actually solve much of
the financial problem via a "cost saving"; solving those financial problems
can only be accomplished by big changes in "who owns what", i.e. in
ownership and control relations. The net deficit in the business ledger can
ultimately only be removed by removing the assets/liabilities, or by
incorporating the ledger into another account, or by splitting up the ledger
in some way. So, as soon as the economic downturn "stabilizes" and there is
some evidence of recovery, I think we can look forward to a big new round of

The main problem has been that the propertied classes in the Triad wanted to
get rich from debt, based on a low interest rate of borrowed capital,
instead of an expansion of production that creates net new material wealth.
Yet expanding real production is the only durable way out of the crisis,
since ultimately it takes more real net value added, to pay off debts.
Failing that, all they can do is try to redistribute (shift) the costs of
the crisis to other social classes and other nations, without really solving
anything structurally.

The crisis of social accounting is really that how the gains and losses
should be evaluated is itself no longer very clear, because there is little
agreement about what society's priorities should be, or what ethic should be
applied. The only certainty is, that if you don't have the money you simply
can't pay, and that "somebody" will have to pay, insofar as money has been
spent. Hence, the financial policy becomes to a large extent a politicized
regime, focused very much on "shaping up behaviour".


Living by numbers
Adding to history
And living by numbers
I guess was always meant to be
Living by numbers
Living by numbers now
We've been living a long time
Counted out in the rows of files
Such a digital lifetime
It's been by numbers all the while
Living by numbers
Living by numbers now
You count the days but does it
All add up to you
Does it all add up to you why we're
Living by numbers
Living by numbers now
So you're living by numbers
And numbers you answer to
You can count all the numbers
You bet that someone's counting you
Living by numbers
Living by numbers now
They don't want your name
They just want your number

- New Musik, "Living by numbers" http://www.youtube.com/watch?v=R5j30b0yuXk
(if you don't like that one, there's always Hayley
http://www.youtube.com/watch?v=S8QVe7d3q8U&feature=related ).

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Received on Fri May 8 19:08:36 2009

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