After my contribution to Good Morning Ulster this morning – discussing the need for continued austerity with the tax and spend MP Mark Durkan – several callers questioned my logic that the only contributor to wealth was the private sector. One caller suggested that my Economics knowledge was deficient (no argument there, it’s not really a science and most Economists make it up as they go). However, this caller suggested that my simplistic argument relating to the private sector – business – being the only source of growth was flawed. The caller asked, incredulously, did I not know that 4 things contributed to growth: production, consumption, government spending and exports.
However, I think this caller may, with further investigation, come to the conclusion that without production (private sector) there would be no consumption, no government tax take and no exports. I rest my case.
However, more worrying, was Mark Durkan’s clear lack of any economic understanding. It appears sometimes that the synapses of doctrinally motivated lefties (and Sammy Wilson is sounding more and more like one – he appeared later on the the programme) aren’t connected the same way as people who have to manage budgets or run businesses. Both Durkan and Wilson argue that it would be better that the government borrowed more to employ people to build infrastructure than to have them hanging around on the dole. The argument is so patently absurd that it barely merits a response, but here goes.
First argument against is that we can’t afford it. UK public spending is at absurdly high – grotesquely high – levels. Public debt is now above £1 Trillion. To service that debt costs hundreds of billions – despite the UK’s relatively low bond yield levels. If bond yields creep up (and they will if debt increases) the cost of borrowing – and the required tax take – will go up too.
Second argument – it’s not clear what UK infrastructure is needed. For example, should we building roads when what we really need is better broadband infrastructure? And why should the UK government be getting involved in Internet provision when it can’t even run the NHS efficiently? Oh and if infrastructure is provided under PFI (like the grandiose new Invest NI building on Bedford Street) will we be, as taxpayers, paying through the nose to property developers in perpetuity?
Third argument – the unemployment reduction myth. Sammy Wilson on GMU this morning, argued that the government should be developing infrastructure to employ the unemployed. Last time I looked the majority of the unemployed were not highly skilled engineers, planners, legals – or the other types of people needed to undertake infrastructure work. Even construction workers these days need to have vast experience to undertake the types of infrastructure projects Sammy Wilson, no doubt, has in mind. And most of the firms capable of delivering big ticket infrastructure projects would probably be better off working in the high-growth (but infrastructure poor) BRIC economies than in the UK. Plus such projects would yield valuable export revenue at a time when the UK needs it most.
Fourth argument against Keynesian interventionist spending is that it increases dependence on the state at a time we need increased dependence on commercial led growth. State spending is merely a prop – it’s not the real economy, stupid. What we need is proper demand led growth where businesses here develop good products and sell them – ideally overseas, resulting in expansion in wealth from overseas expenditure. Nothing creates employment faster.
Fifth argument. We need lasting jobs not interim, start-stop employment. Infrastructure projects take forever to plan and get off the ground and typically they have absurdly long pay-back periods (and low associated employment once they are complete). Just look at the Titanic “signature project”. Years of planning, hordes of construction workers and a big launch. Now a few ticket tellers and lots of people wondering how the thing will sustain itself.
And I could go on. But I have paying clients to support and work to complete. But Durkan, Wilson and all the other lefties in Stormont need to get a grip. Austerity WILL get worse. The block grant will decline in real terms and possibly in actual terms. Therefore, for the Executive, there has to be a Plan B other than continued begging bowl politics. We need a focus on stimulating proper, export driven businesses here. We need more businesses moving here and creating the skills needed in this economy. We need a regionally focused economic policy – and we could start by reducing corporation tax quickly, biting the bullet in terms of block grant reduction, and focusing on building sustainable, commercially led employment – squeezing out the public sector.
Wilson and Durkan will not get their way. Things will get worse before they get better. But both need to start facing up to the fact that bitter pills will have to be swallowed.