Economic crisis – too much government spending and borrowing

It’s typical that at a time when the issue is Why is the government spending so much more and borrowing so much more than it forecast some should want the issue to be Tory spending plans.

The issue today must be How can this government get a grip on the public finances? It wrongly thinks spending borrowing and wasting more is the right approach, when it will make the squeeze and the Credit Crunch worse.

My comment to the Sunday Telegrpah said that the Tories should not yet produce spending and taxing plans, because the rate of deterioration in public finances is so huge and we cannot be sure yet just how bad an possible inheritance will be come 2010. Instead we must highlight the large black hole in the governent’s own numbers, and urge them to take corrective aciton – not by cutting nurses and doctors, teachers and police, but by stopping so much waste and needless bureaucracy. Above all they need to stop the losses at Northern Rock and return it to the private sector so it can make mortgage advances again.

There will be a crisis in public finances if the government carries on at its present rate of overspend and overborrowing. It is crowding out an already emaciated private sector, and intensifying the squeeze on incomes. It will leave the government as both unpopular and incompetent.The first thing they should do is place a recruitment freeze on more burearcrats, as we are groaning under the weight of their salaries and pensions.This country is one of the worst placed to tackle the global imbalances, because it has such a top heavy government with so little being achieved for all the money spent.

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7 Comments

  1. T. England
    Posted August 25, 2008 at 12:37 pm | Permalink

    That’s just it with Labour isn’t it!
    Tax, spend, waste & economic failure each time they get their grubby little hands on the countries finances!
    End to boom & bust! LOL!
    Oh! Something made me laugh the other day on the broadcasting on behalf of the Labour party BBC was what the presenter said to one of their financial “experts”, “Labour had cured boom & bust for over ten years but what now”!!!!!!!!! ROFL!
    The reason I say “expert” in quotes is because that clever presenter also said to him “six months back most financial analysts would have said we could avoid recession” & he AGREED with that statement! Expert!!
    Well! Some of us grunts who aren’t experts but watch financial programmes knew long ago that we were going into recession & have been making plans to cover our bums, shame the government didn’t do the same & advise others!

    Britain is in a mess, we have no savings & the recession hasn’t even started yet! We can’t look to the EU for help because the rest of the EU is rapidly slipping into recession as well.
    America that has led the way in our woes is still in recession & things look like they are set to get worse as companies start to lay people off as they try to tighten their belts.
    It seems like Britain has to brace itself for around three to four years of pain before we turn a corner, so from now until then we can only wonder how bad it’s going to get as we breathe in!
    The more frightening reports that I have heard are that it could get as bad as the last depression, the thing about that statement & things like the government saying “don’t waste your food” & recycle your clothes leave a nasty smell! I think they know only too well how bad it’s going to get & yet they STILL won’t warn people in an open manor! I know people say that you shouldn’t scare people, but hang on! These live in cloud cuckoo land policies, you know the ones! “Alls well” & such like, just hasn’t worked, maybe the truth will!

    Even China is starting to slow up, which I suppose is obvious considering how much money they won’t be getting from the west now & so where do businesses go to make money & from whom?
    Well it sure as hell isn’t Britain!
    Were on our own & we definitely can’t afford Labour any more.

    Labours love of taxing & spending is like a shopper holic that just can’t stop shopping although they can’t afford it, this means only one thing! Financial ruin, heart ache & somebody else taking charge of the money!

    I believe the only way for Britain to get on in what seems like is going to be a nasty time ahead is to think inwardly to things like growing our own crops instead of importing, the EU doesn’t like protectionism & France & Germany are in trouble for trying to look after their own people at the moment!! So surely making, growing, buying & selling our own home grown products isn’t protectionism but good business sense in troubled times?

    Am I just being a doom & gloom merchant when I say Britain isn’t part of a credit crunch any more but now part of an economic war & only the fittest will survive?

    • mikestallard
      Posted August 26, 2008 at 5:51 pm | Permalink

      Every bust has a silver lining for those who are really providing the goods – food, warmth, clothing, social intercourse, affordable entertainment. So don't despair, the ship will right itself eventually.

  2. Posted August 25, 2008 at 1:01 pm | Permalink

    It take it that means the opposition promise not to keep to government spending plans has been well & truly buried by events. Good.

  3. James
    Posted August 25, 2008 at 1:40 pm | Permalink

    Libby purves also has a good piece in The Times today on this subject.

  4. David Belchamber
    Posted August 25, 2008 at 3:44 pm | Permalink

    A report today stated that 83% of final salary pension schemes in the private sector have now disappeared. As it is clear that there must be a limit to what the taxpayer can afford to fund in future, is there not a case for doing away with all final salary schemes, in both private and public sectors, over the next few years?

    Why kill of somehthing good in the private sector if some can still afford them? The crime was Brown's for changing the tax and regulatory system so that many schemes had to close.

  5. mikestallard
    Posted August 25, 2008 at 8:34 pm | Permalink

    You are so right in your analysis, which you have maintained, to my own knowledge, for a good long time.
    Perhaps the answer to your blog is this.
    Last Friday, I listened to Gavin Essler interviewing a shadow Treasury Spokesman and Yvette Cooper on Newsnight.
    Yvette Cooper was allowed to give the usual stock response but was rudely interrupted when she started to give details of the global downturn.
    The poor shadow Treasury Spokesman – whose name was not even properly announced, so I did not catch it – was shouted down as soon as he opened his mouth with Essler rudely shouting, "But where would you get the savings from?" The poor man lost his thread (I do not blame him) and Essler turned away repeating as if he had won an argument, "But where would you get the savings from?"
    This mob are not going to listen to common sense, I regret.

  6. Posted September 16, 2008 at 10:24 pm | Permalink

    Economic and Energy crisis, the real 3 a.m. call for Obama and McCain.

    Lehman Brothers fails today. Falling values for homes continues to affect financial institutions all across the country. The real truth is that the crisis in the economy and the energy crisis are really one and the same. As the price of energy, and everything else has soared, this has a ripple effect throughout the entire economy. Gas cost more, so you have less to spend on other things and all the people that work in the stores that sold you those things now have a lower income. They therefore cannot afford to buy things, like houses, and on and on down the line. Plus the cost of everything that you have to buy goes up. Everything in every store you ever visited got there by truck. Any energy prices are causing the cost of driving a truck to go up. There is an underlying energy cost in virtually every single product that you buy, be it houses, electronics or food. Farmers had to buy gas to plow their fields, plant their seeds, harvest the crops, and transport the crops to market and on and on.

    The underlying economic problem in this country for quite some time is the very simple fact that we import more than we export. You can relate how this works to a household budget. Your imports are the amount that you spend your exports are the amount of income you earn and if you continuously spend more than you earn, you’re not going to end up doing very well economically. For years, the biggest factor in our trade deficit has been the importation of oil. Decades ago when oil was cheaper, we decided to make a trade-off. That trade off was a willingness to spend money to import oil and produce less domestically, because it was dirty. The oil spills off the Gulf coasts and off the coast of California were an annoying problem for anyone who went to the beach. I am old enough to remember visiting the beach as a youngster, and at the steps of every hotel along the beach there was basically some rags in a bucket of kerosene or some similar solvent to clean your off the bottom of your feet so you wouldn’t track oil back into the hotel. The technology has greatly advanced. Offshore wells now have shut off valves below the seafloor. They close automatically in an emergency to prevent large quantities of oil from leaking into the sea. As a side note, 80% of all the oil on the earth that’s ever been formed has already leaked to the surface. The amount of oil spilled into the ocean today by man is only a tiny fraction of natural leakage of oil. Oil is lighter than water or rock, and after enough rock builds up over the top of it, it gets squeezed and the pressure goes up. If there are any fissures or cracks in the rock, it rises to the surface. Bacteria consume it and it becomes part of the food chain. After all, crude oil is pure organic material; it only causes problems in high concentrations, like a major oil spill. There have been no major oil spills off the coasts as a result of offshore drilling in many years.

    And most importantly, the economics of our decision to import oil instead of producing it domestically has changed. At current world prices, and especially their peak price reached a few months ago, we are spending hundreds and hundreds of billions of dollars to import oil. The cost of the Iraq war is also an economic drain but the economic drain of the Iraq war is only about 20 or 30% of the economic drain of importing oil. In 1973, the Arab oil embargo caused a similar economic crisis in our country. Of course the obvious effects were the gas lines and the increased price of filling up your car at the pump. But our entire economy suffered greatly. Inflation soared and jobs were lost. Pretty much the same thing that we’re experiencing right now. It was because of the ripple effects of energy prices, which is an underlying cost to produce virtually everything we eat or use in our daily lives. This is somewhat mitigated however, if the energy that we are paying increased prices for comes from inside the US. Because the net wealth stays inside our country, increased income from producers of oil is used to purchase goods, products and services that everyone else depends on for their income. If the money flows outside of the United States it is a net loss of wealth.

    Earlier this year, when the price of energy soared, that was the 3 a.m. wake-up call. It should have been easily foreseen by Obama and McCain and everyone else that the ripple effects of virtually doubling of energy prices would have throughout the economy. The fallout was going to be brutal and widespread. McCain reversed his earlier position, and the position of pretty much everyone else, and said it was time to open up the outer continental shelf, but not ANWR, for drilling. He made it part of the way but didn’t really propose an all-out plan to increase production. Obama came out against offshore drilling. It’s McCain that got a grade of “incomplete” and Obama, a grade of complete failure.

    The real solution to both the energy and related economic crisis is to become energy independent. Either Obama or McCain could have said the following statement and passed their 3 a.m. test:

    “We are in a national emergency. We must become energy independent. This emergency requires the concerted efforts of our most creative and hard-working people all across the country. We need to greatly increase our investments in alternative energy sources, especially carbon free sources, like nuclear, wind and solar. But we also must realize that the time has come to explore every resource we have available to us. We need to produce every additional alternative energy source we can produce, and we need to extract every last barrel of oil and cubic foot of natural gas on American soil that we can find in an environmentally sound way. And we need to do it very quickly. We are out of time.”

    The question of course is which candidate will figure this out, and will they figure it out before it’s too late.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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