Labour are still at their old game. Their response today to David Cameron’s warnings about the deficit is more of the same. In their economic song book more public spending and more borrowing equals a stronger economy. On that basis why then is the UK economy so weak? Can’t they see that the UK is on its knees with record levels of public spending and borrowing? Shouldn’t that lead them to ask if all that spending and borrowing is such a good idea?
Let’s try once again to explain our plight. The UK has been living beyond its means for too long. Labour’s disastrous money policy and banking regulation meant too many people borrowed too much in the private sector, leading to the blow up of the private credit system in 2008. The private sector was suddenly and abruptly made to live within its means when they switched the credit off. Pay was slashed, jobs destroyed, companies went bust, factories and shops closed.
Labour then transferred many of the dodgy debts to the taxpayer, and added yet more public sector borrowing, learning nothing from the debt crisis in the private sector, but trying to replicate it in the public sector. People were recruited – often for non jobs – pay boosted and new programmes opened, all on borrowed money.
We can’t go on like this, for two good reasons. First, the lenders will run out of patience, and in the end force up the interest rates we have to pay and cut the credit. That’s what they’ve just done to Iceland, Ireland, Greece, the Baltic republics, Hungary and a host of other countries. Second, all that borrowing has to be repaid at some point. Spending more you have borrowed does not stimulate the economy if you borrow the money from within that same economy. Borrowing from British savers is like taxing them. It takes their money away from them so they cannot spend it on job creating activities.
The world does not owe us a living. There is a huge transfer of economic activity underway from west to east. The UK and other western countries are not competitive enough to withstand the super competitive activites of India, China and other emerging market countries. The rest of Euroland is not competitive enough to withstand German competition.
There is unfortunately no subsititute for a country like the UK working harder to earn its preferred living standards. There is only so much we can borrow to put off the necessary adjustment to our economy. The UK economy needs to make and produce more to sell in world markets and needs to produce more of the goods and services we ourselves need in an efficient manner. It’s no good flexing the credit card one more time when you are nearly bust. You need to get a better paid job and start paying off the mortgage.