I was asked to come a preliminary assessment of this question. The Uk economy has lost around 6% of output. This will cost us £90 billion or £1500 per person every year for the forseeable future. Taxpayers so far have lost £40 billion on their RBS and Lloyds shares, or £670 per person. I suspect in the aftermath of the Credit Crunch growth will be around 1% per annum lower, which will cost us £15 billion or £250 per person per year.
We then need to guess at how much taxpayers will ultimately lose on all the bad and dodgy debts which the state took on or guaranteed. If the losses are a modest £50 billion then that is just £800 each, but if they were £100 billion you can double that.
At friday’s prices taxpayers have forgone gains of £15.4 billion on all the gold holdings Mr Brown sold. We would be £250 better off each person if he had kept his fingers off the gold. The rising gold price is part of the response to the continuing distress of the Credit Crunch. Some of our losses from inflation also stem from the Crunch, and from the money printing policies the US and Uk pursued to combat it.
It was never going to be easy moving from a position where the country was living more than 10% beyond its means every year, to a position where we lived within our means, or had brought our collective borrowing down to sensible and sustainable levels. Gordon Brown tried to defer the problem, by switching the borrowing from the private sector to the public sector. This decision made areas like private sector manufacturing take a large hit, with lots of lost jobs, factory closures and lower incomes, whilst continuing to boost incomes and employment in the public sector.He subsidised jobs and activity in several large banks, transferring them to the growing public sector. This delayed sorting out the over capacity and weak balance sheets in part of the banking industry.
The Coalition government so far has sought to cut the deficit by taxing the whole private sector more. They decided to do this whilst seeking a private sector led recovery to limit the pain of adjustment to lower borrowing. The politics of austerity are about seeking a pace and impact of less borrowing which the public at large will accept and thinks is fair. If the government can achieve a higher growth rate overall, it makes the adjustment much less painful.
Unfortunately, all this is now taking place against the background of a nasty and self inflicted crisis on the continent, courtesy of the Euro. The Euromantics, by refusing to implement either solution to their crisis, are delaying the recovery of their zone. Splitting up the zone would be the quickest and least painful solution. The richer countries helping pay the debts of the poorer would work economically, but seems to be fraught with political difficulty. Worse still they are underming banks in the zone, which in turn undermines confidence in banks elsewhere who do business with banks in their zone.
Mrs Merkel is coming under more pressure to give up her opposition to Euro guranteed bonds. It is asking a lot of German taxpayers to take on responsibility for the debts and deficits of southern Europe. You can end up with long periods of underperformance and the need for large amounts of subsidy, where places join a single currency area that does not work well for them. Southern Italy and Eastern Germany are cases of this. If you do this where people do not feel they belong to the same country, where they do not accept the moral need to help, the politics could prove unworkable.
Some in the week-end press dismissed the Eurosceptic critique, because it said we have different views on how you could break up the Eurozone. I do not see it is our job to have a single unified view. It is only the views of those in the zone and controlling the zone that matter. They could withdraw Germany to set up its DM. They could create a northern and southern Euro. They could withdraw the weaker countries. It does not really matter which of these they do. All of them could work. All of them entail fast and decisive action to redenominate bank accounts, handle the issue of paper currency and regain the confidence of the markets. They all have similar risks to them, but all offer a faster way out of the inevitable pain of lost jobs and weak banks.