Observation
15 November 2009
A New Class
Is it useful that the UK government has created
a new privileged class of people, namely the public sector? These people
cross old the class boundaries and are now paid more than the private sector,
while also enjoying considerably better conditions of employment.
The government surely has a duty of care when offering better pay and
conditions at the expense of the tax payers, and should demonstrate pursuit
of excellence and the justification of that expense. This stratagem, if
it is such, is in contrast to employing those that no other employer would,
which seems to the casual observer to be the intended policy that has swollen
the ranks of the public sector since the decay of mass employment by industrialists.
No policy statement to this effect is prominent, so one might think that
the effect is caused by a reluctance to confront public sector unions, rather
than a strategy to achieve excellence. Certainly this is congruent with
traditional labour party policy. Admittedly, if higher remuneration is offered
over a prolonged period, whether by design or cowardice, the effect will
likely be the same, in that more able people will apply for those positions.
However, is it fair? As everyone cannot be in the public sector, but
those not in it are paying for it, is it not the same as taking from the
poor to create a new elite class, quite probably dominated by the same people
that currently dominate the upper echelons of the private sector. Assuming
that a policy to achieve balance in the personnel employed is in place to
counter this tendency toward the high achievers, then the effect would be
create a ‘lucky’ group. Is that a sane policy?
The key differential is that one has a choice of private sector services,
paying more gains better quality services, whereas there is only one public
sector. The obvious notion occurs, could multiple competing public sector
services be created to provide competition and so variable levels of service
quality? If so, how does it then usefully differ from the private sector?
If parity of employee ability, pay, and conditions is achieved, one final
question remains. How big should the public sector be? The only acceptable
economic model we have is one in which people fulfil each other’s needs
and wants. Is this done better by the private or public sector, or some
balance of the two? If a balance, how do we decide what that is? It is difficult
for the same area to be covered by both public and private sectors, as the
latter has an inherent financial disadvantage.
11 November 2009
Experts Reject Government
The BBC
notes three more members of the Advisory Council for the Misuse of Drugs
(ACMD) resigned today due to the lack of reassurance about the independence
of the ACMD following the departure of Professor Nutt. Their decision followed
a meeting between Alan Johnson and the ACMD on Tuesday. The
Times reports that the problems of independence and trust continue.
None of the three main political parties seems able to recognise the
importance of the independence of scientific advisors. They also remain
convinced that they know best how to create policy, and that does not always
follow expert advice. In the absence of a reasoned case against the scientific
advice one may assume their criteria are dominated by populist concerns,
rather than what experts believe to be best.
Interestingly, government does create posts for experts, so they recognise
the value of experts. Unfortunately, they have the authority to be selective,
using only the advice which endorses their own agenda, and thereby highlighting
their own failings.
3 November 2009
Government Rejects Experts
Professor Nutt headed a team of experts that together provide the best knowledge
we have concerning the effects of drugs. Alan Johnson created an excuse
to sack him, because their expert findings we not in line with the views
of the government, and Nutt made them public. Alan Johnson is not an expert
on the effects of drugs, but was nonetheless endorsed in his decision by
Gordon Brown.
Firstly, where the public pays experts it has the right to hear what they
have concluded. In this particular case
The Times points out that these advisors are unpaid, and that it is
likely a ‘home goal’ to sack someone who is an expert and gives their time
freely for the benefit of others. Surely these experts intended their free
advice for the benefit of the country, not the politicians. Secondly, politicians
are clearly basing policy decisions on something other than the best available
understanding, creating the potential for problems.
It seems that yet again policy is not created that is best for our country,
but rather what is most expedient for the re-election of the government.
This primary government objective exists so their politicians can continue
to exercise their egos with power, and retain access to overpaid jobs at
public expense, the only areas politicians have demonstrated they truly
have expertise in.
Freelance journalist Tim Radford for
The guardian offers an historical perspective, and how politicians also
consider the reaction of voters.
The Times allows guest contributor Professor Robin Murray to avoid the
important point, with an interesting and informative discussion over the
correctness of particular issues.
The Independent reports the situation without offering an opinion.
This blog (claimed by a scientist) gives a more considered account of
the issue that makes the government position look even more vacuous.
2 September 2009
Credit Crunch 2
Sadly, this recession probably has not reached its nadir. Much evidence
suggests it has, but fundamental problems remain that are being masked by
the concerted action of governments in the most developed economies. Even
if an immanent recovery is now certain, crunch 2 is already set in motion.
Broadly, the problem was a collapse in confidence in the viability of
high debt to income and income to savings ratios in the most developed economies.
This was expressed as reduced confidence in the ability of debtors to service
their loans. The end of the American house price bubble precipitated the
collapse. It was mainly enabled by generous lending criteria and stable
low interest rates over a protracted period. At an anthropic level, irrational
optimism and competitiveness are the underlying drivers of these problems.
At a policy level, governments failed to take into account those human traits
to exercise sensible control. At a factual level, it is obvious that no
country or individual can continue to increase its debt to income ratio
indefinitely, nor should have a high income to savings ratio. However, that
is what political governments continue to do and allow.
Australian economist Steve Keen in a video on
this useful blog post explains the debt problem in more detail, indicating
that more trouble is to come.
The Times tell us of Ann Pettifor, who like Keen also forecast the credit
crunch and also thinks the debt mountain will cause more problems. So why
is the credit crunch yet to revisit us? We need to look at the main tactics
being deployed to fix the crisis in confidence; they are low interest rates,
public sector spending exceeding revenue, increasing the money supply, deferral
of foreclosure on debtors, and direct incentives to spend. The most significant
of these is ‘public sector spending exceeding revenue’. This is effectively
shifting the balance of the problem from the private sector more to the
public sector in the belief that confidence in a larger debtor will be higher.
That is a reasonable assumption, but those debts must be serviced, and that
is funded by future taxation increases. The notion is that as private sector
spending slows, public sector spending is increased to help maintain business
until private spending recovers. This tactic stores up a significant burden
that that must still be addressed. The tactic of ‘reducing interest rates’
is not safe. As we look back at the original problem, sustained low interest
rates fuelled the hubris that lead to asset price bubbles, high debt to
income, and high income to savings ratios. In addition, low interest rates
create compelling disincentives for savings, and low savings levels are
problematic. Further, the increasing retired population partly lives off
the interest from its savings, so they will take a less active part in a
spending lead recovery and at the margins will be looking for help. The
tactic of ‘increasing the money supply’ enables more public sector capital
expenditure in the short term, but also increases inflation in the midterm,
which erodes the value of savings as well as debt, further exaggerating
the problems of savers stuck on low interest rates. If the situation is
not rectified quickly, the tactic of ‘deferral of foreclosure on debtors’
only delays the inevitable for many, and buries the remainder in long term
high debt. Providing ‘direct incentives to spend’ is another disincentive
to save and head again toward debt, so a lot of this kind of stimulus can
also be a bad thing.
The wise among us know that moderation in everything is best. We have
experienced a period of excess growth and are seeking to diffuse the inevitable
correction and return to another period of unsustainable growth with some
very strong policies over a short period. It is possible that one strong
imbalance can correct another, but the stronger and faster the measures
the more tortuous it is to achieve good balance again. Confidence that the
failed institutions that enabled and allowed the problem forged in our human
failings have the vision to correct it must be misplaced. On the bigger
picture of how we conduct ourselves, perhaps we should question the race
back to a hedonistic consumption based life style.
7 July 2009
Printing More Money to Win an Election
Printing more money is well understood to increase inflation, but also
to diminish the value of debt. Clearly, the latter consequence is prioritised
over the former by the current government. One may conclude that this is
a tactic designed to ameliorate immediate problems at the expense of later
problems.
Increased money supply has another effect, it allows the government
to spend through the public sector without raising more debt. This helps
them keep the economy on the move in the short term, and delays the inevitable
public sector cuts.
Timing seems to be the main concern. They intend to make the current
problems show signs of improvement as the election approaches, and hope
the new problems will not be evident until after the election.
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