Jobs, debt and cuts: which and when — an election quiz
Try to stifle that yawn at the prospect of yet another discussion of cuts: if we’re not careful, that’s what the general election is going to be about. What it should be about is mass unemployment — already the UK total is nearing 2.5 million, expected to hit 3 million soon — and the other hardships inflicted on the most vulnerable people by the recession: how to start getting unemployment down and a durable recovery from the recession under way: at what point the mountain of public debt incurred in the battle to contain the recession can and should start to be reduced: and how much damage will need to be done to those public services on which the most vulnerable people in society depend when the time comes to cut government spending and step up government revenues in order to bring the public finances back under control.
On all these issues, which are mirrored in almost all the world’s major economies as a result of the global recession, there is a general global consensus among governments and economists about what needs to be done, and when: in other words, about the priorities. But within Britain there is no such consensus. On almost all the issues listed, there are sharp differences of approach between Labour and the Conservatives. At present the Conservatives are setting the agenda: it’s all about cuts. The Tories are obsessed to the exclusion of all else with the problem of the debt. Almost all areas of public expenditure should be slashed, say Messrs Cameron and Osborne, with immediate effect, in order to restore the public finances. Increasingly it becomes clear that the public sector is their number one target: public services, public service pay and pensions. Whether the Labour party goes down to ignominious defeat or takes the election to a fighting finish will depend on its success or failure in seizing control of the political agenda and presenting a more credible, honourable and practical set of aims and priorities than those currently being peddled by the Tories.
So here’s a questionnaire for undecided voters to fill in before election day:
1. Which are the main causes of the recession (tick as many as you think apply):
(a) Gordon Brown’s reckless, spendthrift mismanagement of the UK economy in the years before the recession.
(b) Labour’s waste of huge sums of public money spent on bailing out the failed banks.
(c) The development of trading in sub-prime mortgages and other toxic assets, mainly in the United States, bundled up in increasingly opaque derivatives whose real value or degree of risk eventually no-one could calculate, confidence in which suddenly collapsed, leading to massive bank failures, the collapse of the credit system, resulting in a sharp drop in economic activity and a sharp increase in bankruptcies, business failures, unemployment, house repossessions, and government spending on bank rescues and unemployment and other benefits, aggravated by a corresponding fall in revenue from income and other taxes.
(d) The massive global trading and fiscal imbalances caused by the immense scale of public and private borrowing by the United States to finance a huge trade deficit, financed mainly by the purchase of US debt by China and Japan and used to sustain an unsustainably high level of government spending and consumer credit unmatched by earnings.
(e) Global warming.
2. Which country’s government first adopted policies to contain and eventually to reverse the recession based on bailing out the biggest of the failed banks (including taking the worst affected temporarily into public ownership) and providing a massive fiscal stimulus to the economy designed to sustain and revive a level of demand that would lead to a resumption of investment and production and thus eventually to recovery from the recession? Tick just one of the following: (a) The US, (b) Germany, (c) France, (d) China, (e) Brazil, (f) Spain, (g) the United Kingdom, or (h) Zimbabwe. (Actually everyone knows the answer to this one.)
3. When the anti-recession measures described in (2) were later adopted by most of the rest of the world with the broad approval of almost all reputable international economists, which UK political party attacked them as fiscally irresponsible and a reversion to old-fashioned socialism? Tick one of the following: (a) the Labour party, (b) the Conservative party, (c) the LibDems, (d) the Greens, (e) the BNP, or (f) the Official Monster Raving Loony Party.
4. Which country’s gross national debt amounted to 94% of its GDP in 1950 and is expected to reach 101.1% of its GDP in 2011? (a) The United Kingdom, (b) the United States, (c) Germany, (d) France, (e) Greece, (f) Rwanda
(Tick one. The answer is in footnote 1.)
5. How many, if any, of the following 13 countries had a higher level of public debt as a percentage of their GDP than the UK in the last full calendar year: Japan, Singapore, Italy, Greece, Belgium, India, France, Portugal, Germany, Canada, USA, Austria, Cyprus? [For the correct answer, see footnote 2.]
6. Which is the most urgent, highest-priority policy objective: (a) bringing down the UK’s high level of public and private debt, or (b) persisting with measures to sustain and stimulate demand in the economy so that the recovery, when it comes, will be early and durable? (Only one may be ticked.)
7. In the view of the majority of international economists, which approach is likeliest to encourage and sustain recovery from the recession: (a) immediately cutting government expenditures across the board, even before recovery is securely established, regardless of the consequences for unemployment levels and for the level of demand in the economy, so as to make an immediate start on reducing the national debt; or (b) continuing existing policies of stimulating demand by pumping money into the economy, targeting as the highest priority those likeliest to stoke up demand levels by spending all additional income received, i.e. the poorest, the disabled, and pensioners? (Only one may be ticked.)
8. When it is safe to start rebalancing the country’s finances in order to begin to pay off the unsustainably high level of debt incurred as a result of bailing out the banks and fiscally stimulating the economy [oo-er, that’s a clue to the answer to question (1) — do not go back and change your answer], which of the following measures for that purpose will be most likely to be effective: (a) slashing public services and imposing pay cuts and pension reductions on members of the public services — mainly e.g. nurses, local government employees, policemen, postmen, teachers, firemen, dustmen, schools inspectors, social workers, prison officers, probation officers, etc.; (b) concentrating on continuing to reduce unemployment, thus repairing government revenues from income and other taxes such as VAT and reducing government expenditure on unemployment benefit and other welfare payments to help the hardest-hit victims of the recession; (c) increasing taxes on those best able to pay more, including senior executives receiving bonuses and salaries exceeding £100,000 a year; (d) re-evaluating all major government expenditure programmes in order of priority in terms of protecting the neediest victims of the recession, ensuring that the recovery continues undamaged, and applying the criterion of fairness (those best able to pay more do so, the poorest and most vulnerable receive more support) — and deferring or cancelling the programmes evaluated as being of the lowest priority, even if intrinsically desirable; (e) substantially reducing government expenditures by: very early withdrawal from Afghanistan, reducing the prison population by 50%, and abandoning as unaffordable (whether or not desirable) Trident, ID cards and their supporting database, new aircraft carriers, new fighter-bombers to equip the aircraft carriers, and the new prison building programme. (Tick all that you think likeliest to be effective for the purpose defined.)
9. The figure of £1.457 trillion is the UK’s amount of: (a) government borrowing for measures to beat the recession? (b) the government’s estimated budget deficit in the current financial year? (c) current personal, private borrowing by individuals? (c) government spending so far on the wars in Iraq and Afghanistan? (d) MPs’ and peers’ expenses claimed and disallowed? (Only one may be ticked. The answer is in Footnote 3.)
10. Which of the following UK political parties, i.e. those theoretically capable of forming a government after next year’s general election, is likeliest to have got the answers to the nine preceding questions right? — (a) The Labour Party; (b) the Conservative Party. (Only one may be ticked; please vote for the one you have selected.)
And, less seriously, question 11: please identify the author of each of the following quotations and the newspaper in which each one appeared (answers in Footnote 4):
According to [the independent Institute for Fiscal Studies], Mr Cameron would have to cut £54bn of spending in today’s money just to meet the Labour government’s deficit-cutting plans – plans which he says are too timid. Even if he scrapped the police, the Foreign Office, transport spending and six other government departments, it would not be enough.
A good Keynesian would respond to a call for cuts by saying that, whatever we do, we should maintain demand. That means maintaining cash benefits to the old and poor, who spend rather than save.
Necessary as these efforts to give the world economy stronger foundations are, the more immediate priority is not to stop the recovery in its tracks. Domestic public finances will be the most urgent challenge for many leaders as they return from Pittsburgh. With publics nervous about soaring government debt levels, the danger is that fiscal stimulus will be withdrawn too soon. That will hurt not only those who tighten but also their trading partners. As leaders agree to rebalance the world, they must continue to push it upward.
The government should lop 5% off every budget and every public salary for a year, no exceptions and no argument. It would be crude but fair, the price paid by a public sector that has done well over the past decade at the expense of the productive sector of the national economy. It is an expense that the nation cannot at present sustain.
Footnote 1: (The answer to question 4): the United States.
Footnote 2: The answer is that all thirteen of those listed, as well as numerous other countries, had a higher level of public debt as a percentage of their GDP than the UK in 2008. The percentages were: Japan 170.4, Singapore 113.7, Italy 103.7, Greece 90.1, Belgium 80.8, India 78, France 67, Portugal 64.2, Germany 62.6, Canada 62.3, USA 60.8, Austria 58.8, Cyprus 49, UK 47.2. Other countries whose public debt exceeded 40% included Switzerland, the Netherlands, Poland and Brazil. (http://en.wikipedia.org/wiki/List_of_countries_by_public_debt)
Footnote 3: £1.457 trillion is the total amount currently owed by UK private individuals. It has recently begun to diminish for the first time since records began in 1993. (http://news.bbc.co.uk/1/hi/business/8231135.stm)
Footnote 4: A, George Parker, Financial Times, 19 Sept 09
B, Simon Jenkins, the Guardian, 16 September 2009 (http://www.guardian.co.uk/commentisfree/2009/sep/15/labour-public-spending-cuts). C, The Editor of the Financial Times, in a first leader, 18 Sept 09 (http://bit.ly/3m0w6V). D, Simon Jenkins, the Guardian, 16 September 2009 (as B).