Monday, 18 October 2010

Being ‘businesslike’ with the truth

I wrote this in a recent blog:

“I am so sick of the ConDem’s comparing the Government to either households or businesses. The country is not a company. The country is not a household. This is what’s known as the fallacy of composition and it is explained here”

However politicians and media pundits lacking the curiosity, motivation or wherewithal to get to grips with complex arguments find the superficial plausibility of the household budget model impossible to resist: these are tough times…individuals, households and companies are tightening their belts and paying down debt…it is only proper and fair that Government should do the same.  And so on.

It cannot be said often enough that this argument is nonsense. I guess that most of its political and media advocates recognise it as such but find it too politically useful to dispense with. In any case, there appears to be no limit to what people think they can get away with when discussing the current state of the economy. Two examples:

1) Osborne’s appearance on Andrew Marr’s show at the weekend: what did he say? Well, that before the election, the UK was on ‘the brink of bankruptcy’; that interest rates on UK debt were ‘similar to Spain and Portugal’; that ‘Britain was on the edge of the economic abyss…people round the world were questioning whether the UK could pay its way in the world’.

I’m sure people around the world were asking this question - it would seem that the answer they arrived at was that the UK certainly could pay its way! That is why interest rates on UK debt have remained comparatively (historically and internationally) low throughout the crisis. On his assertion that interest rates on UK debt were similar to Spain and Portugal, he is just being clever with the dates; note he doesn’t mention Greece despite his constant repetition of the ‘UK is the next Greece’ mantra throughout the election campaign.  

But he couldn’t mention Greece because rates were far higher in Greece than for the UK. Similarly, when the extent of the Eurozone’s troubles became apparent, the rates on Irish, Greek and Portugese debt surged. The fact that this didn’t happen in the UK has nothing to do with the Coalition. I’ve written about this here and the STUC’s pamphlet ‘Avoidable, Unfair and Regressive’ covers similar ground in more detail.

Osborne is being downright deceitful; there is no other way to say it. He thinks he can get away with it because the media is largely compliant and the public generally disinterested/bored with apparently technical economic matters. He is probably right – for now. This is why the STUC’s There is a Better Way campaign is so important in disseminating the arguments against cuts; arguments that are evidence based and learn from economic history.

2) The letter from 35 ‘business leaders’ in today’s Telegraph in support of the Coalition’s budget proposals: as we said in today’s STUC press release the economics of the letter are puerile and the partisanship blatant. I’ll ignore for now questions over:

·        the tax status of the individual signatories and their firms;
·        their knowledge of public services which they don’t use or need;
·        the representativeness of this small sample of UK business dominated as it is by minimum wage retailers.

…and focus on the economics.  Consider this:

Everyone knows that when you have a debt problem, delaying the necessary action will make it worse not better”.

Yep, it’s that old household budget thang again! ‘Everyone’ does not know this. Hey, even Robert Peston finds it appropriate to mock this absurdity. And there’s more:

“The cost of delay would result in almost £100bn of additional national debt by the end of this parliament alone”…”Reducing the deficit more slowly would mean additional borrowing every year, higher national debt and therefore higher spending on interest payments

And condemning hundreds of thousands of people to unemployment (1m say PWC – half in the private sector) will improve the public finances? The truth is that it’s impossible to put a definitive figure on the national debt 4 to 5 years in the future when the actual figure depends on so many unknown unknowns. But a worsening of the public finances due to higher unemployment, lower demand and lower revenues is the likely scenario if the cuts proceed as outlined in the June Budget. The confident assertions contained in this letter are designed to disguise the paucity of its economic arguments.  

What we have to remember is that people who have been successful at running a company, are very, very rarely well placed to advise on the economy of a nation. The proof is in the statement above. On the question of business people expounding on economic issues, Paul Krugman concludes thus: ‘Economics and business are not the same subject, and mastery of one does not ensure comprehension, let alone mastery of the other. A successful business person is no more likely to be an expert on economics than on military strategy’.  The pamphlet he wrote on the subject is to be recommended; particularly for those politicians unable or unwilling to accept his premise.

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