Stimulating Packages

Occasionally you hear a politician say something so breathtakingly stupid and contradictory it makes you want to hurl something across the room in a howl of desperate rage.  This morning as I listened to the Today programme, I  wanted to take my  i-pod and DAB combo radio, get a taxi to Broadcasting House and fling the black cube at George Osborne. Obviously common sense intervened before the armed police did and I calculated by the time the cab had negotiated rush hour traffic, George would probably be heading back to Number 11.  There's always a chance he'll repeat the idiocy this evening, but then I will be watching on TV and getting a large flatscreen off the wall mounting is simply too much like hard work.

In amongst all the talk of 'packages', 'stimulus' and 'growth spurts', which turns out to be much less fun than you think, was a discussion of Wonderboy George's magic fix for the British economy which as you may have noticed is about as lively as the parrot in the Python sketch. It is an ex-economy. His claim was that freezing council tax would help boost the economy, some £800 million in all, found apparently down the back of the Treasury sofa along with Domino's pizza menu, a leaky biro and an old remote control. But in the same interview, he asserted we must also cut the deficit which would not harm growth prospects, whilst planning to cut corporation tax further. Observe the strange logic here: cutting £40 billion of deficit spending from the government will have no effect on the economy, but £800 million will.  This is not a cake-having and eating scenario, this is having the cake, taking a photo of it, eating the cake, then printing ten colour copies of the cake and trying to pass them off as actual cakes to other people.

Asking for trouble 

Moreover no one has satisfactorily explained how cutting corporation tax is going to have any effect on the collapse in domestic demand and  vast debt burden. Judging by the FTSE 100 companies' behaviour, their principal aim at the moment seems to be shovelling as much cash into their senior executives' pockets, regardless of performance. In a period of deep recession and share price collapse, executive pay rose 32%, which means as a multiple of average earnings it's trebled in ten years. By all means cut corporation tax, but it's a bit like giving Pete Doherty a big bag of crack to look after, you have only yourself to blame.

This is not to say that the Labour party has anything remotely useful to offer in the current situation. Their economic cure all is that no one in the public sector should ever lose their job ever, even if a broken shop dummy would have better productivity.  I am probably making their programme sound more coherent than it actually is. As for the Liberals, they claim a mansion tax is the answer, but as we aren't living in a real life version of Downton Abbey, the lack of actual mansions in the UK seems to undermine their case.

A wise investment 

The Bank of England is about to start another round of quantitive easing, which is money-printing by another name; it is often described as the equivalent of helicopter dropping money onto the economy. Except you never hear anyone suggest doing exactly that: putting money directly in people's hands. I think it is because deep down politicians and economists feel that, for example, granting every single British taxpayer a sizeable cash credit that had to be used in three months would somehow be...cheating. Pouring billions into bankrupt banks, buying your own debt, all of this is acceptable policy. But the final logical step which would immediately kick start demand, the genuine money drop, is off limits. Perhaps there remains some deep seated mistrust about what we would do with the money: some people would no doubt spend it on frivolities like shoes or hats or perhaps just one very expensive hat. The rest of us would spend some, possibly on a wider range of goods and services than millinery, and save the remainder.  The net effect would be to boost domestic demand and help recapitalise the banks.

£200 billion of quantitive easing and the dead-parrot economy is only just about staying upright because someone nailed it to its perch.  Or you could have credited every single taxpayer with £7,692. Who would you trust with the money: yourself or those financial masters of disaster?

Dear Mr Osborne, I'd fire up the chopper if I were you.


(For more stats and numbers see this interesting article: Who eat all the QE pies?)