Genuinely not to understand the government's economic policy

[Thisishowyoudisappear]

This is a genuine question, I'm not trying to start a political argument. For the record I am fairly left wing.

So GO says the govt needs to make huge cuts in order to reduce the deficit. The cuts are going to be made at least in part from 'welfare'.

I guess I am wondering what all this deficit cutting is supposed to be achieving. I don't know, in real life, anybody who's been made better off under this govt. I don't understand this idea that 'balancing the books' for the whole economy a)bears any resemblance to doing same for a household or small business; b)is doing anything for the vast majority of people.

I don't understand how 'welfare' can be cut much more without starting on pensioners, which surely isn't going to happen.

I also don't understand why anyone except the seriously well-off vote Conservative. Why would you, when they are cutting services and not giving anything in tax cuts or whatever? Genuine question again.

I'm intelligent and take more than a passing interest in politics. So AIBU (or just a bit dim) or what??

Yanbu

Watching as I don't get it either and really want to understand

Carol - Not at all. An understanding of why economies run the way they do is a way of seeing when you are being fed BS by a politician on your television. It goes to the heart of OP's original question. That was my original point.

I'm just arguing we are all much better off than your 'golden age' when the sterling was a world reserve currency and on the gold standard. Fiat currencies are much better than a gold standard anyway.
We are much better off, even adjusting for inflation, than previously, the fact other countries are richer is not necessarily a bad thing.
Globally and in the UK, living standards are better, health is better.
I disagree a wealthy China is bad for us and we are all in a hole.

@Kim - Bottom line is, you cannot get out of debt by creating more debt. No one has ever managed to do it in history, and every country that has tried has destroyed its currency.

Now, if we were to remove the minimum wage, and taxation on foreign business, you'd probably see a flood of new business coming into the UK along with hundreds of thousands of new jobs. But people in the UK would not be willing to work for £2 and hour, and the government would not be willing to stomach the backlash. So all new business on the globe goes East. That is very basic economics.

Not only that, UK citizens are unwilling to pay for goods manufactured in the UK, because they are not willing to pay the prices minimum pay employees get, so people in the UK buy phones, TVs, t'shirts and trainers made in the East.

Economic stimulus as you describe is a political tool designed to frame and mould public perception. When we want to print money and devalue the currency, we print the banknotes and the government then distribute it. We create a scheme designed to generate work for example and we give the money to the corporation who pays for the materials and the new employees wages. But in realist what we have done there is we have reduced the value of the pound by creating more debt to be paid for by the public (printed IOUs) and given that capital to the rich (the people who own the corporations). The general population then spends the next 30 years (if it was a 30 year government bond for example) paying interest at the designated rate for the capital, and has to then pay the capital off at the end.

In reality, every time you ask the government to be generous and give you a benefit today (rather than suck it up and pay more taxes), you are creating debt that your children will have to pay off in the future. Year on year we spend more and more of what our children will have to work for.

You and I are paying off debt that was created decades ago, by our parents generation, to pay for what they were unwilling to work for. So we work hard and pay off the debt obligations they created, but not only are we less willing to pay off their debts, but we are willing to create astronomically more debts than they passed to us, and pass them on to our children to pay!

The speed at which our debt is increasing is accelerating exponentially, the rate at which we are getting richer as a nation is only increasing marginally. It takes more and more debt to create less and less growth in the economy. Spending money (economic stimulus) no longer works. It is the law of depreciating returns.

Dinnae be daft. Its not that consumers won't pay for goods made with living wages its that companies won't. Do you think all companies price by saying.. ooh it costs 'x' I'll add my fair and reasonable 'y' and the retailer will add their fair and reasonable 'z' and that's what customers pay??? Companies go 'if the market will pay £80 for a jumper.. and the retailer wants £40, If I can get it made and packaged for £20 in the UK I make £20 .. but if I can find a sucker to make 2 for £1 I make £39.50.. They don't give a shit about what you are prepared to pay. If they find out you will pay £100 if you know its made in the uk.. and they find out they can get it made overseas for £1 and stitched together in the uk and call it 'uk made' they will.

Of course they want you to think it's your fault so you will be tempted to feel bad for passing low prices. . Why wouldn't they?

Dora said it earlier. Money just needs to move.

A guy walks into a hotel and puts a £100 note on the counter and says he wants to stay for a night but he'd like to look at the room first. The hotel owner says sure and takes him up to see the rooms. Whilst he's up stairs his wife takes the £100 note and gives it to butcher to pay off some of the hotel meat bill, the butcher gives it to bar owner to pay off his tab, the bar owner gives it to his landlord to pay his rent, the landlord gives to to the working girl to pay for the services he enjoys, and the working girl runs off to pay her gives hotel bill.

When the man comes down stairs he decides he doesn't want to stay, picks up his £100 and walks out. But now the whole community has £500 less debt.

All that is needed is for money to flow in an economy, but that money needs to be both trusted, and valued by the people using it. When people begin to be afraid to spend money, it stops flowing. When people begin to realise that by not spending money the prices of things come down to a level that entices people to spend money, the flow of money slows.

There is an index that charts the rate of flow of money through an economy, and we are at near historic lows. People do not trust the value their money represents any longer, nor do they trust the prices they are being asked to pay for goods and services in the shops.

In times like these, real money goes into hiding. Paper money gets inflated away to nothing. It can be stopped, but only by cutting deficit spending harsher than any government can stomach. People don't understand, and they don't want to know. So instead we tell them of evil elsewhere in the world and sell them a big world war. The we blam that war for the austerity that had to happen anyway, so they don't blame those who govern them, and we reset the global currency, just like we did after WW1 and WW2.

sparklecrates - sadly that is not how the economy works. If it were, we would not be so badly fucked. But it's a nice comfy delusion nevertheless.

Deflation is seen as the big bugbear because people will not spend if things are cheaper in the future. That is bollocks, or no-one would borrow to spend today.
the key is confidence - if people think the good times are around the corner, they will spend and good time comes, otherwise we go down in a spiral.

Deflation is seen as the big bugbear because people will not spend if things are cheaper in the future. That is bollocks, or no-one would borrow to spend today.
the key is confidence - if people think the good times are around the corner, they will spend and good time comes, otherwise we go down in a spiral.

Not necessarily, Carol. A great deal of personal debt is created by people to indulge in what they want now, when they are not willing to work and earn the money now, but believe they will be able to repay in in the future. Personal debt and consumption are not driven down by deflation, just as saving is not driven down by inflation. Only the mechanism changes. Inflation drives savings money out of currency denominated assets and into hard assets, while deflation drives an increase in larger goods being purchased with debt over smaller goods. In a deflationary cycle people still borrow, only they buy cars as opposed to televisions.

Also, each of the last three currency devaluations have been preceded by a short deflationary cycle followed by a sudden and violent inflationary cycle. That trend is seen in each devaluation of the pound all the way beck to WW1.

So I'd expect to experience deflation prior to economic collapse, if the collapse were to be of substantial magnitude. The fact that deflation is being talked about in the ECB, and sold as the thing we need to print stimulus money to avoid is a worrying sign in my view. Monetary stimulus by QE (or whatever they call it this time around) is not the answer.

So what is the answer?

How can any country operate successfully when less than half the population is engaged in direct revenue generating labour? We need nurses, teachers, police, etc, but their wages have to be paid for by taxing those who get money from non-government sources. Nurses, teachers, police etc pay tax, but that tax comes from taxes paid by others, it is not new money entering the system or building wealth or prosperity in the country.

The above contains a fallacy, namely that the public sector is a drain on our collective finances that is funded by the private sector, which is an asset. (I also used to believe this but have changed my mind.)

Imagine the whole economy was nationalised overnight, but everyone continued to do exactly the same job they did before, for the same net pay, producing the same economic outputs. All that would have changed is that 100% of the economy would now carry the label "public sector" when we looked at the relevant accounts. What we could afford individually (in our private buying decisions) and collectively (where politicians spend money on our behalf) would not have changed.

In my though experiment, 100% of the economy being in the public sector would not (in the short term) stop the country operating as successfully as it had before. (In the longer term things would go to shit, as we know from past observations of the effects of nationalisation and observing communism, however the reasons for that are a separate issue.)

Specifically, there do not need to be enough (or even any) private sector pounds to be taxed, to pay for the public sector.

The economic outputs of public sector workers like nurses and policemen are just as much part of the economy as are the labour of someone working on a factory production line. If you nationalised the factory that wouldn't mean that overnight it would go from being an asset to a drain on the national finances. (It would almost certainly be a bad idea in the longer term, for reasons irrelevant to my point here.)

Carol - There is no answer. The falicy is believing the government controls the economy in the first place. The government only controls the people and the public perception of the economy. It is there job to mentally prepare the public for war, when war is required to secure resources, or to prepare the people for depression when a great depression is required in order to deal with economic collapse. Their jub is to talk and prepare the public consciousness for what is about to happen. All you and I can do is understand what is really going on, and prepare ourselves for it. That means protecting your wealth by moving into hard assets, keeping some cash on hand in a liquid form for smoothing out bumps, and shoring up your lifestyle. Anyone can go an see what is happening in Argentina or Venezuela, but to then think, that can't happen here is just dumb. Incidentally, the last great depression created more first generation millionaires than any preceding time in history. So understanding what is happening in the world can also be very beneficial to your family.

Theo - Firstly I do, not say we do not need public sector workers. Clearly we need nurses, teachers, policemen, firefighters etc. but do we need that to be 1 in 5 of us? Secondly, a nurse is required, but has no net contribution to GDP, unless services on the NHS are paid for from an otherwise private source. Just as no-one would a argue that a SAHM is not of great benefit to the rasising of her family, but the family unit is still only run on one income, and if DH gave 20K a year to SAHM for housekeeping, you wouldn't be arguing that there are two salaries in the house and they are both paying into the family finances. A nurse is paid from tax revenue taken from those who work, and the money that is taken from her in taxes is also paid for by the taxation of others. No part of any of her income comes from any form of wealth creation.

I don't argue that that any of these functions are not desirable, noble or needed. I am sure they are. Without them we would have more crime and fewer living babies. But we are talking about contribution to Britains economic growth, just as DHs pay rise in an contribution to our family's economic growth.

elephant I agree with theo's point that a nurse is contributing. A private nurse provides a service (healthcare), which i pay for directly. An NHS nurse provides the same service and I pay for it indirectly.
The problem with the public sector,as Theo hinted at, is inefficiency of supply and inefficiency of funding, not that the workers produce no output.

Carol - But in the first instance, the nurse is getting you to part with money you may otherwise have spent or saved on other things. She is providing a service for money, and paying taxes that would otherwise have done other things.

In the second instance the nurse is not getting any entity to part with money it would otherwise not have spent. The government would always have spend that money on something. Indeed, had the government not spend the money and instead chosen to repay debt, then arguably not paying the nurse at all would have contributed to the wealth of the nation.

The first nurse is a service provider in a free market providing utility and contributing taxes. The secons is a functionary using up public responses and perpetuation public debt by burdening the state with her wage bill.

One adds to the wealth of the nation. One subtracts from it.

Clearly we need nurses, doctors, policemen etc, so the nation must pay in taxation for those functions and people to fulfil them. But while it is true that both our hypothetical nurses provide the same utility, it is not true that they both provide the same economic benefit.

elephant sorry you're spouting bollocks again. Ignoring ineffeciencies, I would pay the same for either nurse. If we did not have the NHS, the government would spend less

Isn't it that a nurse doesn't create anything that can be sold to bring money into the country?

Carol - No. None of us ever pay how much it costs to have NHS medical staff attend to us. Inefficiencies aside, 95% of us will never pay more into the system than we take out of it. That is why the system is failing. That is why it costs more and more every year, and they do less and less with it. The whole flaw in the NHS system is based on the redistribution of wealth principle; that those who produce more in society pay for the health care of those who produce less, or not at all. It is not a revenue generating business, unlike say Bupa.

As you yourself point out. If the NHS nurse did not burden the government with her wage bill, the government would spend less, and there is economic benefit. Whereas, if the private nurse did not get paid, there would be no tax revenue from her labours, and no economic benefit to the nation.

Both are contributing equal time and labour, but with a welfare system, one adds both utility and economic benefit to the country, and the other adds utility at the expense of economic benefit from the country.

Oh ffs. If a nurse is a 'drain on the economy' because the public purse pays you are a fxxxing idiot. What happens if the public purse doesn't pay.. what happens then? The nurse is paid from private funds perhaps.. oh no! a 'drain' on what could be savings or spendings! if healthcare is more needed by poorer people .. if its not free you either lose economic contribution ( argh! a 'drain') from people who can't afford healthcare or you get upward pressure on wages to be able to afford healthcare. If companies had to pay for what their employees get for free they would. . gulp .. have to pay more or suffer lower productivity and/or stagnation. Of course an inexhaustable supply if expendable labour could mean this argument is irrelevant BUT that type of work is the least profitable.. so to get higher performance for nearly zero wages.. You need a safety net.

Sparklecrates - I'm not saying you don't need a nurse or a policeman of a fireman or any of these. They are all needed and provide a service. Nor am I saying that the balance in the system we have is inequitable. My posts are merely an explanation of why the OP does not understand the economics of the country, and pointing out that we deliberately obfuscate what is a very simple system of control, so that those being controlled by the economy neither understand nor care.

So long as you all pay your taxes and believe you have the opportunity to change the system if your fellow man wanted to, and so long as in reality you neither revolt, nor threaten the status quo, everything is rosy for those who make the money and control the system, and they couldn't give a F whether you liked the way your lives were going or not. You work, they get rich. You do as your told.

It's their economy, not our economy, but the fact that you believe it is our economy is why this system is the best so far.