It’s the Economy – Stupid

Thursday 28th June

The news that the deficit, rather than decreasing is actually increasing should come as no surprise.  As in any business, there are two sides to the coin, Income and Expenditure.  Oh, if only Mr. McCawber were still here to remind us what misery is ‘Income, nineteen and six, expenditure one pound’ for those that need reminding.  And George Osborne in 2010 set about correcting this anomaly with vigour, so how could it all have gone wrong.  Expenditure, despite the cuts is still rising.  Why is that?  Because if you sack a public sector worker, you do save their wages, but out of those wages they were paying income tax, and they were shopping and paying VAT on household goods etc:, plus of course their purchasing power was keeping others in jobs too.  Now they are on the dole, receiving housing and maybe other benefits, no longer paying any taxes, no longer having excess money to buy things in the shops, less VAT being paid and less jobs for people making those goods.  Maybe it was cheaper to employ them in the first place.  And actually they were doing something worthwhile, which now either isn’t being done, or has been outsourced, so there is not such a great saving to the public purse.  The other half of the economy is Income, and this, made up of tax receipts, has been falling, or rising at a much lower rate than the expenditure is rising.  Classic Keynes, if you are interested.  The problem was that the Bullingdon Boys thought they knew better, and that the private sector would step in and rescue them, but the private sector is busy getting rid of people as fast as it can, because in a recession they too have lower Income and want to reduce their Expenditure too.  So, a sorry cycle has started, which if we look at Spain and Greece will only get worse with more austerity.  At some point the electorate will wake up and smell the rot, or maybe not, maybe it will get much worse, and the Tories in ten years time will still be blaming Labour.  We’ll see.