I Discuss the Recent Election

Since I have been blogging about an English football club for over nine months, I believe that I am now eminently qualified to blog about United Kingdom politics.  Normally, I would not bother but in the aftermath of this election which demonstrates that English stupidity can rival American stupidity, I thought I would express a few brief thoughts.

Many, if not most, citizens of the United States of America operate with a default assumption of American exceptionalism.  While this philosophy is not completely nonsensical given, for example, the United States’ participation in the two world wars or, for that matter, the cold war, it is generally taken to extremes because it is assumed by many Americans that USA=No. 1 in virtually every area, except of course soccer which doesn’t really matter.  (Even there, of course, our women can fairly be classified as the best team in the world—at least some of the time.)

On the other hand, some of us take a different view and apply the concept of American exceptionalism to American stupidity.  For example, 42% of Americans do not believe in evolution and an additional 31% believe that evolution was guided by god.  (See here.)  Under any reasonable view of scientific knowledge, this demonstrates remarkable stupidity.

A majority of American do believe that global warming or climate change is occurring but less than half believe it is a major threat to the United States. (See here.)  Since the scientific evidence for climate change is overwhelming, the fact that 39% of Americans (and 63% of Republicans) do not believe in climate change is just further evidence of exceptional stupidity.  (And do not get me started about the American belief that everyone should have the right to own as many guns as they want because “Freedom”.)  On these issues, the people of the UK are far more rational and intelligent which, gave me a false hope that that their intelligence would extend to economics and politics.  Of course, it did not.

That brings me to the results of the recent elections.  As best I can discern, as an interested outsider, the Conservative position was that they came into power following an economic disaster created by Labour’s overspending and rescued the country with their difficult, but necessary, austerity program.  Both halves of that claim are complete and total nonsense.

 If you go back and look at the statistics there was no crisis of confidence in the financial strength of the United Kingdom’s Government at the time of the 2010 elections.  (See here.)  Certainly, the UK, like everyone else, was suffering though the aftermath of a tremendous economic crash caused by a housing bubble and rampant and irresponsible speculation by rich investors.  (Consider reading some of Michael Lewis' books to get a better understanding of some of the causes of the crash.)   No doubt Labour bears some responsibility for the economic crisis and was going to be held accountable, just as the Republicans in the United States were held accountable.  The difference is that in the United States, we replaced Republicans with Democrats who were less likely to make the same mistakes all over again and were more likely to adopt appropriate corrective measures.  You replaced Labour with Conservatives who were more likely to make the same kinds of mistakes and strive to make new mistakes that would make things worse.

Although my college degree was in economics, I do not purport to be an economics expert by the standards of professional economists.  On the other hand, I will claim to be an economic expert by the standards of politicians.  Nevertheless, rather than go into great detail as to why the austerity program was a disaster and the arguments made for it were both flawed and dishonest, I simply refer you to a recent article from the Guardian by Paul Krugman, the Nobel prize winning economist.  (See here.)  My take away from that article, the election results, and other readings is that the conservatives managed to brilliantly win the P.R. battle to convince everyone not just that austerity was a good idea, but that it worked.  As Krugman’s article demonstrates, neither was true.

A simple thought experiment will illustrate my point.  Instead of focusing on money, let us think about the economy underlying the ebbs and flows of money.  When things are working right, everyone in the country who wants to work or needs to work has a job doing something useful and, in exchange, is able to obtain the goods and services they need to provide for themselves and their families.  Imagine that a country is cruising along when suddenly a crisis happens and millions of people are out of work.  These people are no longer producing anything useful.  Perhaps some of them go back to school and increase their skills for the future but generally they become a drag on the economy because they are still consuming food, water, energy, and uncountable other resources while producing nothing.  In order to get the economy back on track, these people need to be put back to work.

Under such circumstances, the government has three options:  it can do nothing, it can hire people, or it can fire people.  Unfortunately, the UK government chose to fire people.  Given that the real wealth of a country consists of the abilities of its people to produce goods and provide services to each other, the goods that they have produced in the past, and their ability to train people to produce goods and services in the future, this was a bad decision.

On the other hand, if the government had decided to put more people to work, so long as they were not actively working to the detriment to society, the overall wealth of the nation would have grown, not shrunk.  I am certainly not very knowledgeable about exactly what needed to be produced in the UK.  In the United States, however, we have tens of thousands of miles of roads that could use repair and thousands of bridges that cannot be certified as structurally sound.  Since many of the people out of work were in the construction industry, it would have been very easy for the government to put them to work fixing these problems.  Alas, we only did a tiny fraction of what could and should have been done before austerity talk took over the political discussion.

Bringing this back to a world with money, in this type of economic crisis, a government that spends money to put people to work doing something useful in the face of a major recession, is increasing the economic welfare of the county when compared to a government that does nothing and especially when compared to a government that puts people out of work.  Moreover, the failure to put people back to work promptly is not a minor error that time corrects.  It is a permanent and irretrievable economic loss to the nation.  If someone is unemployed for a year whatever they could have produced in that year is forever lost.  They cannot do two years' worth of work in the next year to make up for the one year they did not work.  Everything that could have been produced by the unemployed people during the recession will never be produced.  The future economy will be smaller for its loss.

The natural response to my argument is to point out that these actions would have a mistake because they would have expanded the already massive government debt.  This sounds reasonable but, when analyzed properly, it is nonsense.

If an individual family suffers a sudden drop in income because the primary wage earner becomes unemployed, it makes perfect sense for that family to cut back on its spending.  The same rule does not apply to a country as a whole because a country is not a family.  In a country, the money people spend is equal to the money people earn.  If some people stop spending, other people stop earning.  Those people will be forced to reduce their spending, making the problem worse.  This is the Paradox of Thrift.  (See here  and here.)  In fact, the implications of the paradox of thrift are such that it is of critical importance that a government spend more in the face of a serious recession because its citizens and businesses will be forced to cut their spending.  Only the government has the resources and ability to spend more under such circumstances.

 

By foolishly putting Conservatives back in power, the UK has rehired a government dedicated to doing the wrong thing.  The Conservatives want to continue reducing spending even though your country has not returned to full employment and faces no real debt problem.  There is plenty of time to cut government spending when people are working and the people who are suffering because they cannot find work do not need as much help as they do now.  Cutting spending now will only put off the day of full recovery.

 Please do not misunderstand me.  I am not claiming that the USA is better than the UK.  Your health care system is far better and more rational than ours.  Income inequality in your country, while bad, it is nowhere near as bad as in mine and, of course, your social safety net provides far more social safety.  Certainly, your Conservative party is nowhere near as nut case crazy as the majority of the Republicans in our country.  Finally, of course, I recognize that the Conservative party’s lying P.R. victory about austerity was so successful that even the Labour Party was campaigning on an austerity program of its own and probably would not have been courageous or smart enough to do the necessary spending.  For this reason, I find some small cause for optimism in the success of the Scottish National Party which, as Nicola Sturgeon noted, represented an overwhelming vote against austerity by the Scots.  Who would have thought Scotland would be the only part of the United Kingdom to come out strongly against spending less money? 

 I hope everyone will excuse me for writing about politics on a football blog.  I promise not to do it very often.  Once every nine months sounds about right.