Taking Care Of The Pennies

There is a lot of clatter about percentages, cuts, reductions in service and a great deal of muddled thinking. If the government is trying to be clever it is a bad idea. Restraining spending, or even cutting, is always wildly unpopular. The luvvies will be out in droves tearing their hair, rending their clothes and covering themselves with organic ashes.

If you want to take a percentage out of a budget, to paraphrase Carl von Clausewitz, first you need to make up your mind what sort of fight you want on your hands. There is no sign of this in the government’s approach to date which is a worry for many reasons. Allowing for this, there is the blinding obvious.

If overall you are hoping for 10% then you might make noises about 25%, ask for what can go at higher levels and see then what can be done. What you do need to be very clear about is that if you want to reduce by 10% or more overall and at the same time maintain or even increase some levels of spending then something has to go at much higher levels of percentage reduction.

Moreover if those parts of the budget you want to keep up are larger in proportion that others then the weight of reductions in the others will be much greater. In short to cut overall by 10%, if you only have one third or so of the budget in which to find it then the reductions there will have to be a lot more than 10% and in some areas more than 40%.

Where the government will be at a loss is in trying to work out what was going on where and what exactly has been happening. Given the chaotic operation of the last government, the obfuscation (lies to you and me), faking of figures and accounting that would put to shame Madoff and Enron, it may be that the only safe way is to wield all those axes currently on display in cartoons in the dead tree press.

The increasing urgency of the situation, the stresses building up in the world economy and the increasing number of trouble spots that could trigger real problems for all the vulnerable economies such as the UK means that the government have little time in which to do a lot of work and make many decisions. They cannot afford to be too precious about the detail.

During the French Revolution the authorities were notoriously indiscriminate about who was sent to the Guillotine and why. It is claimed that amongst the possible devices that the Guillotine was derived from was The Halifax Gibbet invented as an efficient and humane execution device. This made it easier on the conscience to justify all those suffered the chop after a limited investigation.

Eric Pickles came to political prominence in Bradford, a little way along the road from Halifax. Cometh the hour, cometh the man?

The Budget - The Real Problem

In all the fuss about the Budget there was something that was not mentioned and given zero attention by the media. It is the extent to which a nation state like the UK is able to control its own financial economy. The answer to that is not much and the risk is that the nation states may start to disappear from the map. See the item below from Tax Justice Network:
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What does not get measured does not get remedied

Over 30 years ago the British and American governments launched a massive experiment in opening up financial markets by abolishing exchange controls and de-regulating banking and related financial services. This experiment proceeded in full knowledge that financial markets are riddled with fiscal distortions and shaded in secrecy. Following Gresham's Law, the experiment has led to a vast increase in illicit financial flows and related economic crime. Developing countries have been the principal victims of this process as huge amounts of capital have flowed northwards into the major global financial centres in Europe and North America. Secrecy jurisdictions have played a central role as conduits for these flows; and they have thrived accordingly (80 percent of the top twenty states and sub-states ranked by the CIA by gross domestic product per head of population are classified by TJN as secrecy jurisdictions).For obvious reasons the scale of cross-border illicit flows is unknown and can only be estimated using a variety of available tools, some of which you can read about - in summary form - in a just-released briefing paper by the renowned anti-corruption centre at the Chr. Michelsen Institute in Norway.TJN and our allies have argued for many years that the scale of illicit financial flows and economic crime conducted via offshore secrecy jurisdictions has reached proportions that impact on macroeconomic stability while also undermining law and order, democracy and the welfare of the vast majority of people.

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It is almost as if we are trying to live on two parallel planets and the old one is fading out.

The Budget - There Are No Right Decisions

One of the vanities of the human species is that because of the complexity of its brain it has come to believe that it knows what it is doing and can therefore arrive at decisions leading to actions that consequently are said to be right. The course of human history ought to remind us that this is not something we are very good at as we have lurched from one disaster to another of our own making.

We then often rationalise this away by coming up with notions such as creative destruction or blaming other peoples or other causes. Sometimes the other causes may be correct such as geophysical events over which we have no control. Even then when we insist on building major cities and creating large communities in volatile earthquake zones or next to volcanoes or at or below sea level, in the past we have put it down to whatever passing deity happens to be around at the time.

The present budgetary crisis in the UK is one part of a much wider and deeper human crisis. The scale and complications inherent in this are well beyond the understanding of almost anyone. So few people actually know very much and for those who are obliged to make decisions about this or that the chances of coming to any answer that is “right” are not simply limited but highly unlikely.

The best that can be expected is that in looking at the various options somehow many of the decisions will prove to be the least worst. The difficulty is that we cannot know which they will be and often why they might be the best available.

The outgoing government in terms of its arrogance and dogmatism may well have been the most vain in British history so the budget will literally be a bonfire of the vanities. Because its belief in the certainty of its knowledge and in its own spin doctoring it went on to make huge spending commitments on the basis of figures it had thought up in its own fevered imaginations. Assumptions became doctrines and guesses plans for action with the money found by unlimited credit creation.

So what does the present government “know”? The chaos arising from the constant reorganising and reconfiguring of policies in the recent past makes almost any of the internal information available wholly fictional. The manipulation of basic statistics makes them less reliable than reading the entrails of a sheep and all the target setting and management structures have created a maze where there is no way to the exit once you are in. The mess is beyond belief and it only belief we have.

Out there the major financial organisations do not know how much toxic debt there is or where it is or what effect it will have. They do not really know much about their own accounts continually having nasty surprises. They cannot know what happens next. They have lost control and just follow events.

In terms of tax payments the amount of obfuscation and deceit means they now rarely know where their own money is or for that matter how much of it exists. Yet we have had a government and The City preaching to us that all we have to do to have a wonderful life is to put our trust and incidentally all our money in their sticky hands.

We do not know what the oil producers will do in the coming decade, neither do they. We cannot know what some of the big boys in world politics might or might not do. In the EU the Europeans not only do not know what they are doing they cannot agree what it is they ought to know or why they need to know it. So they just cobble together some financial arrangements and place their trust in fate. God is on sabbatical these days in Europe so this could mean anything.

This is my guide to understanding the budget. There are no right decisions so just cross your fingers and leave sixpence for the tooth fairy.