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When The Cutting Begins.
As the coalition settle into their new jobs and get down to business as usual the words of former chief treasury secretary Liam Byrne, 'There is no money left' reverbrate how will the new team set about reducing the deficit and mountian of debt, creating jobs and sorting out the financial mess left by Labour?

New Economy: When The Cutting Starts
by John De Roe.
2010-05-19
CREATIVE COMMONS: Attribute, non commercial, no derivs.
KEYWORDS: economy, economics, government, debt, jobs, borrowing, spending, deficit, recession, recovery, industry,

19 May 2010

by John De Roe

The election party has wound down, the last revellers have staggered off into the cold light of dawn and the hangovers are beginning. While Nick Clegg speaks optimistically of the dawn of a new political era and the biggest shakeup in Britain's democratic process since the Great Reform Act of 1832 the Conservative and Liberal Democrat ministers moving into jobs in the Treasury are holding ice packs to their heads and reaching for the Alka - Seltzer.

Chancellor George Osborne has already launched an audit of the departed Labour government's spending commitments to try to rescue more that the already identified £12billion "efficiency savings" from the hungry maw of out monstrous deficit. It will be a difficult task to reduce spending in non essential areas sufficiently to make a hole in the £163billion (and growing) annual deficit without starting to cut the kind of high profile and electorally sensitive areas of health, education, policing, pensions and care. In normal circumstances to attack such a deficit would be a daunting task but the British economy having been under attack for three decades by governments determined to undermine the nations great providers of real jobs, industry and agriculture, really has no solid base on which to build a recovery.

Labour's answers were typical of the folly of socialism. In the final years they borrowed money by issuing bonds to fund public sector jobs keep young people and many older ones in full time education and thus off the unemployment statistics and while publicly making noises about getting many people off disability benefits and back into work really created a labyrinthine benefit system that made it virtually impossible for the disabled to make that leap from dependency on the state into employment, earning at least a portion of their income.

But what benefit is there to public finances if the people being pushed into work are being paid from public funds?

The Conservatives too must shoulder their share of the blame. The years of Margaret Thatcher's Premiership saw a wholesale destruction of the industrial base particularly in the traditional heavy industries that drove local economies in the industrial areas of the North West, North East, Yorkshire, The Midlands, South Wales and Central Scotland. Much as the South Eastern bourgeoisie hate to admit it, until the 1980s it was those areas that supported the British economy, the millions of mid income range skilled jobs in factories, mills, mines and workshops gave The Treasury a much bigger and more reliable source of income than the money jugglers of the financial sector would ever provide.

That part of the economy was sacrificed however to Mrs Thatcher's desire to wage war on a few powerful trade unions, the Miners, Engineers, Printers and Transport Union.

The problem leaders of our "new politics" now face is how do we get people back into real work, work that is funded from profits rather than tax revenues raised by the government. Labour pumped money into the economy but it only went to those companies that contracted to provide public services at vastly inflated prices. There was no industry to pump money into. Traditionally an upturn in the construction industry signalled the start of a recovery. Many years of using inflated house prices to underwrite personal debt which funded consumer spending thus masking a decline in earning in real terms has left us with an overpriced housing stock. First time buyers, the young employed, are priced out of the housing market and so construction is depressed. Small tinkering with property taxes aimed at boosting house sales are insufficient to make a significant difference.

Naturally the banking and finance sector scream for a return to the status quo, yet more of the wild, irresponsible speculation that led to the crash of 2008 in the first place. But how would the banks, unable to unravel the tangled web of dodgy trading and work out who owes what to whom, ever finance another round of speculation? By borrowing from governments of course. And how would governments raise the money to lend to the banks. By borrowing it.

That road can only lead to an inflationary spiral with commodity prices for essentials going through the roof. Therefore it is inevitable that our ntion's creditors will eventually impose on whatever government is in power the kind of public secor cuts now being imposed on Greece, Spain, Portugal and other economic basket cases around the world. Britain has survived economically for twenty five years by selling off the family silver. Now there is none left to sell the real tragedy only become apparent when we think back on how rich this island nation must have been.

The hangover from the years of madness is a real bitch. It is going to take more than a couple of Alka - Seltzers to cure it.

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