Imagine, if you will, that from our point of view, the government is a business, just like any other business. And just like any other business that we deal with, we pay them a certain amount of money and we receive a certain number and level of services from them.
Some of the services we “receive” are pretty intangible, such as caring for the less-fortunate, or education of other people’s children, but let’s assume that we’re happy that we receive those services and it’s all tickety-boo.
Like any other business, the government needs to employ people or pay for outsourced services. In order to employ those people or outsourced services, it needs money just as any other business does. It can raise this money directly through taxes or by borrowing.
And just like every other business, the government depends on attracting customers or voters by apparently offering the best deal to customers. So who is not going to vote for the guy who claims he can square the circle of taxing us a bit less and offering us a lot more?
But while parliamentarians live in a peculiar make-believe world where soundbites are all that matter, the rest of us all want actual services that need to be paid for with actual money. And when the tax money runs out, the government borrows. They can’t pop down to QuikQuid or Borro, their mechanism for borrowing money all sounds very posh and arcane and solemn, but actually, they’re just asking a couple of bank managers for a hefty loan.
Now, what happens when you borrow money? Well, you splurge it on the nice new car or holiday or raft of “eye-catching initiatives” but then you have to start paying interest on it and paying back the capital.
If you or I fail to do that, it’s called “being in the shit” or possibly “bankruptcy”, but because this is a government debt and they like to make it sound special and pompous and mysterious, it’s called a “default”. For many profligate people, bankruptcy is a short-cut path through the pain of getting back on your feet after you’ve spent the kids’ inheritance.
But default for a country is much more painful, especially if the country is as addicted to state-provided services as the UK is. So, as useless as any British government may be, the one thing they will not allow is a default on their debt. Doing that would mean that they would no longer be able to promise us £1′s worth of sweeties for just 50p and our vote.
So it’s inevitable that instead of providing services (which is really what we want from government) some of our tax money is going to pay off interest and capital on loans. And because the government is still spending money like a drunken sailor in port for the first time in six months, they are borrowing more and more, which means more debt and more interest payment.
Because they have to pay off more and more debt, they are not in a position to do the one thing that they really could do to stimulate the economy: cut taxes. Since they can’t cut taxes, nobody has any money to spend on the things that kick start actual economic growth.
Like anybody else, the government has to pay for its grand designs to “kick start the economy”. “Infrastructure projects” like HS2 still have to be paid for, so by “investing” in them, the government has to cut something else or tax us more.
And since they are extremely unlikely to cut anything material, rather than “stimulating the economy”, these projects will simply move more of our money, raised via taxes, into the hands of a handful of canny PFI operators.
So when you call for government to “kick start the economy”, remember that you are just calling for a future tax hike as the government funds some grandiose white elephant that is not what we want or need.
Thaddeus J Wilson
Photo by DannyMcL