George Osborne’s bumper Christmas Compendium

I wasn’t sure how to structure this. I’d a vague idea about explaining the significance of the tax-credit U-turn by George Osborne and the jibes about Mao’s Little Red Book, a joke that backfired and made the Shadow Chancellor seem the more foolish. I also thought about telling you about my visit to the dentist. We are an ageing nation of shrinking gums. So I guess I’ll start there.

I’m good on nostalgia. The dentist I go to is the same dentist I went to forty odd years ago. We used to scale the wall in the same way we got our teeth scaled and steal the needles from the dustbin. They smelled of different planets and we’d lunge at each other, wild with excitement. Boredom set in quicker than rain. We’d fling them away. Back then the dentist prodded and poked at your teeth with a hooked pick until he found a hole to fill, a tooth to take out, usually, both. It’s the same rooms, upstairs or along the extended hall, with faded white paint, but it’s a practice now, a business, the hook comes out before you’re allowed to see the leading practitioner, or business man, or woman.  Receptionists want to know who is going to pay for treatment. There’s different kinds of forms for different kinds of patients. You can get your teeth whitened for £250. An older woman, a pensioner, was told she had the wrong kind of mouth for a plate, and the practice couldn’t be expected to carry the cost.

As surely as my tongue runs over a newly-fitted filing this is the future of the NHS. People will be turning up with the wrong kind of body.  An estimated £20 billion is needed to keep our NHS treating patients until 2020. Osborne has fronted some of the money, which is a politically astute move, as it stops some NHS trusts threatening to shut at Christmas. Bah Humbug! But it’s never enough, because too many old people are living to long. Let’s call them bed blockers.

Where do all these bed blockers go when they come out of hospital? Most bed blockers become the responsibility of local authorities.  Local authorities have had between fifty and seventy five percent of their budgets cut over the last five years. The Monty Pythonesque leaked letter exchange between out glorious leader David Cameron (with less that twenty-five percent of the electorate voting for him, the ‘great ignored’ as Cameron termed them before the 2010 election, leaves me thinking what we’d call the other 75%) and The Conservative Prime Minister writes to a Conservative council leader Ian Huspeth in Oxford and asks him why he’d made such dreadful cuts to ‘front-line services’ such as care of the elderly. Couldn’t the councillor made savings by sacking people that weren’t needed and not hired people that were needed, and sold off some surplus land or council properties. But says Councillor Huspeth I’ve already cut off our arms and legs, fell on my sword, sacked 2 800 staff, sold off all our ‘surplus property’ to try and make up our £72 million deficit because we get 37% less from central government than we got last year. And this is one of the more affluent front-line areas.

Service cuts are uneven. Even the Conservative-controlled Local Government Association talks of a postcode lottery. Councils in poorer areas can no longer afford home care service for the elderly. Social care is in an inverse relationship to health care.

The Office for Budget Responsibility suggests that the Osborne has to find £22 billion of cuts from 15 departments with a total budget of £77 billion. Here’s the rub. Their budgets have already been cumulatively cut by 30% since 2010, spread unevenly with local authorities’ grants in particular hardest hit and with backtracking on tax credits and policing all signs point towards being cut even more.

This is politics at its basest level. It’s personal and it’s ideological. Beveridge described the five giants on the road to reconstruction. They were poverty, disease, ignorance, squalor and idleness. All are related and feed into the roots system of the other. Whatever way you measure them they are all on the increase. The idea of welfare has been a stick used to beat us.

I’m with William Keegan on this one: ‘Personally, I always preferred the older term ‘social security,’ which gives a better indication of what the social settlement during those early post-war years of austerity was all about.’

The terrorist attack in Paris dominates the headlines, as it should, when we really are all in it together. Kenan Malik idea of social and political hegemonic influence gets it about right: ‘Evil…is not simply about defining an act of being particularly wicked, it also about defining the space within which we can have a meaningful debate about good and bad, virtue and wickedness’.

France spends around 54% of its GDP on public services. The United Kingdom currently around 38%, spends less that all other G7 countries with the exception of the United States. Trying to balance the books is a good story and achieve a surplus like China is an even better story. It fits in with the Dickensian notion expounded by Mr Micawber’s famous, and oft-quoted, recipe for happiness:

“Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

There is an element of truth in this, but only if Mr Micawber didn’t have his own printing press in his basement and wasn’t allowed to print money quicker than the Japanese. Added kudos, if like the most successful company in the world in terms of share value, Apple, they could choose to fund their growth by borrowing at in interest rate of almost 0%. Indeed buying and selling money is what the United Kingdom does best. Before the Crash of 2008 it accounted for almost a quarter of all UK tax receipts. It allowed Chancellor of the Exchequer, Gordon Brown, to build hospital and schools and invest in the infrastructure of the country, which was seen as the common good. This has been turned on its head.

We are not fighting a war against Isis, not yet anyway. Government debt has rarely been lower over the last 300 years, but with every bomb we drop over Syria (if or indeed when Cameron is given his mandate) can we expect to think there goes another public library in Islington. There goes a Sure start Programme in Drumchapel. There goes another mental health unit in Belfast. There goes free school meals. Some wars are more pointless than others. We have been lied to for too long. Shakespeare gets it about right with Shylock’s promise that he will outdo the evil that was done to him.

The quality of mercy is not strained.
It droppeth as the gentle rain from heaven.

William Keegan suggests in the aftermath of financial crisis and fiscal policies pursued since the summer of 2010. ‘If the historical pattern of growth had been allowed to continue, output in the UK would have been up to 20 per cent higher in 2013-14 than proved to be the case.

Martin Wolf of the Financial Times in the 2013 Wincott Lecture: Monetary Policy clearly and decisively failed to promote recovery. Animal spirits were completely destroyed. Demand fell. It was a machine designed to fail.’

Joe Stiglitz notes the same pattern over the other side of the Atlantic. Subsidies for the rich, mass poverty for the poor.  A race to the bottom. The Big Mac Index, for example, is an economists attempt to measure the relative expenses of living in different countries. Stiglitz describes working for McDonalds as the income of last resort, with more than a thousand applicants for every job. Martin Ford describes how a worker for McDonalds in October 2013 called his employer’s financial-help hotline, asking for help, and was advised to apply for Food Stamps and Medicaid. Yet, the fast food industry continues to grow, at around £6.9 billion in the UK in 2012.

We don’t –as yet- pay directly for our healthcare. But Nicholas Timmins, The Five Giants: A Biography of the Welfare State, noted the paradox of we used to send experts to the United States to advise them how to run health care, but now that has been reversed. Advisers come from the States, with the most profligate health service in the world (see Pickwick) and advise us. It’s no great surprise that Jeremy Hunt, our Health Secretary, doesn’t believe in the NHS. He’s rich and will never need it. Neither will any of his colleagues or friends. Only poor people will (short-hand for scroungers).

A programme was recently shown on BBC 2. Unlike those Jeremy Kyle-type programmes on Channels 4 and 5, and the Hollywood movie Friends With Benefits, it was meant to show the diversity of Scotland and it’s working population. For example, bespoke food from land and sea for the tables of the rich in London. Compare this with the idea of bespoke care for the poor. The elderly poor. It would cost too much. The idea is ridiculous. The difference between a fish farm and a granny farm is one of them is under water. Southern Cross and other ‘caring’ companies threaten bankruptcy unless local authorities give them more money.

Assets such as the buildings in which old folk have been corralled have been separated on the balance sheet from the cost of caring (price) of caring for residents. The problem of liquidity fits into a larger narrative of Freidrich Hayek, the title whose book The Road to Serfdom could be rewritten and neatly quipped as the slippery slope towards totalitarianism any government intervention entails.  Milton Friedman and the problem of demand is one of supply. If money is cheap enough demand for it will grow and problems such as unemployment will disappear, but only if the government doesn’t interfere. Chile’s Pinochet was an admirer. After the fall of the Berlin Wall advisers from the Chicago School helped to create a new Russia from the old Soviet Union modelled on Friedman’s principles.

The new kids of the block of the early eighties Margaret Thatcher and Ronald Reagan had won the Cold War and already set out their stall to roll back the state. Simple equation government = bad (totalitarianism). Free market = good (liberalism). The hidden hand, I want for Christmas, had never had it so good.

Why fling good money after bad on a defective product?

But it doesn’t begin and end there. We’re all familiar with the idea of bureaucracy = power. And bureaucracies become bloated and create their own reason for being. Think local government. Think any government. Companies listed on the stock exchange. They are not off the raider. They too are bureaucracies

Predatory lending. Is there any other kind? What does non-predatory lending look like? It looks like James Stewart, a man you could trust. You may remember James Stewart playing someone that was not James Stewart, George Bailey, who looked confusingly, for us old timers, very much like a young Henry Fonda, in a feel-good film, shown every Christmas about the value of non-predatory lending. It wasn’t called The Value of Non-Predatory Lending, but the more striking It’s A Wonderful Life.

It’s a simple equation: Non-predatory lending = It’s A Wonderful Life. ‘Every time a bell rings an angel gets its wings’. Clarence Oddbody, that’s a good name for an angel. The run on Bailey Building and Loan would be something familiar to those over thirty watching this film on telly every Christmas, those living in small-town America of the hungry thirties, or the citizens of modern-day Greece. ‘I’ll stroll, you fly,’ was George’s advice to Clarence, but Oddbody’s however quick he or they travel can’t save Bedford Falls. George appeals to reason, those paying in and having a stake in the Building and Loan were bankrupting themselves. They weren’t just borrowers but lenders. That Tom’s money was tied up in Ed’s house and Ed’s money tied up in Mrs Davis house and when they hadn’t worked for a while George didn’t chase them for repayment. He knew they’d come good. George was just asking for the same consideration for the Building and Loan. He wasn’t asking how much they wanted, but how much they needed to get by. They were shaking the same tree.

George, of course, has hard cash to back up his rhetoric, a thousand dollar bills set aside. He runs a thrift and he’s thrifty. ‘How much do you need Tom?’ George asks the first customer, pushing to the front of the line. ‘$242,’ Tom demands, ‘and that’ll close my account’.

‘Have you no romance in you?’ asks George. The thousand dollars is, of course, money he’s set aside to travel with and for his honeymoon.

‘Yes, I had some, but I soon got rid of it,’ answer Tom.

Tom has made a rational choice and not a romantic choice. Ed, next in line asks for $20. Mrs Davis asks if it’s ok if she gets $17.50. George kisses her on the cheek. State regulations means that the doors of the Building and Loan need to stay open until 6pm. George and Uncle Billy kick out and have a party as they carry two crumpled dollar bills and deposit them in the vault. They have made it through the day without Old Man Potter closing them down.

Henry F Potter is a twisted crocodile. In the opening scenes he rides in a carriage and one kid asks another ‘who’s that? Is he a king?’ He is of course. But a king without subjects. Peter Bailey (senior), at the dinner table, explains to his son George why they should feel sorry for Old Man Potter. Henry F Potter has no future. He is unmarried. No children. ‘What’s he going to do with all that money?’ The message is he’ll get his comeuppance.  Later in the film, when Clarence grants George’s wish not to be born Bedford Falls becomes Pottersville. There’s bars on every corner, where people go to get seriously drunk and half-dressed girls spilling out of every club. Full employment and housing to rent. Pottersville sounds like my kind of town.

Old Man Potter is sick and he wants to infect George and the town with his values. He’s tried everything and now he tries buying George. He offers him a salary of $20 000 a year to manage his affairs. George admits the offer is tempting. Cost-benefit analysis. Money’s tight. He’s got four kids now. Around $40 a month.  An old barn of a house.  Old Man Potter offers George a thick Cuban cigar, time to think about it, reminds him that’s starting salary and if he plays along he could make more. The answers, ‘No’. The answers always no. ‘You spin your little webs,’ George tells Potter.

The problem that Bailey Building and Loan faced was they had the wrong kind of money tied up in buildings and loans. Think of poor Southern Cross and other care companies with properties full of poor people, which they could monetise and sell separately from their services. They had no way of knowing who was going to pay, when they were going to pay and if the Bailey Building and Loan would be there for them to pay into. Modern economists make short shrift of that thrift. Thrift is shorthand for the thousands of Savings and Loan companies spread out throughout the United States and loosely bound by US government support for home ownership,  the biggest franchises being Government National Mortgage Association (Ginnie Mae) owned and run by the US government; the Federal National Mortgage Association (Fannie Mae), around 1 in 10 US mortgages at a very conservative estimate of $100 million mortgages on its books and is backed by the US government; Federal Home Loan Mortgage Corporations (Freddie Mac) was a corporation created by Savings and Loan companies were backed indirectly by the US government. These organisation had like the Bailey Building and Loan, which George bailed out with a handy $1000, a problem of liquidity.

Everything is a problem of liquidity if you look at it properly. Let’s get back to George Osborne’s speech to the Conservative Party conference, October 2013, and his claim to have a seven-year plan to achieve an absolute budget surplus before 2020.

How to define it as a problem of ‘idleness’.

Here it is wrapped in the Stars and Stripes with mum’s apple pie: ‘We had the oldest secret in the world, “hard work”’. This from a man endorsed by fellow Texans George W Bush, his father George H W Bush and further afield Bill Clinton. These Presidents of the United States whom Lance Armstrong on speed-dial helped quash an FBI investigation into the activities of the seven times Tour de France winner. Let’s put a figure on Lance Armstrong, career earnings of somewhere between $70 and $100 million. That sounds a lot to me and you (who can forget Margaret Thatcher going to the European Union and crowing that she’d saved Britain a million pounds a year) but Armstrong’s career earnings were the kind of loose change ‘geek’ bond traders such as Michael Lewis of Salomon Brothers could lose without burning anybody important. Perhaps I should put in here that David Cameron was a stockbroker as was his father before him… Lewis tells us that Salomon Brothers the directors boasted that they had the equivalent of $80 billion worth of securities in portfolios every night. Multiply that by 365 and you’ll get an estimate of their annual income. Bigger than the combined profits of all other Wall Street operations. Bigger than the Netherlands GDP. Salomon Brothers, of course, later went to the wall. Financial institutions are the auteurs rewriting the economic script of what is meant be profit and loss, success and failure as they went along. In the years 1977-1986 when Salomon Brothers had almost a monopoly on new bonds they had helped create in regard to housing the trading floor jumped from millions to billions to $2.7 trillion, with ‘mortgages so cheap your teeth hurt’. That was the ‘gospel’ of the rich. What Lance Armstrong was selling was a message rich people wanted others to hear. Compare Armstrong’s message with, for example, the message Aaron Schwartz was selling, and the outcome of the subsequent FBI Investigation into Schwartz’s activities.

Mao’s Little Red Book? Simple. A problem of liquidity. We’ve been giving rich folk billions of pounds every day to help poor folk. We can’t keep doing that (see Pickwick).  We’ve being building nuclear reactors since the end of the 1950s, but we’ve asked the Chinese Government to send experts to build one at Hinkley Point. This creates in the region of 25 000 jobs. With or without the Chinese, or any other nationality this creates around the same number of jobs. Crucially, though, the Chinese have agreed to finance it. In the short-term they transfer a few digits from their machine’s finance model, we add it to ours. We agree to the costs of any mishaps and the hundreds of thousands of years it takes to get rid of spent fuel rods. We subsidise the Chinese economy by moving money from the poor in this country to the rich in the Chinese economy. I suppose it makes a little change from subsidising the rich in this country. Win-win. Apart from the far more worrying Balance of Trade deficit. But that’s another story. I’m sure when that nice Mr Osborne will deal with it when he’s Prime Minster in five years’ time. Merry Christmas, Boris Johnson. Now there’s an angel for you. He doesn’t look like Clarence Oddbody for nothing. He winging it for now, but we’ll see how he turns out.

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