Saturday, 1 July 2017

A March That Was Utterly Devoid Of Logic, Arithmetic & Fiscally Responsible Citizens

Thousands of people marched in an anti-Tory, anti-austerity rally in London today - during which Jeremy Corbyn declared "This is the movement that will win the next election". He's probably right about that. The way this cult of personality is gathering momentum against a mediocre Conservative government with a leader utterly devoid of charisma, Labour is very likely to win the next election.

However, the premise on which today's march, and the movement in general, is based is faulty and illogical. In actual fact, on the austerity issues up for discussion here, the demonstrators have got their reasoning exactly backwards on both issues. They are advocating the very thing they should be opposing, and opposing the very thing they should be advocating.

I'll explain. Suppose that in the past few years your monthly spending has exceeded your monthly wages. Worried about the household budget, your partner suggests three ways in which you could be more fiscally responsible.

A} Cut down on your spending

B} Increase your earnings (either through more hours or higher wages)

C} Go to the cashpoint more often to ensure you’re never short of money

I’m sure no one needs telling why A and B are viable options, and why C is a ridiculous suggestion. But just in case there’s any doubt, the reason option C is ridiculous is that drawing out more of your finite supply of money is not going to help your fiscal irresponsibility if your spending already exceeds your earnings - it will, in fact, compound your irresponsibility.

Now replace you and your household bank account with the government and the treasury's collection of taxes, and suppose that in the past few years your government’s spending has exceeded its income and been irresponsibly spent. What could the government do?

A} Cut down on spending

B} Increase our taxes

Option A is a viable option. Spending less money means working hard to find government waste or government non-necessities and cutting back on all the profligate expenditure it can. But this is the very thing that Corbyn, McDonnell and the thousands marching today were arguing against. In times when fiscal irresponsibility has been levelled at the government, the demonstrators want more government spending, not less - the very opposite of the fiscal responsibility most people want to achieve. 

But what about option B? Option B is not a viable option, because increasing our taxes is not like earning more money. It is more like option C in the first scenario – it is like being in a state of fiscal irresponsibility yet going to the cashpoint more often to ensure you’re never short of money.
The government’s money comes primarily from taxpayers – and they choose how they tax us. But there is a caveat that the left seem to be missing - the taxpayers are like the government’s cashpoint; whatever you take out this month leaves less for next month, and so on. Unlike in scenario 1 when cutting down on your spending or increasing your earnings is like adding to your monthly income, government's increased taxation is not like adding to their monthly income, it is like paying a visit to the cashpoint.

Yet despite this, option B is the one Corbyn, McDonnell and their cult followers are arguing for. They have their reasoning completely backwards in both cases - they should be advocating A and opposing B, not the other way round. Instead they are arguing that cutting spending (profligacy?) is detrimental and that an extra few billion pounds in tax hikes can change government spending from fiscally irresponsible to fiscally responsible.

That's as silly as saying that buying a £300 packet of toilet rolls can be fiscally responsible as long as you go to the cashpoint and draw out the money there. Taxing more does not make a government fiscally responsible - the only thing that makes a government fiscally responsible is spending less, by cutting out all the waste and non-necessities from its expenditure (don't forget, government spending is at a record high).

I hope now you can see that the enumeration is crystal clear. You as a worker can increase your income by working more or spending less, amounting to lower depletion of your assets. The government also cannot increase its taxation without a lower depletion of its assets.
Whatever they don’t tax is either spent or it is saved privately by the people that earned the money. If it is spent (freely) then there is a net economic gain because both buyer and seller partake in a mutually beneficial transaction. And if it is saved then it is available for banks to use (savings are basically us lending banks our money for a small return of interest), and it is still available for taxation when it exchanges hands next time. Similarly, if you don’t spend that £300 on those toilet rolls, then the money either stays in your bank gaining you interest, and being available for banks to invest, or it is spent on one of those mutually beneficial transactions to which I just alluded.

Unless the demonstrators get the basics right, they will be running full pelt down a dark tunnel with a brick wall at the end, into which they will smack their silly heads. Instead of congesting parliament square and making lots of waffling reverberations, they'd be better off reasoning things through properly, and then putting pressure on the government to cut much of its waste and inefficient spending. The trouble is, a lot of that waste and inefficient spending comes in the shape of things the left historically supports - so don't hold your breath there either.