Tuesday, November 02, 2010

Public Spending: Too Good For The Poor

Looking over the Atlantic, the US faces a groundswell of right wing, individualistic and gun oriented campaigning which the rather radical, neigh reactionary, so called conservatives are riding with the "tea party".

The tea party smell a little of Thatcherism: a hard line direction to "conservative" activist values and a branded bus to get on if you are serious about governing as a Republican. The movement has a simple appeal: cut taxes to those who have a comfortable life and give more freedom to gun owners.

There are several ironies not lost on we Europeans, firstly that the "Boston Tea Party" was in fact the first act the constant history of north american republican protectionism for the US economy ( read up on it elsewhere; steel, commodities, luxury items and of course weapons. Free market?) while the PR went the way of "freedom" from taxation. Infact the freedom was for the local colonies to tax and defend their control of the american coffee trade against the flooding of the market by cheap tea taxed by the British central administration.

Secondly that public spending is bad, bad and bad .....unless you are of course a republican with interests in anything from health, education, defence ( of course!) or the emerging environmental industries. Spending on you if you happen to be poor, uneducated and worst of all sick, well what country based on any economic values would want to waste hard earned taxes there?

I think we will see a new era of lobbyist politics, where individual bribery will outweight the benefits of a true free market. Entrenched un american activities which seek protectionism and subsidy via this insidious influence will be protected from the hard weather of tax cuts with a gaurantee of free flow of tax payers money to them, secured in the back rooms of Capitol Hill.

A Perspective on Public Spending ...where do the taxes go?

Picking up on health then: The USA has an enormous military budget relative to even population. The vast majority of the capital budget is spent on native suppliers. However at 14% of public spend, it is surpassed by healthcare. But of course this is by in large not government hospitals and generic drugs: this flow of gravy goes on Medicare and Branded drugs, produced predominantly in the USA.

Even many Republicans, those who are probably crazy enough not to take Medicare lobby money, point to the poor deal the state gets in paying private health insurance. A health industry which would be at least less attractive to investors if it did not recieve this scarcely vieled subsidy. Furthermor, the US government invests in R&D and education which benefits the industry by means of subsidy through the education sector....and rightly so, this is one area Strong Governments win on.

Medicare aside, tax cuts to the middle class, not to the poor because the undeducated "working" class will still pay more of their income on state taxes at point of sale, are a good thing to stimulate the economy? Tax cuts run the risk of pointing the spotlight on amongst other spends, medicare, whose lobby groups may not be able to fight a serious round of "reaganomics" now. Also defence!

Now you start to cut into areas which are expected to contribute high margins and growth in standard of living and effectiveness of armed forces:; two qualitaitve curves which have been by in large expect to grow irrespective of political colour in the white house. However, just this week the flagship F35 jet fighter-bomber is delayed and this is undoubtely a result of foreign governments cancelling or delaying orders. The expected economies of scale and payback by volume sales are becoming a stick to beat Macdonald Douglas and the US governmence with.

Health "reforms" may take on a new route then, to negotiating and purchasing medical insurance for public employees on a fair, open and objective premise.

okay, so that is only 30% of the US budget we are talking about cuts in and that is only a third of ...wait a minute, the USAs own governmental web site quote PS proportional to GDP as ....over 40%!

This would seem ripe for cutting. Even to me a believer in the balanced economy of european social democracy we have seen since the early 1990s. Call me a "liberal"? Hey, way far right of where we stand !!

In the UK the book balancing is for earnest: gone now are the military pretentions, and the slashing of the defence budget may bring the UK in line with an average for EU countries at long last.

Dangers in Tax Cuts

Although there are some politico-economic benefits in cutting defence spending, on both sides of the atlantic, tax cuts raise the issue of stifling weak signs of growth, and that in only some sectors.

Growth, the topic of the next blog, is a pre-requisite for confidence to invest money, and hence stimulate the whole value cycle on the stock markets. When money is looking for growing sectos, uncertainty of supply of income to these is one thing which will stifle investment.

The trouble being that growth is expected in single figures in most sectors, ignoring niches, and if a cut in public spending affecting these sectors is made, then the meagre growth may fall into a viscious cycle of stunted growth and poor working capital, slowing investment for expansion and competitive advantage in these firms.

The Thactcher-Reagon Legacy

As in an earlier rant you can say that Reaganomics only actually worked for the US when the democrats came to power, and the same could be said of Thatcherism: It was Blair and Clinton who enjoyed steady growth in the economy, low interest rates and inflation and a lush public spending budget afforded in such a high time as the mid to late nineties. Indeed Lady Thatcher once said in the late 1980s that one of her greatest triumphs was in reforming the Labour party away from the command economy of nationalisation and unionisation.

Here though the USA should practicle what it preaches and fall into a cryptocommunist, "Lobbyist" politics where huge government funds are squandered as in a communist country due to the power that lobbyists exert. The Free Market should prevail rather than lobbying, which infers that weak industries can win over the virile challengers by their political leverage. Lobbying in its' current guise is in fact the very antithesis of the Free Market because the information is hidden, the political interests are not impartial and it suppresses new entrants and freedom of mobility of labour and capital by committing governments to monoliths like MediCare.

What I would call for is firstly a cut in defence spending and a refocusing on home land security in military and in the civil policing too. Secondly a liberalisation of the US health care market, whereby an independent federal purchasing body tenders the requirements out and international players are free to provide both domestic and foreign land mediated health care.An alternative which may become attractive once the market has been freed up for new entrants and international competition, a free market in fact, would be the freedom for state employees to negotiate either individual health plans in this multi-supplier market or organise their purchasing power in associations.

Couple to this the final liberalisation of the US farming industry and the savings in goverment spending and consumer benefits in diversity of wares and prices would have global benefits.

The Washington Tea Party

Now it seems the US likes drinking tea and no longer coffee. Both congress and senate will have leaves instead of beans to fuel their daily grind. They will call on republicans to come with them and throw their perculators, grinders and cappachino cups into the Potamac.

Weak taxation, weak government, weak gun crime control.

Firstly on the economic side, the middle class probably need to feel a dose of raw capitalism, sorry, lobbyism, with lower taxes and slashed public spending. Then they will start to realise just how much of their incomes were linked to indirect public spending and the quality of life for the semi- and un-educated working classes who provide them with labour and services.

The winners in this may well be the skilled working classes, who will be the "nimble" labour, also forming new businesses too as their older middle class employers founder, and being more oriented about being male-mobile: hubby travels long to earn big bucks. They will enjoy higher wages through this and cuts in tax. As we have seen in Europe in the last ten years, it has been the skilled working classes who have enjoyed the greatest rise in standard of living, with some commentators speculating that they now have better home economy on average than the traditional middle classes.

Secondly all the gun touting and intent to kill some internal enemy, perhaps sent by a future democratic party, or the largely peaceful and hardworking indiginous Muslim community, worse, the poor afro-americans and hispanics. All that killing yet no abortion for raped teenagers. And don't expect a welfare cheque Miss Raped Single Mom!

We have seen weak government before: the freedoms that allowed organised criminality to flourish in the pyramid selling of deriviatives levered against the ironically, subsidised sub prime house mortgage sector. It seems that weak private industries in the USA need a fix of subsidy, just as long as little of it ends up with the poor and undeserving........

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