Borrow and spend? Cui bono?

Again the call goes up for the government to borrow more and spend more, but to whose benefit are the calls for?

Borrow for what exactly?
Simon Miller
On 31 August 2012 13:29

As we head towards the season of mists and mellow fruitfulness, my reverie over my favourite season of all is disturb by the growing bleat of self-interest. For today saw the Confederation of British Industry (CBI) and the British Chambers of Commerce (BCC) join the chorus calling for the government to do something about the economy, even though they both warned that the government would miss its deficit target by two to three years as borrowing balloons on the back of weaker tax receipts.

Indeed the BCC seems to have joined the Ed Balls Appreciation Society with its solution – borrow more.

The country is up to its eyeballs in debt and the BCC wants to borrow more? I know, if I am ever faced with an ever-growing credit-card bill and my overdraft is falling perilously into the danger zone, I’ll take out another loan shall I? That will help. And I am sure that the cost will be reasonable as well…

You see this is what will eventually happen. There is no consolidating all your costs for the government. It needs to borrow. And it borrows from the market.

If Georgie boy went to market to borrow even more to spend on capital projects then the costs will rise. Markets don’t give low rates for the hell of it. There is a balance between the health of a nation, the belief in the State’s economic policy, and the risk of default which feeds the rate of borrowing.

Germany can essentially be paid to look after people’s euros because, on balance, investors judge that it’s economically strong enough to withstand the shocks of the eurozone.

Much has been made of the fact that we have our own currency, and yes, it is true that this helps our costs but it is only a factor.

Georgie sent a message out to the market that he was working on getting down the structural deficit and to cut rate of growth in debt. So what happens if he throws it all away and spends? Sentiment will turn against him, costs will go up for the country and we will well and truly be selling our children down the river as the debt rate increases and the deficit remains high.

Sure, we could turn on the presses again, but how much could a nation of 70 million, with a relatively large client state, take as sterling collapses and inflation rises?

How can this be? You ask. All these organisations and politicians say a new infrastructure programme and deregulation would kick start the economy.

I am all in favour of getting rid of regulations that stifle investment and growth but the growing calls for this leads me to ask: Cui bono? Who benefits?

With the client state it is easy to see why there is uproar over the perceived cuts. These people that are dependent on the government for their jobs, contracts and benefits are in the game. They will protest because they need our money.

But what about the private sector calls?

With many building companies holding plenty of land, why do they need a relaxation of planning laws, and in particular around the green belt?  Well, all of a sudden, some very desirable locations are suddenly open for building on; kerching for the company, bonuses, and shareholders. They get to keep the land they already own for better economic circumstances and claim they are doing their bit for the market while making a fair bit of money.

And then there are the private companies that are holding onto billions in cash at the moment. They are fearful of spending it, to create jobs, or revolutionise their work practices. But what if the government put its hand in its pocket? All of a sudden there are jobs guaranteed by the State. Hallelujah. Again there is an economic benefit for companies, bonuses, and shareholders, and even better, they get to keep the capital they have parked.

Despite Heathrow being in entirely the wrong place for its entire existence, who would benefit from the bulldozing of a few villages to create another runway that would be at capacity within ten years? I’m sure that the turning of an arch environmentalist into a fan, hiding under some dubious interpretation of carbon markets, had nothing to do with a certain memorandum of understanding he has reached with the Chinese. Again, cui bono?

Sure there will be a rise in employment, but for how long? At what point does the expense carried by the government get to be paid off? How will it be paid off?

The calls for government infrastructure spending are, ironically, ignoring the last time there was a massive infrastructure programme.

Gordon Brown managed to shove over £20bn off the books through the private finance initiative and what has happened with this grand infrastructure programme? Hospitals going bust because of the expense and schools having buildings that are essentially unfit for purpose.

An infrastructure programme doesn’t guarantee a good return. It does guarantee a good return for those that jump on the gravy train.

If we are to have infrastructure programmes, let the companies pay for it. If they want to build houses, they already have the land, just not where they want it – tough.

People liken infrastructure proposals to economic expansion. The problem is that for this country, internal expansion is not enough. Like the Romans, we need to keep expanding to keep going. The fall of the Roman Empire started with the building of Hadrian’s Wall. They demarked themselves and slowly died.

Building some indentikit homes on the greenbelt will not change the fundamental issue. We need the political will to cut properly – to cut taxes, to cut regulation, to cut government spending. We need the country to be competitive internationally.

We should not join a race to the bottom with China but concentrate on those industries such as bio-tech, aviation, engineering, and, yes, finance to grow, and we need a government to facilitate this to benefit the country rather than spending our money on infrastructure that ultimately only benefits those in the game.

We know that the situation is dire at the moment but Georgie boy should examine the growing calls for even-more government borrowing and ask himself the simple question: Cui bono?

Simon Miller is the Editor of Financial Risks Today. He tweets at @simontm71

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