The Best Laid Schemes Of Mice And Men

On Tuesday, we found out just how bad the UK’s economy is in Osborne’s Autumn Statement which turned out to be a mini-budget.

The structural deficit is apparently bigger than expected due to the boom followed by the bust being bigger than expected. This as well as the lack of growth in the economy means that Osborne and Danny won’t eliminate the structural deficit by the end of the parliament. The plan not going as expected reminded me of a Burns poem “To a Mouse” hence the title of this post.

For those not aware of the poem, To a Mouse is effectively Burns’ apology for ruining a mouse’s house whilst he was farming the land. Being winter there was nothing left in the landscape to build a new house from. It is apt at this moment because in the boom, we thought or at least Brown thought that it would go on forever, then the bust with the financial crisis came and in the words of Liam Byrne: “There is no money left” to build a new economy on top of the old.

With Osborne’s plan not going to er… plan, its proving Burns right that “the best laid schemes of mice and men gang aft agley” (Translation: The best laid schemes of mice and men go oft askew.) I want to quote the last two verses as I think they are apt at the moment both for the UK, the eurozone and of course the LibDem party.

But Mousie, thou art no thy lane,
In proving foresight may be vain:
The best laid schemes o’ mice an’ men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!

Still thou are blest, compared wi’ me!
The present only toucheth thee:
But och! I backward cast my e’e,
On prospects drear!
An’ forward, tho’ I canna see,
I guess an’ fear!

Are We Sleepwalking into a Pound Crisis?

There is an awful lot of talk right now about the euro at the moment. Understandable since the euro is in the midst of a crisis at the moment.

The talking points and the reasons that economists and politicians give for the crisis are:

• Nobody followed the rules. Wasn’t enough enforcement of the rules governing euro membership etc.
• Not enough fiscal integration

Its this second point that is incredibly interesting.

The Conservatives and UKIPers pretty much all say that supra-national currencies are an intrinsically bad idea unless backed with common economic policy.

Iain Duncan Smith had this to say about a single supra-national currency and integration on BBC question time on the 27th of October:

The point is reality has struck in that you cannot have a single currency without full political union which is where you have centralised taxation, centralised control from a centralised organisation of government.

Now, Iain Duncan Smith may well be right when it comes to the eurozone that there wasn’t enough fiscal and political integration. If he is right then that poses an interesting question for us here in the UK.

Its not should we join the euro in the distant future when the present crisis is over and there is greater fiscal and political integration. I can tell you how that will go down with the country right now. Not well.

The interesting question comes from looking at the structure of the United Kingdom itself and where its heading.

From 1707-1997, we had exactly what IDS described on Question Time, a full political and economic union. Since ’97 though, this union is slowly becoming less and less centralised as we devolve more and more power to the home nations with the largest devolution of power to Scotland. The Scotland Bill currently going through parliament gives the Scottish Parliament even more power and significantly more financial powers.

The SNP sometime in the latter stages of this Scottish Parliament, will be holding a referendum on independence. Salmond has said that if Scotland were to go independent, that Scotland would keep the pound until it was in Scotland’s interest to join the euro so indefinitely.

An independent Scotland would have full tax and spend powers but they would be in a single currency either with the other eurozone countries or with the rest of the UK. How the euro will be controlled after the current crisis is resolved is anyone’s guess but the pound’s interest rates with an independent Scotland would still be controlled by the Bank of England.

The question I have is this: Is having interest rates, inflation controlled by the Bank of England enough fiscal integration to stop a pound crisis happening in the UK with an independent Scotland like that we are seeing unfold in the eurozone at the moment?

Thankfully, Scotland won’t vote for independence so we don’t have to worry about that, I hear you cry.

Actually, we still do need to answer the question because even without independence, there is a cry in Scotland for what is termed “devolution max” or full fiscal automony or independence lite or Home Rule.

These are names for a settlement which no one quite knows what it entails. What we do is that it does call for greater fiscal and economic powers to be devolved to Holyrood.

Whether we like it or not, the pound is a supra-national currency where there are calls for the fiscal integration of the countries economies to be significantly reduced.

The questions I have are:

• Does this mean we are heading for a pound crisis if we continue down this path without learning from the eurozone?
• How much fiscal and political integration is needed to prevent a crisis like the eurozone happening in the UK with the pound?

I support financial devolution especially at the moment with the Scottish economy lagging behind the rest of the UK’s we need Scottish solutions. I also don’t think its right for any parliament to exist on handouts from another.

The eurozone crisis has made me think though what are the consequences of devolving financial powers to Scotland. What mechanisms need to be in place to stop the pound going like the eurozone.

I think we need to tread carefully here so we avoid sleepwalking into a pound crisis.

Labour Left the UK Anorexic

Debt is often likened to fat. This is due to the idea that debt like fat is a weight that bears down on the individual (or country) and restricts what one can or cannot do.

To make this comparison is to misunderstand the biological reason for fat.

This misconception can be understood if we consider why the body requires fat.

We become fat if we consume too many calories in times of plenty, this if consumed in the form of fat or carbohydrates (we can’t store protein) is stored away.

Why do we store this excess energy?

In case there comes a time when food becomes less plentiful i.e. during winter or a famine. We can therefore use the extra energy stored as fat to stay alive and to find any morsal of food around whether that be fruit and vegetables or hunting down an animal that is also managing to survive the harsh times.

This shows that fat is the biological equivalent of an economic surplus. A surplus after all is a built up stack of money during times of plenty like a boom that you can then use when times are hard.

Debt is the exact opposite. Debt is the economic equivalent of your body shutting down because you are not consuming enough relative to the energy your expending in order to stay alive. If don’t balance your calories (tax revenues) with your energy expenditure (expenditure) then you will physically crash because your body can’t cope. We are experiencing one of the biggest global financial crashes in our history due to governments and banks not balancing income with expenditure.

As Nick Thornsby pointed out in his blog, Labour were overspending before the financial crisis hit in 2008. We might not have been anorexic as of 2008 but I’m guessing we were pretty darn close.

The problem with anorexia and the financial crisis is that you can’t cut your way out of it. It is impossible to cut yourself out of anorexia. You can cut your energy expenditure to bare minimum but if you aren’t consuming enough then your body will continue to shut down your internal organs. That leads to death.

In the financial crisis, we can’t cut ourselves out. We need to grow ourselves out. All non-essential spending should be cut but we need growth as well.

The fat cats sitting on surpluses have to realise that they built those surpluses exactly for this reason therefore need to spend it in order to create growth in the economy. Only by creating growth in the economy, will their need to dip into their surpluses diminish. They can then replenish their surplus.