Titanic Economic Failures Will Lead to Titanic Catastrophe

One of the most tragic aspects of the infamous Titanic disaster is that it was totally avoidable. It was ultimately due to arrogance, hubris and flawed decision-making. And it seems that history is repeating itself. This time, however, the consequences are likely to be far more catastrophic.

titanic1Last week, like the captain of the Titanic, the Chancellor of the Exchequer issued his “Autumn Statement”: a mini-budget outlining the UK government’s plans for administering the national finances. A semi-annual event, this is a legal requirement intended to improve government efficiency and make it more accountable for how it manages the economy. As with most things, however, frequency brings diminishing returns. All too often it can be a bit of a non-event. But not this year!

This most recent statement was considerably more significant than usual. For, while government refuses to admit an about-face, they effectively reversed fiscal policy of the past 8 years. The post financial crisis “austerity” programme, aimed at reducing expenditure and reducing or repaying borrowing, has been binned. Instead government is planning to borrow £122 billion, justified – at least in part – by Brexit. Yet, Brexit or not, such back-tracking now effectively invalidates all earlier efforts. It begs the question, “Why did government adopt that course to begin with?”

There is a natural limit to borrowing. The time comes when you have to repay loans. And repayment comes out of income, meaning there is less to spend on your day-to-day expenses. It happens in all walks of life and is never convenient or nice. Thinking people understood this and were prepared to go along with it, uncomfortable though it was.

Similarly, everyone knows that less money means you have fewer purchasing options and, consequently, fewer resources. For any government department, fewer resources inevitably means a declining standard of service. So you have to ask, “Have services declined to the extent that this change in policy is merited?” And, if the answer is yes, then, “Why did the government ever adopt such a policy in the first place?”

As any housewife will tell you, balancing income and expenditure is not easy. They will also tell you that trying to make up lost ground is extremely difficult, if not impossible. So is trying to maintain or restore fallen standards. You would therefore expect any government to avoid such a state of affairs. Thus, you have to question whether the results of the UK government’s action have not resulted in the worst of both worlds. This makes it a failure of Titanic proportions.    

Titanic sinkingWhat you have here is a classic example of the kind of situation Einstein was describing when he said, “You cannot solve a problem from the same level of consciousness that created it.” The fact is the system that got us into this mess in the first place has failed. And repairing a failed system is pointless: you have to change it or create a new one. Unfortunately there is no evidence of that happening. Instead we simply shift the deck chairs on the Titanic, resorting to old ideological frameworks that will see us bagatelle back and forth between fiscal and economic policies that continue to fail.  It is a disaster of epic proportions that will leave us all considerably worse off than we need to be.

Never before has there been such a pressing need for change. Now is the time to act. It is up to us.  

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I urge you, please, to get hold of my book, The Democracy Delusion: How to Restore True Democracy and Stop Being Duped, and promote discussion and debate around the solutions it offers so that action is taken to address these problems, restore meaningful democracy and safeguard a better environment for future generations.  

Overdue: Tax Review Calls

What good news to hear that the Labour Party is proposing to review the complete tax system. It is one of the first sensible ideas I have heard in ages and long, long overdue.

Taxation is the primary means of funding government. It is also an integral part of both our financial and economic systems, and helps shape the running of our economy. It therefore seems logical that the financial crisis should have instigated a review of the taxation system. But alas that seems to be too much to have hoped for.

Unfortunately, all too often, efforts to fund government administration and drive policy invoke the law of unintended consequences, sometimes to disastrous effect. The 2008 financial crisis itself is likely an example. It was fueled in part by a complete contempt for government and governance. You need look no further than “Dieselgate” to see this in action. This shameful episode epitomizes the type of malicious myopia, even willful blindness, of large organisations. It certainly illustrates their attitude to government

Who's runningoff with all the money?

Who’s running off with all the money?

regulations.

And even though there may be no direct link, this same attitude applies to tax. Industrial scale tax avoidance unquestionably plays a significant role in our economy. The lack of taxes paid by corporations such as Starbucks and Amazon, (to name two that have recently been in the news) inevitably increases the strain on government, adding to the demand for more debt and/or making debt repayment more difficult and driving “austerity.” 

This is a natural and inevitable consequence of the fact that corporations are also required to pay tax. Efforts to reduce tax thus become a leading factor in business strategy and tactics. In turn this has played a massive part in tax advisory services and tax avoidance becoming an industry in its own right.

Recent events in Cyprus and Greece, where foreign bankers now effectively run the country, show that, at the end of the day it is always the man in the street who ends up paying the bill. Austerity is, alas, the inevitable outcome of failures to curb past excesses. It may be avoidable, but only if we fix the systems that allowed it to happen.

It is therefore imperative that any review of the tax system takes a wide view and goes beyond just the levying of tax and looks at the financial system as a whole. We must:

  • Move beyond adding further layers of complexity to an already over-complicated subject;
  • Look to principle rather than policy to form the basis of a new tax regime
  • Avoid perpetuating the ideological divides of the past (which hopefully a principle based approach will enable.)
  • Endeavour to separate commercial enterprise and tax planning
  • Cater better for global operations and make business domicile irrelevant.

Any review that fails to do this, will ultimately be a failure and let the people and the country down, badly.  It is a matter of national economic survival, not just party survival.