Managing the National Economy: Costly Trial and Error!

Britain's Chancellor of the Exchequer, George Osborne, has just presented the latest of his mini-budget to the British people. It is not welcoming news for any sector of the British population, because, the Chancellor has, in effect, told them that the economic situation confronting them and the nation is still bad and is likely to get worse. Although it is clear that the prescribed medication is not proving effective, Mr Osborne has told the nation that he has no alternative but to inflict more economic pain on them; especially the poor and less economically able.

The country must save more money to cut its deficit and stop the public sector from having to borrow more money than was anticipated.  He has decided to cut the benefits of, as usual, the less economically enfranchised, such as those on Disability Allowance - the presumption has been and still is, and with some justification, that many people on disability benefit are quite capable of working; probably if only they could get jobs which pay a 'living wage' - the unemployed, and the lower income workers. Others who appear to be in the Chancellor's 'cross-hairs' could be pensioners, who are currently being targeted by the fiscal gurus with propaganda that 'pensioners have never had it so good', from which one can speculate that there is room for the government to crop their income by taxing it more.

Can the Chancellor sees what's coming next?

Not surprisingly, in one of his previous budgets, the Chancellor extolled the success of his astute management of the British economy, and how it was in good standing, only to come back some months later to be 'pragmatic' and tell the people how it really is.  So, what is it about the British economy why it is not responding positively or more positively to the Chancellor's and the government's 'austerity medication'?  How come only a matter of months ago he stood in the British Parliament and told the nation that the British economy was doing much better than others in Europe?

It seems to me that British economy is not unique amongst the many which are experiencing problems since at least 2008, when the global economy, having been manipulated by dishonest and unethical players of the world's stock markets, busted the bubble which had been keeping an unsustainable capitalist economic system afloat. The global economy, is a more complex variant of the national economy, which is itself a complex variant of the micro-economics of the family.

It is about 'balancing the book' of the nation's income and expenditure, but that is no mean feat, when there are complex factors which each nation either do not have any control over or not enough control. Which is why companies, as well as nations, form cartels and trade organizations and blocs to try to influence, if not determine the prices of their key  products,and of the commodities they buy to produce those products.

All countries cannot produce all of the kinds or the quantities of essential products they need.  If they do not produce sufficient products which they do not need, but which they can sell to other countries, then they are likely to find that they are buying more from other countries, than they are producing and selling to them. The result is that they get into a deficit situation and have to borrow money to make up the short-fall; probably at very high interest rate, due to the weakness of the national economy, which increases the risk of their creditors not being repaid.

Britain is one of the countries which has decided to respond to the on-going global economic crisis by pursuing a policy of 'austerity', which sees it making massive and persistent cuts in her welfare state. This means cutting the number of people getting welfare benefits, cutting public spending on things such as the provision of council housing, the provision of education support by local education authorities, less grant support to local councils, resulting in them having to increase the council tax they charge their residents, provide less services and facilities to their residents and leaving infra-structural maintenance such as road repairs and environmental health projects, etc, etc.

With less money to spend, it is not surprising that national economic activity decreases. But, of course people still have to live, even if their government wants to starve them, so the option of importing 'cheaper merchandise from abroad becomes more attractive to the consumer; getting 'more for less, personally, although the cost is greater to the national economy. This compares well with the lack of incentive for the local entrepreneur to risk starting up a business from scratch and making it economically viable.

There is in economic theory, the principle of the 'multiplier effect' in that a given unit of money invested in an enterprise will multiply several times within the industry.  It might also be the case that the 'austerity doctrine' carries with it the 'subtraction or deceleration  effect' , in that every unit of currency taken out of the economy, results in Xtimes that amount being remove from the economy, thereby resulting in the gradual contraction of the national economy, with increasing unemployment, lack of welfare benefits, lack of local amenities, and a sense of economic and human depression. Business decisions are based on confidence in the market and the anticipation of a good profit margin. If business sees the government not investing in infrastructure and withdrawing from such investments, it is likely to approach investing with added caution as well.

Economics does include mathematical science, but economic policies are not based on science, any more that the global economy, which, at times in the economic 'cycle' will rise and fall as the ocean, but with the troughs being shortened or lengthened by the prudence of the intervening hands trying to manage them.

It is time for Europe's and Britain's economies to try a new approach, after spending vast amounts of money bailing out the banks and shoring up the 'free -market', which, it has to be said, proved itself to be the brainless ass it really is, it is time to invest more in their people and spend money to create more jobs.

The economic waves battering Britain

OWOHROD