You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time - Abraham Lincoln
Its quite hilarious how George Osborne passes off proverbs and idioms as economic fact. What is more surprising is his use of childish tricks to mislead the country. Now either George Osborne really thinks idioms and proverbs is the basis of economic theory and fact or he is pulling a fast one to justify policies. Common sense tells us all it's the latter.
Below I reveal how these proverbs and tricks are used to fool people by exposing
the 5 claims made about austerity. They are:
Claim 1 - The IMF approves of George Osborne's austerity plan because they said it was ambitious.
Since when has ambitious meant approval? Someone please notify the Oxford dictionary. When the IMF said that Osborne's deficit reduction plan was ambitious they meant its was difficult and most likely unachievable- because it will chock off growth & increase the debt & deficit. Hence, the IMF advised him in 2010 to follow a 8 to 10 year deficit reduction plan.
Claim 2 - George Osborne claims that we must eliminate our spending in 5 yrs because: "every house wife knows you tighten your belt when your household income falls"
Firstly, a house wife who has a reduction in her household budget does not decide to clear her mortgage in 5 years - does she?
Secondly, there is difference between a household reducing its spending and the state reducing its spending when the economy is in recession. When a household reduces its spending it increases the amount of money it holds. Where as a government that attempts to reduce its spending during a recession engages in a self defeating activity. Rather than increasing its income it increases its deficit and debt. Quite simply, cutting spending results in increased unemployment which increases its benefit spending. As a consequence, consumption spending is reduced which, results in lower income or GDP. Austerity has never worked.
Overall, a household budget is not run like a country's budget. For instant can you imagine a house wife saying : " Honey! I'm just popping out to buy a nuclear war head and see about hiring more nurses!
Claim 3 - Our borrowing cost are lower because, the markets approve of our austerity plan.
Yes, the markets have confidence in our austerity plan and that's why PIMCO the worlds largest bond holder have been warning against buying British government debt.
The real reason why our borrowing costs have fallen and remained low since 2008 is because, the demand for bonds have risen and there is a an expectation that they will remain high because the markets expect the UK economy will remain stagnate. In a nutshell, consumers and businesses are not spending. As result, saving levels have risen which, has increased the demand for bonds and increased their price. There is a inverse relationship between the price of bonds and its yield- return or interest rates.
Hence, if a £1000 20 year bond is at an interest rate of 5% you would receive a return of £50 per annum. Now suppose the demand for bonds rise because, more people are saving. Lets assume it rises from £1,000 to £1,500. With the interest rate remaining the same, the return will also remain the same at £50. Hence, the new effective interest rate falls because £50 / £1,500 = 3.33%.
Secondly, the markets have confidence in the UK because, we are not in the Euro and we can devalue our currency to increase exports. Further more, the markets are assured that the Bank of England have the option of printing money to buy up bonds in an event of any sell off - which increases the demand for bonds and reduces its price. Moreover, UK bonds are attractive because, we have not defaulted on its debt for over 300 yrs.
Someone tell George Osborne the bond markets do not lend in the same way retail banks do.
Claim 4 - We are currently paying out 1 in 4
It's a vague statement that implies we are paying 25% of the country's income/GDP in interest payments. When in actual fact we are paying out 3.03% of GDP. When Labour took office in 1997 interest payments accounted for 4.23% of GDP and by 2010 interest payments were down by 50% to only 2.08%. Since then payments have risen to 3.03% See UK Public Spending Chart http://bit.ly/TgkhzX
Talk about scare mongering and talking down the economy. No shame!
Claim 5 - So you want to spend more to reduce the deficit? Also: "You can not reduce the deficit by spending more"
This proverb is asked as if it's a strict rule of economics- it's not. In fact it does not even hold true. It may be good advice but, it does not translate to economic reality, theory or fact for individuals, businesses and government.
Moreover, it goes against the whole ethos of capitalism because, it implies that you should not try to better your lot, get a higher paid job, increase profits, build roads and airports if it means acquiring more debt -no matter how great the rewards. Hence, you should not "speculate to cumulate" if you acquire more debt. Now, we all know this is not how the real world works. Hence, as economics is concerned with the real world and not the fictional world of idioms and proverbs, it make this a galactically stupid and misleading question and statement. The fact is everyday we all take "calculated risks" in all sorts of ways and we all know you can speculate to cumulate.
Overall, all five claims show that Cameron and Osborne surely knows how to pull the wool over people's eyes. Moreover, it reveals they have very little regard and contempt for ordinary folk and their intelligence. We have right to the truth and we expect our politicians to be honest. This is why I urge you to share the truth with everyone via Facebook, Twitter, Google +, email and text etc etc etc.
Finally, as George Osborne prefers proverbs and idioms over economics, I thought he may like the following relating to austerity:
More haste, less speed and Honesty is the best policy.
Follow Ramesh Patel on Twitter: www.twitter.com/Ramesh1Patel