Archive for July, 2010

Bloodletting – kill or cure?

Bloodletting was once the treatment for hysteria, heart disease and just about every other malady, The theory behind the practice changed often over time, but the practice itself remained much the same — with doctors often bleeding patients until they were weak, pale and, sometimes, unconscious.

Doctors routinely bled patients in efforts to prevent sickness brought on by excess food, weather changes and wounds. So this conventional wisdom lasted centuries. No one seemed to notice that the patients were dying in their droves, it must have been the malady not the cure that caused the deaths

As in medicine so in economics it would seem. The draconian cuts we are about to undergo would seem to be ideologically driven rather than necessary.

Most would agree that some cutbacks were necessary to reassure the panicky European markets. But the strategy adopted by the coalition government cuts to much to soon. Why? So that we have a budget surplus by 2015.

A somewhat pointless exercise. If it kills those roots of recovery.

What the present policies achieve are our public services downsized to levels that inflict real pain to the consumers of the services and with a real prospect that the fiscal belt tightening will contribute to years of stagnation.

There is no denying the fact that the public accounts plunged deeply into the red because of the global recession. But the country has been bullied to believe that we were on the verge of disaster. Despite the government leading us to believe that the Greek tragedy would befall us.

However, Britain was not in the same position as Greece. Recovery would have eventually wiped out much of the debt. Alaister Darling’s stiff but less damaging cuts would have done the rest.

Yes, there would have been a deficit of 1.6 of GDP. But are cuts in departmental spending of between 25% and 40% over the next four years worth it to simply convert that deficit to a surplus of 0.3 per cent. Is it worth it at the cost of new schools and other worthwhile and necessary capital expenditure and the the loss of half a million public sector jobs?

Bleeding at this level is not justified by any economic theory. Most economists and even Vince Cable before he became a Minister, have argued for delaying the most severe cuts until a more robust economy recovery.

All the government’s hope rest on the shaky assumption that as government money dwindles from the economy the private sector will step in and replace it. Its unlikely that private investors will take the plunge if they see only hard times ahead for the economy.

In Wales, with our high dependency on the public sector, this policy will have a disproportionate negative effect. Our economic life blood will drain away and our economy could crash because of the medicine.

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The excitement of ‘decoupling’

There are always vogue words. It’s difficult to have a conversation with a person of a certain generation without ‘cool’ acting as a stop or exclamation mark. Just as every dog has its day so also certain words.A word who’s day has come, ‘decoupling’. Now I grant you it won’t have the same reach as ‘cool’ but it will certainly be on the lips of Welsh politicians and their camp followers.

No, its not going to be used in a sexual context or even to talk about the break up of a coalition government.

Its the term that will be used to say simply that constituency boundaries for National Assembly elections should be different to those for the Westminster parliament.

Now the reason that this is likely to come up is simple, the Westminster government want to cut down on the number of MPs. They are proposing six hundred. At the same time they want each Member to be elected in a constituency with a similar number of electors. So new boundaries will have to be drawn for Westminster constituencies. Wales is currently over represented so under these new rules there will be about ten less of them sent to represent us to Westminster.

Now the problem is that the National Assemble elects forty of its sixty members on similar constituency boundaries. So without some changes the total number of Assembly members would also be reduced by ten.

Most commentators agree that even with their current workload the Assembly would struggle with only fifty members. Should they get full law making powers then it would be difficult or even impossible to make the system work

Hence the word ‘decoupling’ – a different system and boundaries for Assembly elections to that of Westminster.

Nothing will excite politicians more than the prospect of decoupling in the next few years. The Assembly responsible for deciding its own electoral system, I can just see them salivating now.

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Wales short changed

“There is no reason to believe that replacing Barnett with a needs-based system should be costly in aggregate for the UK Government. In fact, the reverse is likely to be true. Reform would therefore be completely consistent with the UK Government’s focus on deficit reduction.” so says David Miles a member of the Holtham Commission.

If this is true and all the evidence points to it being so, then the decision to postpone consideration and reform of the Barnett formula would seem to be perverse and illogical. Then why the delay? Well there could be two reasons. The first and perhaps the most likely that in the haste to put together the coalition agreement between the Conservatives and Liberal Democrats it was easier to kick the whole issue to touch than to give it proper consideration.

But another reason to postpone consideration of the issue has more to do with political expediency. Its easier to upset the Scots than the Welsh.. What Holtham makes clear is that our northern Celtic friends have done quite nicely out of Barnett.

To change to a fairer more rational policy would see our Scottish cousins loose a shed load of cash.

Now to do this before elections to the Scottish Parliament would make the Westminster governing parties even more unpopular over the border. Both could lose what little support they have in elections for the Scottish Parliament that take place next year.

So despite the well argued case that Holtham puts forward his report will gather dust for a while yet.

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