Austerity

Counter-cyclical government spending seems to be common sense to me, it also seems to be common sense that in order for this to work, a government should run a surplus during the good years.

I haven't read much about what happens to the Keynesian prescription if there isn't that buffer of a surplus, particularly not in the Guardian. Are all bets off, or is the stimulus recommendation the same? What happens if the stimulus doesn't return the economy to growth within a sensible amount of time, should spending continue? What if it's likely that the recession is due to various factors such as declining international competitiveness and an aging population - do you keep spending? I imagine the picture becomes a complicated political one, involving balancing short-term and long-term aims. That's not something politicians should be expected to be good at, not when it's all about headlines, winning elections, and all about what an electorate thinks that expects politicians to solve every problem and make everything better.

The current course of action is to reduce the spending slowly enough to keep pain to a minimum, but without losing the confidence of the gilt markets. So we continue to have a large stimulus, but it's coming down because in the long term we want to keep the massive amount of debt we've got to deal with to a minimum. In drawing this process out, economic growth will hopefully pick up and make the whole thing easier. Given the circumstances I think this is hardly the Tories sharpening knives and relishing cuts - and it's worth remembering the cuts are less than Alistair Darling promised at the last election. It's also worth having a bit of perspective, we're spending all this money, yet, for example, we're not at war, we've not had a huge natural disaster, we've not just run out of oil, and we don't know we're not five or ten years from an equally bad economic crisis.

However, a lot of people think that the current recession is caused by austerity, and we need more spending right now to solve things. That spending in the right areas is a multiplier effect, leading to more tax revenues, and that conversely, cuts lead to a negative spiral of reducing tax revenues. I think proponents of these ideas need to demonstrate why they haven't invented an economic perpetual growth machine. If the extra spending is a no-brainer, why not even more so we get an even bigger effect? Why not do it all the time, even when the economy is growing, to achieve even more growth?

The answer to those questions is probably that, as we spend more and more, the positive gains of spending borrowed money tail off and get replaced by a bigger and bigger component of simply consuming tomorrow's wealth today. That will then have to be paid back tomorrow, and once we've spent it, we haven't achieved anything and don't have further growth unless we borrow more, and this can't go on forever. And if that's the case, the sooner we accept it, the less painful it is.

People who want more money spent also seem to ignore the big questions we face, or at least pretend that those questions will be easier to solve if we approach them off the back of a bit of free spending-induced growth. These big questions we must face are, for example, what to do about Britain's decreasing competitiveness, increasing welfare dependency, increasing debt levels (public and private), the under-supply of housing, and the cost of retirement. It's just not as simple as blaming evil Tories and greedy banksters for our predicaments.

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HS2 again

I do not think there is an economic or environmental case for HS2. Looking at the bigger picture, I think it will only increase London-centrism, and there are alternatives that would stimulate the economy far more, such as granting more planning permission, or cutting taxes. There are many costs of HS2 that are not budgeted for, such as improved transport links from Euston, and the likely overrun of the compensation scheme. And then the demand for tickets is likely overstated, as is lost productivity due to being on a train. I think the government's case does not consider that the economy will make better use of high speed Internet connections, and that the future of transport likely lies with driverless cars. Since much has been made of NIMBYs with loud voices, it is worth mentioning that the Campaign for HSR is funded by vested corporate interests.

I am concerned about the vacuous rhetoric about investment in our future, creating jobs, and bringing Britain into the 21st century. These things can be said of virtually anything the government might want to do, but this rhetoric does not make a plan better than the very unglamorous and boring alternative - not spending our hard-earned money. I am under the impression HS2's claimed net benefit ratio of 2 ignores the social cost of paying for it, in terms of tax wedges etc. This means the true benefit ratio is probably closer to one, even before the underlying optimistic assumptions are questioned. The country faces a host of problems in the future, such as old age getting more expensive, rising costs of healthcare, increased competitiveness from emerging economies, an education system falling down the international league tables, a depressingly large total debt, a housing crisis, a huge number of NEETs, and a massively expensive state which still has a huge deficit. All of these things are likely to reduce our wealth and/or make the state more burdensome, thus increasing the damage of raising each additional pound of taxation. I've read that it will create 40,000 jobs. That probably works out at £800,000 per job created. How many private sector jobs will be destroyed by the tax required to fund that?

If there is an economic case for HS2, it should be funded privately by investors. If it fails, it loses the money of people who freely took the risk. If it succeeds, investors profit by having provided a service people want more than the cost of the ticket, so everyone wins. There is no such free choice when governments engage in large and risky projects. The Victorians showed it was possible to build railways without public subsidy.

Not only is the business case very weak but I would have thought that HS2 would be a simple issue for Conservatives - don't upset Tory heartlands, don't spend taxpayers money unless it's an absolutely necessary evil. The Conservatives will lose party donors because of this, and voters, and party members, and councillors, and possibly seats. They should be expending their political capital on getting the country's finances into shape and reversing bad Labour decisions.

I think driverless cars are an exciting development, which I think will be a massive driver of growth not requiring public subsidy. Transport will be safer (cheaper insurance, and many other related benefits), and a great deal of time currently spent driving will be able to be used productively. With computer-controlled junctions, and bumper-to-bumper driving, network capacity will increase massively. Computers will mitigate the causes congestion that complexity scientists have studied. Road maintenance will be cheaper. Time will be saved by the car parking itself after it has delivered the occupant to the destination, or driving to pick up the next person who booked their journey by smartphone. Car parks will have improved density due to no need to open doors. I think Britain should be leading the way. We need to investigate which laws will need changing, and we should maybe channel research grants into looking at how we can develop and exploit the technology. This isn't a long way off either, Google has a car that has driven a couple of hundred thousand kilometres through San Francisco, the only crash happening while it was on manual override.

Digital Surveillance Plans

We can't assume the good intentions of future (or current) governments. Lawmakers should consider how a power might be abused, especially when it comes to civil liberties or giving ministers statutory powers (enabling acts). Then if it absolutely must go ahead, it should have a sunset clause, requiring a vote in parliament every five years for its continued existence.

There are immense practical difficulties with these plans. Real-time access to all of this data is an immense technological challenge. There will be monumental data storage, bandwidth, and processing requirements. It will be a huge challenge to keep up-to-date (if people start using a new social network for example, traffic to and from the servers for that site will need to be understood by the snooping system). This is a huge undertaking, and will lead to the intelligence services demanding more and more resources to make the most of their shiny new toy.

It will be hard enough to keep up with normal uses of the Internet. It will not have a chance of dealing with internet traffic which uses networks of proxies (outside the UK), such as "Tor", and/or uses encryption and steganography.

It will be expensive. Either it will have to be paid for out of taxation, or ISPs and telecoms companies will pass the costs on to customers, but one way or another I think it will be misdirecting economic resources, and will be yet another drag on those of us just trying to do productive things to earn money to support our families, despite high taxes, high costs of property, and the myriad other problems we face.

You can always make an argument that new powers will stop nasty things happening, but what we're after is a balance between state power and privacy, and a proper sensible debate about that. So to hear the home secretary suggesting that it will catch paedophiles and terrorists is galling, I hoped such tired arguments and populist simplicity was only a thing of the last Labour government.

Spending cuts

Apparently the coalition isn't even meeting Darling's deficit reduction targets. While this is very bad, it's amusing hearing Labour prattle on about how damaging something is that doesn't even go as far as their own election pledge.

MPs troughing again

So the taxpayer subsidy for catering (including alcohol) on the Parliamentary estate hasn't gone down despite promises it would.

More commentary from Tim Worstall here. In summary, they're doubly taking the piss because those bars should be paying business rates to the council, and the tax payer should benefit from the rent of the premises to a company running the bars.

Meanwhile, they're talking about minimum alcohol pricing for the rest of us...