SATURDAY ESSAY – The benefits of neoconservative economics:

Rising government costs, rising debt, falling exports and a culture falling apart

Time for me to point out another slight flaw in the neocon desire to shrink, slim-down and generally reduce the role of nasty, expensive Big Government. Since the process started around 1980, the cost of Government in the UK and America has risen. And the debts of those behind that government have risen. And you’ll never guess, who’d’a thought it, but the services provided by those governments have worsened considerably, the cost has risen, and….well, you get the idea, I’d imagine.

Globalist neocon ‘thinking’ has always been riddled with contradictions, double standards, discredited assertions, and kettle-calling-pot-black accusations.

Just one example of each in turn: the jobless recovery; big business is just as self-seeking as big government; trickle-down wealth; and grumbling about public sector monopolies while creating as many as it can in the private sector. In a recent essay on neocon elites and wannabe social democratic superstates, I dealt with this at some length – concluding that both approaches to running a sovereign are unworkable. But the ‘more wealth for less cost’ promise is probably one of the biggest of the myriad carelessly balanced buckets of drivel that make up the neo-conservative construct.

Taking the best published global public money statistics available on net sovereign borrowing since 1980, only during Thatcher’s genuine fiscally disciplined, mega-growth 1982-87 period did the figure of borrowing drop below 2% of gdp. She got the PSBR down to nil (an amazing achievement) but since deregulated, less-Government politics started (and was then adopted but further perverted by New Labour) the UK has never once been in the black on an annualised basis. The cost of governing lawless Britain and bailing out brainless banks has cost as much if not more than it did during the mixed-economy years from 1945-1978, when we were bailing out overmanned public sector white elephants. In the US, the lowest deficits by far appear during the Presidency of Bill Clinton. Since 1990, deficits have been skyrocketing in both nations.

Much of this problem is down to the costs of government rising  steadily over time. The public sector that’s remained in Whitehall and elsewhere has been driving up its share of gdp for decades both in the UK and the US. By April 2010 in the UK, civil servant pay represented more than 40% of government spending, and had escalated to such an extent that the 6 million in the UK earning it were costing only 10% less to run and pension than the 24 million who work in the private sector. During the deepest recession since the 1930s – in one year alone, 2009 – the increase in the public employee’s lead over wealth-creators was 5%.  At the end of that year, Edward Leigh (Chairman of the Public Accounts Committee) pointedly said: “There is not a shadow of a doubt that you can deliver the reduction in the deficit that we require by imposing massive efficiency savings and job cuts in the bureaucracy.”

Thatcher herself made no inroads at all into Whitehall headcount (it went up throughout her three terms in office), and George Osborne has battled in vain for most of the time since May 2010 to cut Civil Service costs by £800m. Needless to say, with total government expenditure currently running at £514bn and rising, £0.8bn is less than 0.5% of the total cost of the civil service. In the military arena alone, The Slog has used informants to learn that the Chancellor made personal visits to senior MoD mandarins three times between August 2010 and December 2011 to read the riot act.  Less than one half of one per cent of bureaucrats have gone: but the front-line fighting men have been cut to the bone.

“Ahah,” says the neocon, “but that’s nothing to do with us”. Oh, but it is: as the Olympics has just shown, while commerce and big business achieved enormous sponsorship exposure through the 2012 Games, the taxpayer has borne most of the costs run up by incompetent  twerps in Locog, and the failures of private sector security. Further, a substantial proportion of pinstripes are made necessary by what neoconservatism costs us – most notably in the Employment, Social Services and Treasury areas.

The last of those brings us to the cost of adopting the one thing that has allowed mad Friedmanism to get even this far: the out of control credit and derivative insurance costs involved in extending spending-money to consumers, businesses and banks.

The UK’s post-bailout banking liabilities alone still stand at £1.1 trillion, and have multiplied both national deficit and debt substantially. This is before one takes into account the permanent offshore movement of jobs both in the US and UK, and the welfare costs of keeping those folks going at an average cost of £26,000 a pop. Whether that’s generous or not – and it’s far more than I live on – is irrelevant: it’s what it costs, and it’s a direct result of neoconservative shrinking-government, lower-headcount, financial deregulation ideas.

The quantitative easing and zero interest rate (zirp) policies have pushed up the costs of both Treasury spend via the Bank of England, and State pensions to the burgeoning ranks of retired. In both the US and UK, the long-term costs can and will only be a compromised currency and consquent higher costs to import raw materials, enerby and foodstuffs.

Paying more for raw materials in turn inflates the cost of our finished exports, but here too, in the larger developed nations, adopting neocon policies (and no way could Germany, the most successful exporter on the planet over the last six years, be placed in that class) has reduced the West’s share of world trade. The U.S. market share of world merchandise exports in 1980 was 12%. It dipped gradually during the Reagan era, and has declined sharply since to the point that, by 2010, the share had dropped to only 8.5%.

As for the UK, its trade in goods account has been in deficit since 1983. In 1970, our share of world trade was 11%. It fell sharply between 1981-83. By 1990, it was 6.4%. The Treasury’s ironically titled ‘Plan for Growth’ of March 2011 sums the situation up well: ‘Our share of world exports has fallen from 4.4% in 2000 to 2.8 per cent in 2009. These trends are not inevitable for an advanced economy: look at Germany whose share of world exports was 9.0 per cent in 2009 compared with 8.5 per cent in 2000…..we export just a third as much as Germany.’

The obvious mega-reason for neocon failure in the West is the dramatic growth of Asia and South America. But the model itself has exacerbated this, harping as it does on regular ROI, shareholder dividends and the bonus culture. Just when our generic output of cheap goods should’ve switched to higher margin craftsmanship durables, a combination of Bourse demand for results and accountancy nibbling at product formulation quality led us into a head-to-head fight with Asia on price: a hopeless war we could never win. Instead of selling upscale, well-made products to the new millionaires of the East – made rich by knocking out cheap clothing and solar garden lights – we’ve been trying to flog increasingly badly made and overpriced designer clothing and cars alongside bizarrely dangerous financial services.

The three biggest causes of failure for the West have been lack of radical reinvestment, lack of new product diversification, and lack of courage in new export markets. The obsession with bottom line has led us closer and closer to the bottom of the trade league. Germany’s exceptional success has been based on ignoring the worst excesses of neocon greed, and taking braver risks with better quality products.

There remains, of course, a final cost of neoconservative economics to which nobody has, as yet, managed to attach a price tag: long-term, so-called ‘structural’ unemployment. Fundamentally, the switch away from community manufacturing (from US auto workers to British miners) in favour of globalised accountancy has steadily destroyed a social fabric already wearing thin as a result of fluffy liberal indiscipline introduced during the 1960s. Taken out of the stabilising culture of traditional familial and employment values, idle hands have turned to uncontrolled sexual reproduction, crime, drugs, drunkenness, and thus more crime.The cost to any government of controlling crime (and to the consumer of insuring against it) combine to produce an increase in both direct and indirect taxes.

A good third of the available labour forces of both the UK and the US are now unemployable; and those who could do a job have had them removed by the unimaginative, tramline, production-volume greed of a world dominated by remote shareholders and corporate finance directors. Not only will it now be horrendously difficult to retrain and remotivate the human flotsam resulting from all that blind money-adoration: as QE is showing us only too well, it becomes near impossible to restart an economy where the only growth any longer can come from domestic consumption.

That domestic consumption of cheap imports makes the deficit and debt position worse still, but in 2012 the US and UK economies cannot even get off their knees to achieve that: people lack the confidence to take credit and spend, and banks lack the stability to lend to them in the first place. The 3% can get as rich as they like, but they have neither the will nor the clout to drive economic recovery. In the end they will – literally – eat their own source of wealth, and then be consumed by those who resent it.

So here we are, just over three decades on from the economics of Joseph, Freidman, Reagan and Thatcher. We work harder and harder to earn less and less while paying more and more tax on less and less government service coming from more and more civil servants. And it’s about to get much worse on a number of key dimensions….this time to do with the equally delusional ideas of multinational investment banking and mercantile business globalism.

Yes, on balance, I’d say the flaws in neoconservative economic ideas are obvious on commercial, human, social, geopolitical, and familial/individual bases. There doesn’t seem to me to be a lot left after that: but that won’t stop the bare-faced gluttony and content-free assertions of those who peddle the illusion.

They are doomed, be in no doubt. But the collateral damage is going to be truly horrible before the ‘developed’ world finally regains its ethical and communal health.