George's Bluff

                                                 What do you think of my poker face?
                              

“Britain is holding its nerve, we are sticking to our plan…"

So said George Osborne in jubilation at the reported surge in U.K. growth. British GNP grew 0.6% in the second quarter!

Good news, but I must say the Chancellor’s choice of words seemed unsettlingly familiar. Where had I heard those sentiments before? Then, being a degenerate gambler myself, it hit me.

You’re at the poker table. Most of your stack is gone and you’re very unwisely  drawing to a flush against an ugly bunch of dead-eyed professionals. There’s a very distinct prospect that The River is not going to provide that elusive fifth heart. What the hell are you going to tell the wife this time! Above all, you’ve got to calm your panic and to maintain your poker face of glassy despair as you repeat the mantra:

“Hold your nerve, and stick to the plan”.

It’s been said that poker is like regular life, only speeded up. So whereas in regular life you can delude yourself about how great you are for decades on end, in poker world one night in Vegas is generally all it takes to bring your shortcomings into sharp focus.  

So to carry the analogy further, there sits George, the guardian of the British economy,  at the big table. Let’s have a peek at the chancellor’s hand to see what lies behind his rabbit-in-the-headlamps gaze and that emphasis on holding his nerve.

George’s, and Britain’s, poker hand in the international game of economic life has five cards:

·        Debt: This is the killer, the anti-trump of Osborne’s cards. Britain’s businesses, banks, government and people are indebted to the tune of 500% of the annual output of the economy. This is the highest burden on the planet. Luckily, interest rates are at an historic low at the moment which makes the payments bearable. But when they return to normal levels, the cost will be at the very least crippling.

Unfortunately, that’s not all. Unfunded pension liabilities of the state sector in addition to the costs of saving the banks, and Labour’s PFI wheeze amount to a further 393% of GNP.

One thing is certain. These obligations will never be met for the simple reason that they cannot be.

·        Dependency: A report released yesterday reveals that “public social spending” now stands at 23.8% of the economy. This compares to a level of 16.5% back in 1980. With a rapidly ageing population this figure is set to further soar over the next decade.

A significant proportion of this total is the cost of keeping millions left unemployable by an education system which for them was worse than useless. This is starkly illustrated by the inability of many British with all the advantages of being native born to compete with foreigners, even supposing they wanted to, in the job market.

·        Bureaucracy: The obscene fact that the Ministry of Defence employs more civil servants than soldiers and that the number of managers in the NHS has doubled in a decade are just two aspects of a curse that is asphyxiating the life out of Britain. The cost of this massive cancerous growth is two-fold. Not only is the money spent on unnecessary mouse-pushers entirely wasted, their activities are often actively destructive as the productive are forced to attend to their insistent demands.

Coupled with this tumour on the country’s productive heart is the vast and ever expanding body of law and regulations. Not just the red tape strangling industry but the Health and Safety mentality. A good example of the extensive genre was the Lithuanian man who climbed on top of a railway carriage in Ipswich station last Friday. The authorities promptly shut down the line to London for seven and a half hours disrupting the lives of more than 10,000 people. This sort of idiocy is a daily occurrence at God knows what cost to the economy, not to mention our sanity.  

·        Vanity Fetishes:  The recent announcement that the government intends a vast new investment in solar power in addition to the £100 billion already earmarked for wind turbines translates into several certain results: expensive power, fuel poverty, uncompetitive industry and fewer jobs.

The Chancellor may like to reflect that the original Industrial Revolution was only made possible by the availability of cheap abundant energy. This ridiculous rebranding exercise for the Conservative Party starkly lays bare the deceit behind Osborne’s stated ambition for a renaissance of British manufacturing.

And there must be an honourable mention here for the ring-fenced foreign aid budget. What adjective is appropriate to describe the depraved spectacle of a bankrupt Britain borrowing further billions to discourage the Third World’s corrupt kleptocracies from making any meaningful reforms?  

·         Chronic Low Productivity: A dull economic concept perhaps. But George may like to consider that ALL salary increases, and EVERY other increase in national income are ultimately financed by the output of work. Labour can produce more in one of two ways: work longer hours or work better by investing in the latest technology. Britain has consistently chosen the former. Our investment is down a quarter since 2008 and Britain’s savings rate is a pathetic 4.9% (158^th in the world). That’s why the motor behind the recent blip in growth was, as ever, the service sector of the economy.

Contrast the current recovery with that in the Great Depression. The millions of jobs lost in steel, coal and shipbuilding in the 30s were more than offset by the growth of and vast investment in the new aircraft, electronics and car making industries.

This time round we avoided much of the necessary pain of an equally deep recession by vast government spending, but as a result we also failed to reap the benefits of restructuring the economy. That’s why the likely growth of perhaps 1.5% in 2013 that Osborne is so excited about compares so badly with the 6.8% achieved in 1934.

So spare a thought for our Chancellor as he casts a glassy eye over Britain’s wretched hand once again.  His most desperate hope is simply that it won’t all come crashing down on his watch.

And as he resolves to keep his nerve and continue with the bluff, sorry, the Coalition plan, he should consider this.

You can’t bluff reality. Reality always calls.