With Great Love And Respect

WEDNESDAY, NOVEMBER 18, 2009

With Great Love And Respect

We'll pass an Act - problem solved

Queen's fairytale day again. And the centrepiece this year is reportedly a Fiscal Responsibility Act, which will impose a legal requirement on government to cut the budget deficit. 

So what happens if they don't? Personal fines for backsliding spending ministers? Jail for the Chancellor?

Yes, you guessed it - there are no legal sanctions at all. This shocking bunch of busted shysters reckons we'll believe yet another promise to go straight simply because they've framed it as a law (cf their laws to outlaw child poverty, reverse global warming, ensure universal happiness, etc etc).

What a joke. As BOM's old friend the Prof says:

“Fiscal responsibility acts are instruments of the fiscally irresponsible to con the public.” 

The Director of the Institute of Fiscal Studies says:

“It is not obvious why anybody should be more persuaded by this than they ended up being impressed by the Code for Fiscal Stability which was enshrined in statute with much fanfare in 1998.”

When Evan Davis tackled Mandy about this on BBC Today, the old queen was so empty handed he was even driven to a "with great love and respect". All he could offer was a ludicrous claim that, although the intellectual elite might not be impressed - because, you see, they've got their own anti-Labour agenda - the Act was necessary to reassure the public. Apparently we peasants are so dumb we will still believe a Labour promise if it's dressed up as an Act of Parliament.

Look, we strongly favour explicit fiscal rules. The evidence from around the world suggests that governments are much more likely to maintain fiscal discipline if they announce upfront the quantified rules under which they will manage expenditure, taxation, and borrowing (the IMF is about to publish a new research paper on worldwide experience, which we will read and blog).

But to be credible the rules have to be in the hands of a government that demonstrates it will stick to them. And this government long ago demonstrated precisely the opposite. 

Labour now has zero credibility. It is morally and intellectually bankrupt, and no amount of new Fiscal Responsibility Acts will change that.

We desperately need a fresh start under a new government with a clean new set of explicit fiscal rules. Yes, they will have to earn their credibility, particularly after Brown's abysmal performance. But credibility cannot be earned simply by passing another Act.

PS The Major wants to know if he's still in the real world, or whether he slipped away peacefully during the night. According to him, the BBC has just appointed Gordon the Gopher as its head of compliance on £110k a year. So the man that used to make a living by pushing his hand up Gordon's bottom is now in charge of taste, decency and balance at our state broadcaster. Come to that, Tyler is beginning to doubt his own presence among us. How do you tell if you exist, again?

 

TUESDAY, NOVEMBER 17, 2009

Big And Inefficient

We all know our public sector wastes squillions, but just how inefficient is it? How does it look against public sectors elsewhere in the world?

There are a number of studies that have attempted to answer such questions. One of the best known was published by the European Central Bank in 2003 - Public Sector Efficiency: An International Comparison, by Afonso, Schuknecht, and Tanzi.

The ECB study seeks to compare the outputs of government with their costs. The costs comprise the share of government expenditure in GDP, which is straightforward. The outputs are more difficult to measure, but include a wide range of indicators, from economic growth and stability, to health and educational outcomes (see paper for more detail).

These calculations are done for 23 industrialised OECD economies, and comparisons made. 

Overall, the study finds that the most efficient government sectors are those in the US, Japan, and Switzerland. 

The UK is by no means the worst, but lags way behind the leaders. Indeed, if our government could achieve the same level of efficiency as the three leaders, we could save roughly £140bn pa relative to the current level of UK government spending. Which would go a long way towards digging us out of Brown's hole.

And the study gives a very interesting insight into the relationship between efficiency and size. And guess what - it turns out the most efficient governments are also the smallest. 

Here's a chart we've put together comparing each government's efficiency score with its cost as a share of GDP (note: the efficiency scores relate to 2000, and the GDP shares are averages for the previous decade):

As we can see, efficiency tends to decline quite markedly as government gets bigger. On average, for every 10 percentage point increase in government's share of GDP, efficiency declines by 15-20% (the estimated parameter says 16.6%, but let's not get too precise, especially since this is a simple linear regression).

The bottom line is that if you want to have big government, you have to accept a high degree of inefficiency (aka waste). In our chart, the very biggest government belonged to Sweden, and its efficiency levels were correspondingly abysmal (interestingly, over recent years Sweden has been slimming down its bloated public sector, partly through those school reforms we hear so much about).

To put this another way, the only countries that can afford Big Government are rich countries that can bear the costs of its inefficiency. The UK can certainly no longer afford that luxury.