Tax, Cut, Sell, Or…

First my standard disclaimer, Economics Makes My Brain Hurt. I am but a mathematician, and businessman, I suppose. And although I cannot and do not claim to know anything about running a country (which is at least an honest position, one I wish were shared by those temporarily in power), I can draw on my own experiences and on simple logic.

It seems to me that the choices facing the UK government now are not dissimilar to those that might be faced by anyone running a household or a business, e.g. me.

When in debt you have limited choices:

a) Make more money. For the individual this means getting another job. For the government it means increasing tax revenues, which may be the same as increasing taxes (or it may not, depending on disincentives so introduced). Keeping the numbers simple, the goverment/IMF is talking about £200billion debt. Divided across the UK population not such a big number, but still enormous for the man in the street, divided across the rather smaller 200,000 high earners that the government has in its sights, hmmm, not such a small number. However you divide it up though it’s all quite frankly impossible (unless you believe Darling’s forecasts for growth in 2010, which I don’t think even he can believe).

b) Cut spending. Painful for a Labour government (or New Nasty, as I now call them after the scandal of the attempted email slurs), but at least there is lots of waste they’ve introduced and which they could cut out. But no, cutting waste and public spending is not what Labour do, it’s a vote loser.

c) Sell off the silver. Any foreigners want to buy a piece of the UK right now? Going cheap. But wait a while, the country will be even cheaper.

But there’s one thing that the public cannot do, and which only governments can, and that is make the debt disappear like a David Copperfield trick. No mirrors, no distracting bright lights, no body doubles or revolving stages (sorry if I’m giving away his secrets!), just simple inflation.

d) Inflate, reduce the value of the pound. Debt disappears (compound interest acts remarkably quickly). And a vote winner among all the borrowers who started this mess. Of course there is the slight problem that the ‘independent’ Bank of England (made so by Gordon Brown in 1997 remember) has a specific remit to control inflation. So watch out for subtle changes in the BoE rules.