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Todays debt, tomorrows debt.

Todays debt, tomorrows debt.

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How free is the United Kingdom?

The Heritage Foundation have published the 2014 Index of Economic Freedom which calculated the economic freedom of all countries around the world. The UK came 14th, the United States came 12th. The top 34 are shown below.

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14th place may seem like quite a good place to be until you follow what has happened over time. The report for the UK says the following things:

  • Over the 20-year history of the Index, the U.K.’s economic freedom has declined by 3 points, the second worst performance among advanced economies. Despite notable improvements in trade freedom and investment freedom, the overall gain has been offset by combined declines in the management of public finance and regulatory efficiency.
  • Britain’s economy has been consistently rated one of the world’s 20 freest. However, since 2006, when it reached its highest economic freedom score ever, the U.K. has been largely on a path of declining economic freedom. Expansionary public spending has generated significant budgetary pressure. With government debt over 90 percent of the size of the economy, underlying economic fundamentals generally remain weak.
  • Following the market reforms instituted by Prime Minister Margaret Thatcher in the 1980s, Britain experienced steady economic growth throughout the 1990s, but the government’s size and spending grew significantly under successive Labour governments.
  • Public debt continues to rise, surpassing 90 percent of gross domestic output.

The second worst performer out of the advanced economies proves that the UK government has become too big and bloated. Not only that, but it has terrible control over its spending. The stats for the UK are shown below.

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It is clear that spending controls, such as those used by the Swiss who have been able to reduce government spending from 34%GDP to 20%GDP (2003-2012), are needed in the UK. Switzerland is the 4th freest economy in the world. Over the same period, most countries increased government spending.

Another interesting point is how consistently well, Hong Kong and Singapore have performed. Throughout the 20-year history of the Index Hong Kong has been rated the worlds freest economy every single year. Why is this the case?

  •  Hong Kong has one of the world’s most prosperous economies, thanks to a commitment to small government, low taxes, and light regulation.
  • The standard individual income tax rate is 15 percent, and the top corporate tax rate is 16.5 percent. The tax system is simple and efficient, and the overall tax burden is around 14 percent of GDP. Government spending remains equivalent to slightly under one-fifth of the domestic economy. Public debt is virtually nonexistent, and a budget surplus has been maintained even in light of increased government spending and tax rebates.
  • Hong Kong is very open to international commerce, with a 0 percent average tariff rate and few barriers to foreign investment. A robust and transparent investment framework, in place for many years, continues to attract foreign investment. The financial sector remains highly competitive and well capitalized, serving as a leading global hub. There are no restrictions on foreign banks, which are treated the same as domestic banks.

But what does being more economically free actually translate to? How does it benefit the people? Here’s how:

Hong Kong GDP (PPP) = $51,494 per capita

United Kingdom GDP (PPP) = $36,941 per capita

Unemployment: HK = 3.3%, UK = 8.0%

Growth: HK = 1.4%, UK = 0.2%

Foreign Direct Investment inflow: HK = $74.6b, UK = $62.4b

Public debt: HK = <0.5% of GDP, UK = 90.3% of GDP

Will people get off their backsides about the NHS please

The National Health Service has already become too big, but has it now finally reached breaking point? Dr Mark Porter, chairman of the BMA thinks it has, and I do too.

An article in the Guardian today discloses comments made by Dr Porter which include:

  • An “arbitrary” straitjacket on the NHS’s budget by Whitehall is leading to job losses, recruitment freezes and inadequate care for patients.
  • Forcing the NHS in England to make £20bn of “efficiency gains” by 2015 at a time of rising demand for healthcare was wrong and damaging.

He is, of course, exactly right. Making cuts to the 5th largest employer in the world is inevitably going to have a negative effect when the government is its only source of income.

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The article goes on to quote the Department of Health:

  • “The key thing to remember is that there’s effectively a policy that results in redundancies because the single most important policy determinant in the NHS is the spending limits on it imposed by the government.”
  • “The NHS’s budget should be based on population growth and people’s health needs rather than arbitrary Treasury spending limits.”

Again, I agree with these comments. Where I start to disagree with Dr Porter, the DoH, Labour, the guardian, the BBC, and in fact, the majority of the british people, is on how to fix the NHS. We can’t throw more money at it (Unless you know someone who has a tree on which money grows) because our government is already spending too much (Not to mention the debt!).

If I had it my way, I would gradually reduce the NHS by replacing services with a true free market in which private healthcare companies can operate. This would drive down the costs of healthcare compared to the NHS and would save UK taxpayers £billions. In fact, in a previous post I described how the NHS could save 8% of its budget in one swoop by privatising GP services. Do you want to pay for people picking up sick notes for work off their doctor?

Anyway, this idea is probably impossible to achieve due to the media’s grip over the word ‘privitization’. The only real difficulty that occurs due to privatization is it means people would have to shop around themselves for the best bargin. It means they would have to get up off their backside and make their own decisions instead of being forced to pay for one price by the government.

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The philosophy of failure

This following piece of text explains why democracies constantly head for disaster when politicians who promise to give the people more are in charge. For many people, these policies are often too good to refuse, but their long term effects can be disastrous (particularly when you view the current national debt). 

The folks who are getting the free stuff don’t like

the folks who are paying for the free stuff, because

the folks who are paying for the free stuff can no longer

afford to pay for both the free stuff and their own stuff.

And the folks who are paying for the free stuff

want the free stuff to stop.

And the folks who are getting the free stuff want even more

free stuff on top of the free stuff they are already getting!

Now… the people who are forcing the people who pay

for the free stuff have told the people who are RECEIVING

the free stuff that the people who are PAYING for the

free stuff are being mean, prejudiced, and racist.

So… the people who are GETTING the free stuff have been

convinced they need to hate the people who are paying for the

free stuff by the people who are forcing some people to pay

for their free stuff and giving them the free stuff in the first place.

We have let the free stuff giving go on for so long that there

are now more people getting free stuff than paying for the

free stuff.

Now understand this.

All great democracies have committed financial suicide somewhere

between 200 and 250 years after being founded.

The reason?

The voters figured out they could vote themselves money

from the treasury by electing people who promised to give

them money from the treasury in exchange for electing them.

The United States officially became a Republic in 1776,

236 years ago. The number of people now getting free stuff

outnumbers the people paying for the free stuff.

Failure to change that spells the end of the United States

as we know it.

 

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What is the best country in Europe?

I have always thought that Iceland, Switzerland and Norway were the countries with the most common sense in Europe. However, I found out today that Estonia is probably the best and here is why:

  • It is a pluralist democracy
  • A market based economy
  • It has liberalised trade
  • It has no budget deficit and total debt is 5% GDP
  • Unemployment is 1.8%
  • 90% of the economy is privitised
  • You can register a business in under 18minutes (14months in Italy)
  • It has a flat tax
  • It is the law for the government to have a balanced budget
  • The Estonian Central Bank is barred from lending money to the government
  • It has the worlds largest number of start-up companies per capita
  • All their policies were inspired by Margaret Thatcher and Milton Friedman as admitted by former Prime Minister Mart Laar

What an incredible country. This is an example of what can be achieved with the right policies after breaking away from the soviet union (Ukraine should take note!).

Furthermore, Estonia was hit very hard during the recession, unemployment reached 18%! Since then, Estonia now has the lowest ratio of government debt to GDP and the lowest budget deficit in the EU.

Estonia ranks high in the Human Development Index, press freedom (third in the world in 2012), economic freedom, civil liberties and education. It is often described as one of the most wired countries in Europe (Internet), and is recognised as a leader in e-government.

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Those public sector workers…coming here, taking our jobs and our money

This is an example of how public sector workers are generally better off in the UK due to wasteful government spending.

A recent report has concluded:

A private sector employee working full time on around the median hourly wage, would be around £1,400 a year worse off than their equivalents in the public sector. In parts of the country where premiums are highest this rises to as much as £3,200 a year.

 

This premium exists even before the substantially more generous public sector pensions arrangements and other factors are added to the analysis.

With a humongous healthcare expenditure in the UK, the pay differences between the private and public sector employees hurt all taxpayers.

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With government spending increasing year on year, how can we seriously expect to get to grips with our debt?

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One big problem

UK debt reached £1,377bn in Q1 2013. Just think about that number for a second. Actually, its difficult to imagine a number like this in our heads because it is simply too large to compute. With debt forecast to reach 99% GDP by 2014, when will labour, conservatives and liberal democrats admit that government spending has not been cut by enough.

Here is UK debt in euros:

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As you can see we are catching up with France and Germany on total debt. What about debt as a percentage of GDP?

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As you can see our debt is spiraling out of control like it is for many of the eurozone countries.

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What about VAT Mr Osborne?

On the face of it, VAT is actually the fairest type of tax. This is because its a flat tax that treats everyone equal and does not punish those who are successful like income tax. However, VAT is still a tax which gives government more money to spend. I feel the the UK VAT of 20% is very high and it drives a wedge between pre-tax income and post-tax consumption.

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Sorry for yet another obama cartoon, but he is trying to implement a VAT tax in america.

All roads lead to Greece

As Dan Mitchell rightly puts it:

Featherbedding in Greece has exploded over the last 35years.

 

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It has one of the most wasteful governments of our generation.

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The graph above doesn’t even cover the bureaucrats bloated pay and pensions either.

It also hates business:

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However, politicians never quite seem to learn their lesson:

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To find out more about why Greece is special (In a bad way) check out this blog: http://danieljmitchell.wordpress.com/2012/09/01/almost-all-nations-are-heading-for-collapse-but-greece-is-special-in-a-bad-way/

Oh how good it is to be a baby boomer

Oh how good it is to be a baby boomer

Stephen Fry on twitter

Stephen Fry on twitter

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