Nonstopdrivel
15 years ago

May 4, 2010
British General Election: Even the Winners Will be Losers 

[Editor's Note: In the article that follows, U.K. native Martin Hutchinson, who correctly predicted the outcomes of the 2008 presidential primaries and general election, handicaps Thursday's British general election in which Gordon Brown's Labour Party faces David Cameron's Conservatives and Nick Clegg's Liberal Democrats.]

By Martin Hutchinson, Contributing Editor, Money Morning

The British general election campaign reaches its climax on Thursday, and at this point appears to be anybody's game. The most likely outcome is a "hung parliament" in which no party has a majority and a government is formed through backroom haggling.

However, after looking yet again at the state of the economy in my native Britain, I'm forced to ask a simple question: Why would anybody want the job?

Until 2008, the British economy looked to be in decent shape. It suffered badly in World War II, and then failed to enjoy the same postwar growth as France and Germany because its taxes and government spending were way too high. The simultaneous financing of a free National Health Service and a vast-and-rebellious imperial overhang during the 1950s and 1960s was impossible.

As the British Empire was abandoned and cutbacks made there, the National Health Service and the expansion of university education ate up all the savings. After 1979, however, under Prime Minister Margaret Thatcher, significant free-market reforms in labor law and privatization, together with fairly minor cutbacks in the state sector, produced a much-healthier economic picture.

The early 1990s were painful years for Britain, partly because the attempt to link the pound to the German mark in 1990 made the economy very uncompetitive for two years and required interest rates of 15% to sustain it (as a London homeowner during that period, I still bear the scars - British mortgages are floating-rate!).

Once the pound was allowed to float (downward) in 1992, however, the economy never looked back: From 1992-2007, Britain had the best-sustained growth in Europe.

Two problems remained.

First, even in the 1990s, Britain had again become sloppy about public spending. Spending was allowed to increase, and the increase accelerated after 2000 as the Labour government elected in 1997 settled in and started implementing its wish list.

British public spending - which had bottomed out at around 38% of gross domestic product (GDP) in 1989, Thatcher's last full year - would actually exceed 50% of GDP by 2009. What's more, tax revenue was allowed to fall behind, so that in 2007-2008, a boom year, Britain still ran a budget deficit of 5.3% of GDP.

The other problem was that the economy became increasingly dependent on revenue from the City of London financial district, which developed into a kind of offshore island with very little connection to the rest of the economy. This was partly because London housing prices had zoomed into the stratosphere (the London house that I sold in 1994 for three times what I had paid in 1984 was worth four times that sales price by 2007).

Needless to say, with inflation fairly modest, incomes in 2007 were not 12 times what they had been in 1982. Except in the City. There, even more than on Wall Street (because they started much lower), incomes had gone through the roof. Unfortunately, only Brits earned a modest proportion of those incomes.

In the aftermath of a poorly designed deregulatory push in the middle 1980s, the British merchant banks had been bought out or had gone bust and almost all London banking was controlled from either Wall Street or continental Europe.

Naturally, most of the bankers - like "Fabulous Fab" of Goldman Sachs Group Inc. (NYSE: GS) - weren't British, either. Even more annoyingly, they didn't have to pay British tax, because they could pretend to earn their income outside the country. Add in a sprinkling of Russian mafia and Arab oil sheiks also attracted by the tax benefits - and a mass of impoverished immigrants attracted by generous social benefits - and you had a society in which there was huge inequality and very little in the way of domestically generated productive endeavor.

Needless to say, that's why there's a problem now.

A Tough Road

The British budget deficit is considerably larger than that of its U.S. counterpart. In fact, at about 12% of GDP, Britain's budgetary shortfall is now nearing Greek territory. The City of London looks much less likely to sustain the entire economy going forward - the financial-services business itself may get smaller, and there is now little reason why it should not move elsewhere.

House prices in Britain haven't fallen as far as they have in the United States, which could well mean that there are more huge losses to come in the housing-finance sector.

Various social pathologies have been encouraged by the last 13 years of politically correct public spending, so the forces that should produce an entrepreneurial revival here in the United States may prove too weak to prevail in Great Britain.

There's a second difference whose impact is worth noting. In the United States, a mere year of government expansion has produced a huge political backlash. In Britain, the expansion of government was twice rewarded with thumping election victories - one in 2001 and the other in 2005. Only now, when disaster has occurred, is there any possibility of change - and even now there's no certainty of it.

Bank of England (BOE) Governor Mervyn A. King recently said that the party that wins this election would become so unpopular because of the policies it was forced to introduce that it would be out of power for a generation.

I tend to agree. As a young lad, I wanted to become prime minister (until my student electoral record of zero for 32 (0-32) told me that I'd better shift my career aspirations into banking...). However, even if I were guaranteed the chance to achieve my dream, I wouldn't want to take over right now: They could offer me full dictatorial powers and a guaranteed 10-year term, and I'd still turn it down.

Prime Minister Thatcher turned the British economy around in the 1980s. But today's problems are much worse, and the solutions far more painful - so painful, in fact, that any reformer would get tossed out of office after one term, after which all the "reforms" would get reversed.

That brings us to the eventual outcome of this long and painful story. The probability of an eventual British default on debt must be quite high - and since Britain is not a member of the euro, there would be no bailout.


UserPostedImage
Fan Shout
Mucky Tundra (5h) : And then he signs with Cleveland in the offseason
Mucky Tundra (5h) : @SharpFootball WR Diontae Johnson just admitted he refused to enter a game in 41° weather last year in Baltimore because he felt “ice cold”
Zero2Cool (20h) : Yawn. Rodgers says he is "pretty sure" this be final season.
Zero2Cool (23-Jun) : PFT claims Packers are having extension talks with Zach Tom, Quay Walker.
Mucky Tundra (20-Jun) : GB-Minnesota 2004 Wild Card game popped up on my YouTube page....UGH
beast (20-Jun) : Hmm 🤔 re-signing Walker before Tom? Sounds highly questionable to me.
Mucky Tundra (19-Jun) : One person on Twitter=cannon law
Zero2Cool (19-Jun) : Well, to ONE person on Tweeter
Zero2Cool (19-Jun) : According to Tweeter
Zero2Cool (19-Jun) : Packers are working on extension for LT Walker they hope to have done before camp
dfosterf (18-Jun) : E4B landed at Andrews last night
dfosterf (18-Jun) : 101 in a 60
dfosterf (18-Jun) : FAFO
Zero2Cool (18-Jun) : one year $4m with incentives to make it up to $6m
dfosterf (18-Jun) : Or Lions
dfosterf (18-Jun) : Beats the hell out of a Vikings signing
Zero2Cool (18-Jun) : Baltimore Ravens now have signed former Packers CB Jaire Alexander.
dfosterf (14-Jun) : TWO magnificent strikes for touchdowns. Lose the pennstate semigeezer non nfl backup
dfosterf (14-Jun) : There was minicamp Thursday. My man Taylor Engersma threw
dfosterf (11-Jun) : There will be a mini camp practice Thursday.
Zero2Cool (11-Jun) : He's been sporting a ring for a while now. It's probably Madonna.
Martha Careful (10-Jun) : We only do the tea before whoopee, it relaxes me.
wpr (10-Jun) : That's awesome Martha.
Mucky Tundra (10-Jun) : How's the ayahuasca tea he makes, Martha?
Martha Careful (10-Jun) : Turns out he like older women
Martha Careful (10-Jun) : I wasn't supposed to say anything, but yes the word is out and we are happy 😂😂😂
Mucky Tundra (10-Jun) : I might be late on this but Aaron Rodgers is now married
Mucky Tundra (10-Jun) : Well he can always ask his brother for pointers
Zero2Cool (10-Jun) : Bo Melton taking some reps at CB as well as WR
Zero2Cool (10-Jun) : key transactions coming today at 3pm that will consume more cap in 2025
Zero2Cool (9-Jun) : Jaire played in just 34 of a possible 68 games since the start of the 2021 season
Zero2Cool (9-Jun) : reported, but not expected to practice
Zero2Cool (9-Jun) : Jenkins has REPORTED for mandatory camp
Zero2Cool (9-Jun) : I really thought he'd play for Packers.
buckeyepackfan (9-Jun) : Packers releasing Jaire Alexander.
Mucky Tundra (8-Jun) : (Context: he wants his defense to create turnovers)
Mucky Tundra (8-Jun) : Giants DC Shane Bowen tells players to “be a damn pirate."
dfosterf (6-Jun) : Semper fi !
Cheesey (6-Jun) : This is why I have so much respect for those that have gone through battles
Cheesey (6-Jun) : I can't even imagine what that would have been like
wpr (6-Jun) : "Come on, you sons of bitches. Do you want to live forever?"
wpr (6-Jun) : Facing a line of machine guns 2 time medal of Honor recipient, First Sergeant Dan Daly told his men,
wpr (6-Jun) : Another detachment went into the Belleau Wood.
wpr (6-Jun) : On the 6th the Marines took Hill 142 but suffered terrible losses.
wpr (6-Jun) : It’s time to remember dfoster’s Marine brothers in Belleau Wood. The battle went on from June 1-26. Nearly 10,000 casualties.
packerfanoutwest (6-Jun) : Nick Collins and Morgan Burnett have signed with the PACK
packerfanoutwest (6-Jun) : he won't be wearing #12, maybe he will wear number two
packerfanoutwest (6-Jun) : He will fail this season, should have retired
Mucky Tundra (5-Jun) : Thus the cycle of Hall of Fame Packer QBs going to the Jets and then the Vikings is broken
bboystyle (5-Jun) : Rodgers to steelers on 1 year contract
Please sign in to use Fan Shout
2025 Packers Schedule
Sunday, Sep 7 @ 3:25 PM
LIONS
Thursday, Sep 11 @ 7:15 PM
COMMANDERS
Sunday, Sep 21 @ 12:00 PM
Browns
Sunday, Sep 28 @ 7:20 PM
Cowboys
Sunday, Oct 12 @ 3:25 PM
BENGALS
Sunday, Oct 19 @ 3:25 PM
Cardinals
Sunday, Oct 26 @ 7:20 PM
Steelers
Sunday, Nov 2 @ 12:00 PM
PANTHERS
Monday, Nov 10 @ 7:15 PM
EAGLES
Sunday, Nov 16 @ 12:00 PM
Giants
Sunday, Nov 23 @ 12:00 PM
VIKINGS
Thursday, Nov 27 @ 12:00 PM
Lions
Sunday, Dec 7 @ 12:00 PM
BEARS
Sunday, Dec 14 @ 3:25 PM
Broncos
Friday, Dec 19 @ 11:00 PM
Bears
Friday, Dec 26 @ 11:00 PM
RAVENS
Saturday, Jan 3 @ 11:00 PM
Vikings
Recent Topics
2h / Around The NFL / Martha Careful

23-Jun / Green Bay Packers Talk / Mucky Tundra

20-Jun / Green Bay Packers Talk / wpr

20-Jun / Green Bay Packers Talk / beast

20-Jun / Green Bay Packers Talk / beast

18-Jun / Random Babble / Zero2Cool

16-Jun / Green Bay Packers Talk / dfosterf

15-Jun / Random Babble / Martha Careful

14-Jun / Around The NFL / beast

14-Jun / Community Welcome! / dfosterf

13-Jun / Green Bay Packers Talk / dfosterf

13-Jun / Green Bay Packers Talk / Adam

12-Jun / Random Babble / Martha Careful

12-Jun / Green Bay Packers Talk / Zero2Cool

12-Jun / Green Bay Packers Talk / beast

Headlines
Copyright © 2006 - 2025 PackersHome.com™. All Rights Reserved.