Thursday, June 17, 2010

Government spending: some spending saves money

The Gleggeron is determined to cut Government spending. The Green Party is determined to bring about a Green New Deal, which requires significant amounts of Government spending. I have tried here to understand how to square this circle. Today I am going to deal with the difference between spending and investment.

The old saying has it, "Jesus saves, Moses invests". Money is more than figures on a bean counter's spreadsheet. It represents energy - the ability to do work. It can be wasted, or it can be used to improve the human condition.

Energy - oil, gas, coal, uranium, and the electricity we get from it, costs much money. At present we are wasting huge amounts of it, which represents a leakage of money from our pool of national wealth. If I am wasting £200 a year through heat loss, then it is a good idea to spend £600 in insulating my house, because that £600 will be repaid in 3 years, and then assuming my house stands for 100 years, the £600 investment will save £20,000. Which is enough to please both Jesus and Moses - and the Prophet Mohammed, (pbuh), I shouldn't wonder.

These figures are arbitrary, round numbers, to keep it simple so that even qualified economists  can keep up.

Of course, they will come back with the old Discount Rate ballix: "The £20,000 future saving will be slashed, because economists discount the future. We would rather have £1 in our pockets to spend on a line of coke than £100 to pay for our nursing requirements when we are 84". Seriously.

Dealing with people like that, what can you say? Only that it's ballix. And that inflation will cause the £20,000 to expand into £200,000 in terms of the money of the day.

It is very clear indeed to everyone except a professional economist that energy conservation is a no-brainer. Not only does energy and money get saved, but also the woman (or man) who fits the insulation gets good, worthwhile work to do, so her happiness level goes up, and she gets money which she can spend in the local shops, so they get to stay open. Everyone wins.

But not everyone has £600 in the bank to spend on insulation. What then? In that case, the community shall come in and fund the insulation, and the insulatee can pay back from the money saved on fuel bills.

But what if the community/state has no cash? In that case, there are 3 options:
  1. We can go to the banks, who will create the money for us by writing figures into our account which we can use, and an equal figure on their account, which will be paid off, with interest, over the years. This is the debt-loan system of creating money, and is the fundamental reason for the huge black hole  of debt in the world economy.
  2. Local people can get together and pool their excess savings to lend out to pay for the energy conservation.
  3. The nation can create the money, and loan it out at low interest to the householder.
Shock horror! If the state creates money, we will need wheelbarrow loads of cash to buy bread, won't we?
Actually, no. Hyperinflation can happen, in specific situations, but if the money is created wisely, and put to good purpose, (as it is in the present case), and if it is withdrawn from the system if inflation passes a set limit, there is no reason that hyperinflation should occur.

Basically, money is being created all the time. In the 1990s, the money supply doubled every 10 year or so. 98% of this new money was created by the banks, and 2% by the state, in minting money.

Back in the day, all money was created by the state. over the centuries, the banks have arrogated to themselves an effectual monopoly in creating money. It is time to roll back this monopoly. The Credit Crunch showed that the banks have lost sight of reality. The reality is that we need to save energy. If the banks will not create the money to do it, then we the people, through the medium of our Government and its institutions, must do it.

If a thing is physically possible, it must be financially possible. If a thing is physically necessary, it must be made financially necessary.

In short, there is Government spending and there is Government spending. Money spent on brainless schemes such as Trident is different from money invested in saving future spending on energy.

I hope that's clear. Only I do not expect it is to everyone. Which is why next I will blog on Mozambique, malaria, unemployment, and puddles.

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