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Public Sector. Good or Bad?
MacMickster
Posts: 3,645 Forumite
There seem to be an increasing number of posters who regard the very mention of the public sector as if it were another name for Lucifer. It merely leeches them of their hard-earned money. These people fail to understand the circularity of money.
Unless money is either locked away in a bank vault, tied up for long periods of time in fixed assets or spent outside of the UK economy, then it moves around the economy passing repeatedly between the public and private sectors with the treasury as an intermediary.
The tax taken by the government is used to pay for goods and services required to maintain a modern and civilised society. The money that is spent by the public sector (including directly to public sector workers and to private contractors engaged on government sponsored projects) eventually makes its way back to the treasury. Some comes back at once (income tax or national insurance contributions deducted at source), some when it is spent by the worker (eg VAT, fuel duties etc) and some when the profits of businesses benefitting from the workers’ spending (and the profits of their suppliers’, the profits of the businesses where the trader spends his profits and so on) are taxed. It is this circulation of money which is the lifeblood of a healthy economy. It is not a case of the private sector is good and the public sector bad. Both are needed in balance in a healthy society.
Problems arise, however, when cash flow to and from the treasury doesn’t balance. This is where government borrowing and increased spending can be required when the economy (and hence the tax take) slows, but this should be balanced out over the economic cycle by repaying the borrowed money and cutting public expenditure when the economy booms. This is something which successive governments of all colours have spectacularly failed to do. Now we have a government dogmatically determined to tackle the deficit, but starting at completely the wrong point in the economic cycle. They won’t admit to having a Plan B, so let’s hope that they can spin a damned good Plan A+.
In the UK we face another major difficulty with more money disappearing from the economy by being spent overseas than is replaced by money coming into the UK from overseas buyers. This is compounded when it is public funds being spent overseas as none of this money circulates back to the treasury. We are an island in a temperate climate with fertile land on which to grow crops. We (should) have adequate resources of fuel with vast reserves of coal below us, fields of oil and gas surrounding us, plus nuclear technology available to us. Despite this we consume more than we produce, and hence enrich other economies at the expense of our own. Even more unfortunately for the UK economy, our major trading partners, the EU and US, are now suffering their own economic woes, so our balance of payments is unlikely to improve.
Rising asset prices also present a major threat to the economy as they tie up capital and stop it from circulating over an extended period of time. In the same way that we see pensioners suffering who are asset rich but cash poor, the economy can’t thrive when too large a proportion of available money is tied up in illiquid assets.
Increasing personal debt over the last 15 years served to obscure the problems caused by the housing boom. Money is created by the banks when loans are made, and extinguished when it is repaid. People were spending the new money that they borrowed creating an apparent economic boom (the British economic miracle) and keeping taxes flowing in to the treasury. We are now at a stage where those people realise that the time has come to pay the piper, and are consequently reducing their personal debts, again taking money out of the circulating capital in the economy.
The answer? Well there isn’t a palatable one. As a nation and as individuals we have spent too much of today’s money yesterday, and got used to a standard of living which is unsustainable. We lived like kings for a while. Now, for the sake of our children we must live like paupers for a while. There is little point in demonising the public sector as some seem keen to do. Both public and private sectors have to take a hit, but hit either one too hard at the wrong time and we are likely to take the UK economy into a death spiral.
Public sector good or bad? Neither – but necessary.
Unless money is either locked away in a bank vault, tied up for long periods of time in fixed assets or spent outside of the UK economy, then it moves around the economy passing repeatedly between the public and private sectors with the treasury as an intermediary.
The tax taken by the government is used to pay for goods and services required to maintain a modern and civilised society. The money that is spent by the public sector (including directly to public sector workers and to private contractors engaged on government sponsored projects) eventually makes its way back to the treasury. Some comes back at once (income tax or national insurance contributions deducted at source), some when it is spent by the worker (eg VAT, fuel duties etc) and some when the profits of businesses benefitting from the workers’ spending (and the profits of their suppliers’, the profits of the businesses where the trader spends his profits and so on) are taxed. It is this circulation of money which is the lifeblood of a healthy economy. It is not a case of the private sector is good and the public sector bad. Both are needed in balance in a healthy society.
Problems arise, however, when cash flow to and from the treasury doesn’t balance. This is where government borrowing and increased spending can be required when the economy (and hence the tax take) slows, but this should be balanced out over the economic cycle by repaying the borrowed money and cutting public expenditure when the economy booms. This is something which successive governments of all colours have spectacularly failed to do. Now we have a government dogmatically determined to tackle the deficit, but starting at completely the wrong point in the economic cycle. They won’t admit to having a Plan B, so let’s hope that they can spin a damned good Plan A+.
In the UK we face another major difficulty with more money disappearing from the economy by being spent overseas than is replaced by money coming into the UK from overseas buyers. This is compounded when it is public funds being spent overseas as none of this money circulates back to the treasury. We are an island in a temperate climate with fertile land on which to grow crops. We (should) have adequate resources of fuel with vast reserves of coal below us, fields of oil and gas surrounding us, plus nuclear technology available to us. Despite this we consume more than we produce, and hence enrich other economies at the expense of our own. Even more unfortunately for the UK economy, our major trading partners, the EU and US, are now suffering their own economic woes, so our balance of payments is unlikely to improve.
Rising asset prices also present a major threat to the economy as they tie up capital and stop it from circulating over an extended period of time. In the same way that we see pensioners suffering who are asset rich but cash poor, the economy can’t thrive when too large a proportion of available money is tied up in illiquid assets.
Increasing personal debt over the last 15 years served to obscure the problems caused by the housing boom. Money is created by the banks when loans are made, and extinguished when it is repaid. People were spending the new money that they borrowed creating an apparent economic boom (the British economic miracle) and keeping taxes flowing in to the treasury. We are now at a stage where those people realise that the time has come to pay the piper, and are consequently reducing their personal debts, again taking money out of the circulating capital in the economy.
The answer? Well there isn’t a palatable one. As a nation and as individuals we have spent too much of today’s money yesterday, and got used to a standard of living which is unsustainable. We lived like kings for a while. Now, for the sake of our children we must live like paupers for a while. There is little point in demonising the public sector as some seem keen to do. Both public and private sectors have to take a hit, but hit either one too hard at the wrong time and we are likely to take the UK economy into a death spiral.
Public sector good or bad? Neither – but necessary.
"When the people fear the government there is tyranny, when the government fears the people there is liberty." - Thomas Jefferson
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Comments
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In difficult times there always has to be a scapegoat.
The sad thing is that many public sector workers are vital to this country and while there may well be some unnecessary jobs, many people seem to view ALL public sector workers as tax wasters.
It's a very small minded mentality or as Gordon Brown would like to put it, a 'bigoted' mentality.0 -
I think most sensible people fully support people like the police, nurses, the army, fire brigade etc.
The reason Public Sector is becoming a dirty word in some circles is that vast swathe of it that consists of office workers performing dreadful unnecessary red-tape related non-jobs. It was one of nulabor & Brown in particular's favourite ploys to expand the state ad infinitum by creating jobs like these, usually in areas where he would be likely to win seats. Thus there is now a very significant chunk of the population who either work in one of those roles or who's partner does. A neat trick to buy votes, thankfully it didn't buy him enough. Even when some of those jobs are got rid of it's a ploy that will still buy labour votes: anyone laid off because by the coalition is going to hate them - even though the endless expansion of the state could not continue regardless of who was in charge.0 -
I think most sensible people fully support people like the police, nurses, the army, fire brigade etc.
The reason Public Sector is becoming a dirty word in some circles is that vast swathe of it that consists of office workers performing dreadful unnecessary red-tape related non-jobs. It was one of nulabor & Brown in particular's favourite ploys to expand the state ad infinitum by creating jobs like these, usually in areas where he would be likely to win seats. Thus there is now a very significant chunk of the population who either work in one of those roles or who's partner does. A neat trick to buy votes, thankfully it didn't buy him enough. Even when some of those jobs are got rid of it's a ploy that will still buy labour votes: anyone laid off because by the coalition is going to hate them - even though the endless expansion of the state could not continue regardless of who was in charge.
we have had a new coalition for 15 months now
maybe you would like to list all the red tape they have abolished so releasing all these non jobs
(hint: we should soon need fewer planners, as they won't be needed once the geen belt is available for building anywhere one likes)0 -
I only skimmed OP, apologies, but its a very uncomfortable font. At a glance it looked like an illustration of my view of the public sector: a good and necessary idea that's got a bit bloated.0
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we have had a new coalition for 15 months now
maybe you would like to list all the red tape they have abolished so releasing all these non jobs
Not exactly sure what point you're making but to attempt to answer, IMO the Tories haven't cut nearly enough spending or nearly enough red-tape.
The "huge austerity" blah blah is a red herring mainly perpetrated by Labour. We're still spending an obscene collosal amount, much too much. I'd like to see the Tories make much deeper cuts but they are too scared so we're getting the current wishy-washy measures.0 -
Not exactly sure what point you're making but to attempt to answer, IMO the Tories haven't cut nearly enough spending or nearly enough red-tape.
The "huge austerity" blah blah is a red herring mainly perpetrated by Labour. We're still spending an obscene collosal amount, much too much. I'd like to see the Tories make much deeper cuts but they are too scared so we're getting the current wishy-washy measures.
your opinion is noted.
however, the coalition is not making the cuts that you wish.
maybe time to think about why.
all three major parties agree on the need for most of the 'red tape'
notwithstating the rhetoric
think about why that is
maybe actually people like the green belts and fairness and things like that0 -
green belts & fairness? what are you a child?
it's the idiotic red tape I'm talking about.
here's something for YOU to think about. Try running a business & actually creating jobs for people, like I've done, THEN see what you think of the tower of crap that nulabor created for employers.
Then take your smug lecture & shove it, moron.0 -
The problem is all the bad decisions the public sector are unwinding one after another.
Front page of our county newspaper today was a £70m PFI school will actually cost over £200m in payments.
In reality the public sector has spent a lot over recent years and is finding it hard to adjust to the reality that the money the were given before the crash was unsustainable.0 -
clearly there is a need for a public sector. however, the current incarnation is too big, too inefficient and the staff are too well paid. their huge salaries are partly to blame for the housing boom in my opinion. it needs to be massively cut.0
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