THE PONZI CLASS AT PLAY

Attention is currently being given to the Office for Budget Responsibility (OBR). The OBR is seemingly to sit in judgement on the Government’s economic plans. This is entirely unwarranted. The OBR should have been abolished as had been rumoured it would be.

The OBR are Ponzi economists, who see increased immigration as the route to increased growth. The Tory MP Mel Stride, chairman of the Commons treasury committee, is already floating the policy of a higher immigration rate, reportedly saying that ‘an obvious “quick fix” on growth would be to open up Britain to much higher immigration’ (see the Financial Times article). Liz Truss, the prime minister, is also rumoured to be keen to increase immigration.

In reality, there is no case for mass immigration. In The Hegemony of Political Correctness: and the rise of the woke-Right, I wrote:

“This leads to the third part of how political correctness is funded: Ponzi economics. The welfare system, particularly regarding mass immigration, is run as a Ponzi scheme. The government takes money from those immigrants in work, who tend to be younger than the host population. The welfare benefits paid out, in the short term, are less than the tax revenues the immigrants paid. Therefore, the government is happy immigration is a good thing. But what of the extra demands immigration places on schools, hospitals, roads, railways and housing? The government either does not pay those bills, or makes a fanfare of the odd token gesture towards doing so.

Meanwhile, the accumulated liability for pensions is ignored. This is an unpaid bill that is an escalating debt some future government must deal with many years away. A Ponzi scheme will collapse ultimately due to the consumption of capital to meet debts as they fall due, but due to the promise of a profitable return, those debts are greater than the incoming capital in the long term. In the short term, the Ponzi scheme can survive by attracting an ever larger number of investors, but ultimately the scheme will not be able to attract sufficient investment capital to meet the debts as they fall due for payment. The scheme collapses, overwhelmed by large unpaid debts and paltry assets as the capital invested has been consumed.

Governments are different and have more leeway with Ponzi economics. Put simply, they do not pay the debts as they fall due. They just offload them as unpaid bills onto the public. Pensions are cut, welfare payments are cut, new schools are not built, hospitals are not built, roads and railways are not constructed, and the housing stock remains broadly the same despite the expanding population. As a result, the public pays. Pensioners are financially squeezed, as are others dependent on welfare. School classes get bigger, and consequently, the quality of schooling diminishes. Hospitals are stretched, doctor and dentist appointments difficult to get, and waiting lists get longer. Traffic jams get worse and the railway carriages get more packed. Living standards fall for many as they are priced out of having a home of their own (and so would ultimately become property owners with an asset they can pass on to their children) and have to pay increased rents in the private sector, assuming they can even pay that and are not forced to live with their parents.

Not only is the quality of life reduced, but these unpaid bills reduce the income and wealth of the public. Even sitting in a traffic jam can be quantified as a cost. Housing is more easily quantified as many lose out on the opportunity to become homeowners, and hence their children lose out on their inheritance.

Wages are depressed. Having to compete with low paid immigrants drives down wages. Especially if immigrants are shacked up in dormitories to avoid the costs of housing and maximise the money left to send back home (where costs are cheaper and the money goes far further). Worse, in the long term, productivity growth is reduced as employers use cheap immigrant labour rather than invest in more productive machinery. For example, as the then UK Chancellor of the Exchequer, Philip Hammond, pointed out, Britons have to work five days to do what German workers do in four. To put it another way, the income of British workers is only 80 per cent of what it should be if British productivity matched Germany’s, and British workers would be 20 per cent better off if they did so. This is the cumulative cost of the corrupting effect of the welfare system on governance.

A very good example of the grip of Ponzi economics in the UK is the Office for Budget Responsibility’s (OBR) ‘Economic and Fiscal Outlook’ report of March 2016 (in the run up to the EU referendum). In this report, the OBR examined the effect on the government surplus or deficit, going forward, of different levels of net migration into the UK. They had three scenarios: high, low and ‘natural change’ (or zero net migration) scenarios. In doing this, they made some assumptions (italics are my emphasis):

‘In these scenarios, higher/lower migration leads to a higher/lower population and employment rate (because net inward migration is concentrated among people of working age). We do not assume any change in average productivity per worker. The effect on the public finances is driven by population size (e.g. higher numbers of taxpayers or benefit recipients) and age structure (e.g. those of working-age pay more tax and do not receive child benefit or state pensions). Since the Government has set departmental spending plans in cash terms, we do not assume that changes in population size lead to changes in departmental spending.’

According to the 2011 census, 26 per cent of Muslims had no qualifications, with the percentages for Hindus and Sikhs being 13.2 per cent and 19.4 per cent respectively. Yet the OBR assumed that there would be no difference in productivity between comparatively well-educated British people and immigrants, many of whom are from the Third World (‘net migrants to the UK on average have the same age- and gender-specific characteristics as the native population, with the same employment rates and productivity and the same net contributions to the public finances’). Furthermore, with a steady inflow of cheap immigrant labour, employers can exploit that labour rather than invest in more modern production methods and so raise the productivity of their existing, indigenous workforce. Furthermore, the laws of supply and demand dictate an increase in supply will depreciate the cost of that supply. The more workers there are, the lower the wage rates. Furthermore, workers require welfare (such as schools and hospitals) and future pension provision – more advanced machinery to raise productivity does not. Machines do not need pensions.

The OBR justified the assumption that departmental spending would not change on the grounds they were ‘fixed in cash terms at the levels set out in the November Spending Review and this Budget’ and those levels were set for the ‘next four years’, so there would be no increase regardless of net migration. No extra spending on schools, hospitals, roads, railways, or for housing – at all. Not one penny.

The OBR were fixated with the size of the population as being the route to higher growth:

‘…the reason for potential output growth being revised down less than trend productivity in the UK but more than trend productivity in the US is largely due to developments in the labour market … In the US, the CBO [Congressional Budget Office] expects it to have fallen significantly. Population growth has boosted potential output by more than expected in both countries, with net migration being the main factor in the UK.’

The OBR were open in their praise for net migration:

‘Net international migration to the UK is an important driver of the economy’s underlying growth potential. It affects it directly (via population growth) and indirectly (by contributing to changes in the employment rate, average hours worked or underlying productivity growth). Net migration has accounted for over half of UK population growth over the past 15 years and the ONS projects that this will remain so over the five years of our forecast period. Net migration to the UK has typically been concentrated among people of working age, which the ONS assumes will continue over the coming years. That means net migration leads to a higher employment rate and lower dependency ratio than would otherwise be the case.’

In assessing the impact of net migration on the three scenarios, the OBR ‘assumed that net migration affects potential output growth (via population and employment rate effects)’ and that ‘while real and nominal GDP growth vary in each scenario, inflation, average earnings growth, interest rates and the unemployment rate are unchanged’. Although, ‘We have, however, assumed that given the very low responsiveness of housing supply in the UK to changes in demand, changes in population growth will feed through to changes in house prices.’

The outcomes of the three scenarios were that the high level net migration scenario produced higher GDP, the low migration scenario produced a less high level of GDP, and the zero net migration led to lower GDP and lower house prices.

It should be noted that the OBR adopted a statist approach and gave a good example of civic nationalism in practice. They examined the issue of net migration from the state’s viewpoint and did not take any account of the interests of the public. English interests were ignored.

The idea more people will cause more tax is bunkum. To be exact, people are not taxed. What is taxed is their income and expenditure. What is needed is higher income. One person earning £50,000 will pay more tax than two people earning £25,000 each, and that one person will require less welfare and only one state pension. The case for net migration is garbage.

The so-called Office for Budget Responsibility set out a Ponzi scheme. They set out an example of Ponzi economics. In the short term, the state could pocket more money in taxes than it paid out in benefits, due to the assumed demographics of the immigrants. The state could then spend this ‘profit’. The future liabilities arising with the net migration, such as pensions or the future population growth arising as the immigrants have children, were completely ignored and not quantified. Further, the OBR assumed whatever the level of net migration there was, there would be no increase in government spending to deal with that net migration, such as spending on schools, hospitals, roads, railways, housing and the whole infrastructure of local government. They assumed there would be no adverse impact on wage rates, productivity, inflation, or unemployment. They did acknowledge house prices might increase, due to the inevitable housing shortage, but did not quantify the financial impact of that upon the indigenous population or the adverse effect on that population’s quality of life in the short or long term. Nor did they take any account of the social consequences.

This is Ponzi economics; it is a fraud, and it is key to the funding of political correctness.”