Money talks, politicians lie

AS THE General Election campaigns continue to roll on in Britain it is become clear that politicians are willing to forgo economic sense in favour of votes.

Even the simplest concept, don't spend money you don't have, seems to have been forgotten as the number of unfunded manifesto pledges increases.

It is common knowledge that manifestos are wish lists which should be viewed with a sceptical lense. This doesn't mean however that parties can put anything in them in the hope that no-one notices that it is fiscally irresponsible.

Governments do have the option to borrow if necessary to fund policies if they feel it is worth increasing the national debt to push them through, so perhaps it is unfair to write off policies which appear unsustainable at this point.

What is most worrying is the way in which policies appear so focused on grabbing votes that they have ignored the potential long term harm that they will cause. Possibly the most noticeable of these is the minimum wage. For many people seeing that a party is prepared to offer a £10 minimum wage sounds like a winning idea, after all who doesn't like the idea of more money in their pocket. The problem is that it won't actually mean more money for individuals. 

Firstly many small businesses already struggle with minimum wages as it is. An increase, particularly such a dramatic one, does not mean the companies sales will increase so income is unlikely to change immediately. This means that to pay the new wage the business needs to increase prices, or lay off staff. 

Where prices stay static, lack of willingness by customers to pay increased prices for example, then unemployment will rise. As unemployment rises there are less people willing to pay increased prices, and so the cycle goes on. The argument that minimum wages should meet cost of living is likewise limiting the scope. If minimum wages are increased then people earning above the minimum wage, quite logically, will want an increase in pay, after all why work in one job if you can earn the same money doing something which requires less skill or stress. As these wages increase the cycle begins again driving up prices as larger and larger firms raise prices to meet the new wage costs and maintain profit margins.

Then there is the toxic issue of the foreign age budget. One party in particular seems to determined to develop the argument of "why are we giving money to foreigners?"  The simple answer is that you spend money to make money.

No matter how it is wrapped up and packaged foreign aid is aimed at stabilising the international system, allowing for development, and gradually through many steps leading to a flowing import export market. It is not a purely philanthropic matter no matter what some people may think. Quite simply the foreign aid budget brings more money into the country than goes out, it just does it in a roundabout and not always clear manner.

When parties try and explain how they are going to fund a policy they think only of the short five year effects on the treasury. The danger is that they forget that in a market economy the knock on effect for inflows and outflows will linger for many more years than this.