The world of economics and business is riddled with anomalies. For example, the UK is enjoying buoyant GDP growth and low unemployment, yet the excess of government spending over income (the “deficit”) continues to grow. Despite so-called “cuts”, 46% of GDP still goes on public expenditure, of which 60% doggedly adheres to welfare, health and education.

Taxation is another conundrum. With higher corporate profits and lower unemployment, the yield from taxes, duties and VAT should rise, with correspondingly less needed for welfare. Yet the reverse is happening. Who is doing the sums?

Becoming a low-tax regime is the aim of every EU member wishing to attract foreign business. Yet those who succeed, such as Ireland and Luxembourg, are routinely castigated by the others. Perennial promises to repeal the plague of absurdly convoluted tax rules, and replace them with a simpler, principles-based code, have come to nothing. Instead we are stuck with a moralistic, lawless, default position that simply urges all the infamous tax-avoiders to pay some tax. No method, no calculation, no logic.

Unaccountable accountants

Accounting regulators have still not acknowledged that the requirement for banks’ accounts to give a true and fair view has been consistently breached on the erroneous pretext that banks are permitted to hold undisclosed reserves. Yet the Companies Act 1947 clearly stipulates that this disclosure exemption is not a true and fair exemption.

Our profession may not have caused the crisis, but certainly contributed to the collateral damage

And why no formal admission that IFRS 9, which effectively grants directors of banks the discretion of deciding when even the most palpably toxic loan should be written off, is plainly wrong? The most grotesque scandals in banking history have produced not a single acknowledgement that auditors have been passing accounts with vastly inflated assets. Our profession may not have caused the banking crisis, but we certainly contributed to the collateral damage.

Over-regulation backfires

When governments put a populist spin on forces best left to markets, the law of unintended consequences guarantees a perverse result. If, for instance, regulations push the cost of employing a person beyond what an employer can afford, the hardest hit will be the poorest unemployed – the very people you are trying to protect.

Of eighteen countries in Western Europe, only half stipulate a minimum wage. Their unemployment rates fall between 5.9% in Luxembourg and 27.6% in Greece. The other nine have no minimum wage, and five of them have lower unemployment than even Luxembourg. Germany, the biggest, has 5.2 % unemployment and, until now, no minimum wage.

Manipulating currencies

Headline in The Times: “Euro slides after Draghi hints QE is imminent”. What is it that is obvious to markets, to which economists and central bank governors remain blind? If monetary expansion could induce prosperity, counterfeiting central bankers would be doing all of us a great favour.

In the UK in 1971 there was £31 billion in circulation. Now there is £2,100 billion. That is a 67-fold increase, 80% of which has gone straight into the financial and property sectors, which is why you do not feel 67 times richer. Debasing the currency on this scale merely widens the gulf between rich and poor – by the time any of it finds its way into the real economy the general price level has been inflated beyond anything that the majority can afford.

The most egregious fallacy of all is that it is advantageous to be able to devalue your currency, whereas what matters is the level of prices expressed in terms of that currency. A highly productive economy can price its outputs more competitively than a country whose government puts obstacles in industry’s way: rigid labour laws; high employment taxes; bureaucratic regulation; and, inevitably, corruption.

The one factor that seems to elude all the benighted legislators is that every indulgence must, in the end, be paid for. This is the cast-iron rule that cannot be avoided, and the greater the delay the harsher the retribution. I suspect that we shall see plenty of that in 2015.