ECONOMIC PERSPECTIVES – 59
CHALLENGES AND OPPORTUNITIES – AS NEVER BEFORE
GOING POSTAL – 29 July 2019
The pace of change on the political spectrum is truly bewildering for mere onlookers; and as for the usual clutch of clueless columnists and TV “interviewers”, no matter how measured their misguided speculations may sound, the tripe they churn out plumbs new depths of irrelevance.
The only honest thing that can be said of the new Prime Minister is that few, if any, have a clue about what he will actually do in the short time he has given himself to get Britain out of the European Union – and still less can anyone guess his direction of travel after that. He’s certainly his own man, and is doggedly impervious to any attempts to guide him where he does not wish to go.
Listening to those all-too-familiar EU statesmen dribbling out their tiresome old shibboleths about May’s late lamented withdrawal agreement as the only available “deal”, or to that Irish leader who sounds like a frog, induces a sense, in me anyway, of real possibility of something completely new. Even the fact that these pathetic EU bureaucrats are now so patently out of their depth is hugely heartening.
State of the EU economy
Think for a moment about the EU’s own economy. What’s it got going for itself right now? Even the German industrial powerhouse, on which the economic viability of the entire eurozone ultimately rests, is in the deepest slump since the global financial crisis, threatening full-blown recession. Not just cars – over 80 percent of German factories are in contraction.
As for that shambles of a central bank, the ECB, even president Mario Draghi, openly acknowledges that the outlook is getting “worse and worse”. But what these woebegone chumps find even more frightening than the spectre of imminent economic collapse, is the proof that their policy of almost two decades of monetary demand-stimulation has, contrary to every Keynesian belief, induced a mammoth crisis rather than avert it.
The ECB’s monetary rescue strategy is now dead in the water and I pray that the new men in 10 and 11 Downing Street recognise that its flawed thesis will take our economy down in the same way if it is not reversed. This is but one of the main challenges right now.
The Keynesian solution? Mission Impossible
Draghi, unbelievably, still thinks that more quantitative easing (money printing) and “lower” interest rates will prove to be economically therapeutic. Realistically, how much lower can his existing minus 0.4 per cent go before his magic will kick in?
Inflationary policies of loose money are playing economic havoc wherever applied, inducing massive distortions in asset prices. Bond returns plummet and stock markets rise while investors search for a yield. In declining economic conditions these are classic ingredients of a perfect storm when present at the peak of the credit cycle.
When will they learn? The economic downturn is not worsening because of too little credit. Monetary policy has clearly hit the buffers and the traditional tools of lower interest rates and reckless credit expansion are inherently inflationary and merely make matters worse. Sovereign and domestic debt levels as a proportion of GDP are completely unsustainable – yet the world’s central bankers believe that still more of the same madness will get things going again!
Lost purchasing power – the currency demise
Government statisticians can, of course, massage the numbers and try to prove to you that prices are hardly rising, but by now it’s obvious to every consumer that official inflation figures, no doubt mathematically verifiable, are just so much bullshit! Consumers know that almost everything is becoming more and more expensive, and the Treasury should stop insulting our intelligence.
Putting it a different way, what we experience as rising prices is a manifestation of falling purchasing power. Indeed, it’s the same thing – but when you see it like this the real fear is for the continued credibility of the currency itself. That fear is evidenced in the decline in purchasing power of all major fiat currencies – coupled with a rise in the price of gold. As they say, go figure! You don’t have to be a genius.
The message from our new leader should be for us to recognise a growth in productivity as the only sustainable way of delivering higher living standards. This requires a completely different political mindset – away from all that regulatory madness and government intervention, and a return to self-interested (not selfish!) human action.
To succeed, a pro-growth domestic agenda will have to confront, and overcome, prejudices and vested interests, especially when these lurk behind the veneer of officialdom. Just as an example of thinking outside the May-box, domestic mobility could easily be freed by scrapping the highest rates of stamp duty, and by replacing business rates with (my pet promotion!) a business site value tax.
Grandiose investment projects should be subjected to rigorous cost-benefit scrutiny before being given a go-ahead.
All the interference taxes designed to nanny society towards improved health, or to protect selected industries such as the proposed digital services tax, should be scrapped.
And, as suggested by Ryan Bourne in the Daily Telegraph, all corporate capital expenditure should be made tax deductible; electric scooters on cycle pathways should be legalised; and an environment conducive to new technologies like AI, robotics and electric cars should now be put in place.
Abolishing the EU detritus
And, since this vigorous new thrust stems from our decision to put EU bondage behind us, we can celebrate by abolishing that diabolical, ultra-protective, distortive and anti-market Common Agricultural Policy (CAP) – and follow that by getting rid of the anti-scientific EU rules on clinical trials, and instituting a simple, broad-based carbon tax to replace many complex climate regulations.
From this and previous essays you will have discerned my fundamental belief in the transformative virtues of (i) free trade; (ii) protecting the currency from further debasement; and (iii) a low regulation, low tax government.
Well, I do believe that the political landscape is at last poised to make us all a good deal happier!
GOING POSTAL 29 –7-19