To rebuild the economy we need to get rid of our love affair with debt, to create a solid base and rebuild industries. We also need to stimulate the economy but as we know money trickles up, not down. So, we need to put reasonable wages into the hands of as many people as possible. We also need to encourage a measure of austerity, saving and debt-reduction.
Finally we have to deal with the issue that the housing market is built on future money which has already been spent. It's not going to be an easy process, it's going to be painful and there are no quick fix solutions or snake oil cure.
We're in this recession until probably 2012 (possibly much much longer depending upon how daft the policies get). The chickens have come home to roost and they're not going anytime soon.
The latest idea for a magic turnaround is to print more money (not for reasons of direct investment but instead to increase the money supply with money from nothing). This is nothing less than catastrophic, madness and is likely to prolong our pain. At worst it could cause a flight to safety of savers and bring our economy into a full blown spiral of depression, as per the 1930s. The last thing we need in a debt laden economy is for the savers and their liquid assets to take flight.
Only a fool of a took would entertain such a move. If you want to get things going, we're going to need to Tax & Spend. We're going to have to redistribute the wealth and bring confidence to the poorest and largest groups of our society. We're going to need direct investment and create stability as well.
Since I seem to get asked for suggestions a lot, I've listed what I consider our actions should be. These are my thoughts:-
- The Bank of England needs to return to its original mandate of controlling inflation. Interest rates need to be raised and maintained. Having a weak pound is good for exports and influxes of cheap foreign capital (which is good for house and stock prices) but it can cause inflationary pressures on imports whilst threatening savings and leading to a weaker internal economy. Low interest rates are not going to kick start our economy as people who have saved are not going to be frightened into spending. They are more concerned over the entire economic situation. Unless the situation is mis-managed, the threat of deflation is only problematic for those with large debts or a portfolio of physical assets and pandering to such groups risks economic collapse and social upheaval. Whether you like it or not, house prices need to fall from the current 7-10x average salary to the historical norm of 3-3.5x, if not below.
- Raise the lower tax threshold. You want to put more money into the hands of as many people as possible.
- Introduce and police a fair rent scheme and cap the level of individual housing benefit. Recession is always a good time for the least scrupulous landlords and exploitation. We will need to move fast on this issue.
- Introduce a derelict, vacant and unkempt seizure programme. Allow councils to seize properties both retail and domestic with due notice into national control with no compensation. In a recession some groups will be tempted to leave their properties in a state which will lead to degeneration in our city centres.
- Adopt the EU working time legislation and introduce a mandatory 35 hour week. You're going to need to spread the work.
- Lower the higher tax threshold and introduce a new higher tax rate band with a 60% tax rate. You're going to have to redistribute wealth. Don't get suckered into this idea of the 'trickle down effect' again.
- Drop the non domicile status. Again you need to raise capital and the threatened flight of some investors is something we should simply accept because any vacuum created will quickly be filled.
- Drop the charitable status of private schools and nationalise those schools which go into bankruptcy. If we want to invest in education we should look at absorbing the private schools on the cheap.
- Drop council tax reductions on second homes.
- Cancel all non-essential government expenditure including ID cards and the NHS system. Redirect savings into building programmes, education and regeneration. Government needs to redirect all high cost, low employment items to high cost, high employment items.
- Show leadership in austerity measures by freezing MP's pay and simultaneously reducing the range of expenses. The last major recession saw MPs freeze wages but enjoy massive increases in expense - this won't wash again.
- Reduce the death tax threshold.
- Introduce equity fines such that companies (& parent companies) found to be in neglect of health and safety, environmental or other government legislation can be fined in terms of cash and penalised in terms of equity. We need to prevent, especially in a recession, companies exploiting the situation and using the defence that fines will bankrupt them. To this effect fines should be cash and equity.
- Force the nationalisation of the major building companies and embark on a national building programme. Rapidly increase the stock of council homes, public buildings and infrastructure works. We need to kick start the building industry and stop the loss of jobs. We need to build around 3 million homes by 2025, however our focus must be in putting wages into the hands of as many people as possible and not in supporting shareholders.
- Invest in education, training and adult learning programmes. Rapidly increase our basic R&D funding. We've got to work on the principle of building for the future not the past.
- Introduce a significant Government VC & National Wealth Fund to invest in start-ups rather than propping up failing companies. Don't get suckered into VC tax breaks, focus on increasing mobility for the poorest and support those wanting to start companies. It's far better to listen to the poorest and start-ups on how we can meet their needs, give them a better future than to listen to entrenched views of the successful and wealthy who will just try to reinforce their position.
- Introduce a government paid national wage to all NI holders who are registered voters. This wage should be paid regardless of employment status and replaces other basic social security benefits. We need to create the feeling that everyone has a safety net and reduce the fear (and hence loss of confidence) associated with the current economic situation.
- With the exception of the national wage, all income should be taxed. Firstly to pay for the national wage but more importantly to break the idea that you will lose benefits by working.
--- 4th Sept 2014
Alas, we pretty much didn't do any of these. We instead did a whole lot of things I wish we hadn't. Fortunately there was some good movement in terms of Gov IT. I'm reminded of this because it's manifesto time again and all the lobbyists are out in force promoting their own self interests. It'll be interesting to see which Party (if any) stands up for societal best interest.
For those who want to know my political view - I'm a great advocate of Deng Xiapong's approach of "it doesn't matter if a cat is black or white as long as it catches mice". I view the market system as an extremely useful tool but not an ends. The role of Government should be to game and exploit all such systems to its advantage, to consider the effects of social inequality on growth, to invest to overcome inertia, to game certain beneficial behaviours and to leave alone when needed. I follow a dual path of both Keynes and Hayek used simultaneously in different markets. In one market you leave alone whilst in another you directly invest, exploit and game. In my world, a Government should doth the caps of both investor (in basic R&D, in encouraging change) and pirate (exploiting other markets for long term gain).
I'm 'old' labour. I view putting our society, the social contract and the the needs of our citizens first as the entire purpose of Government. This is the 'catch the mice'. to create a beneficial outcome for society. It doesn't bother me whether we use markets, or gaming of markets, nationalisation or centrally planned to achieve this and experience dictates that effective management requires all of these methods to be exploited.
Hence my view of a mixed economic system as being the most likely to create benefit over any single method. I'm very firmly in favour of markets and governments. I'm a bit of a dinosaur to some because I'm from the 'Adam Smith' school of economic thought and no, I'm not a friend to the 'Laissez faire' world.