The Year Ahead
In looking back at 2013 and ahead to 2014, I would like to thank everyone for their interest in the new discipline of Surplus Energy Economics, and for the many useful suggestions and questions that have helped me develop the thesis.
In this final article of the Old Year, I would like to welcome 2014 with a single thought, which is this –
“the simple answer is usually the right one”
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Simple explanations and simple responses could undoubtedly give us, and our leaders, some useful pointers. Here are nine simple thoughts to be going on with (and please forgive me if some are just too simple!):
1. “Borrowing lands you deeper in debt”.
The coalition government, to its credit, has stuck to this axiom where the public finances are concerned. Goodness only knows what debt and the deficit would look like had Labour been allowed to act on the daft nostrum that we can borrow our way out of a debt crisis.
2. “Houses do not go out to work”
For an economy to prosper, both we and our capital need to earn an income. We are not doing that if we think that property price escalation is a substitute for enterprise. Our capital isn’t earning anything if it’s tied up in houses rather than in businesses or infrastructure.
3. “Borrowing isn’t growth”
Time and again in our recent economic history, we have allowed ourselves to believe that using debt to boost economic activity constitutes “growth”. It doesn’t. At the moment, the British economy is picking up, but there has to be a suspicion that increased personal borrowing, plus a £12bn dollop of PPI compensation, has accounted for an uncomfortably large proportion of that growth.
4. “A healthy economy saves and invests”
Labour, resources, energy, investment and initiative are the pillars of a successful economy, and at least one of these – domestically-created investment – is languishing alarmingly.
There are two ways (and only two ways) in which investment can be funded – you can borrow it, or you can save it. Borrowing, as we’ve seen, simply lands us further in debt, so we need healthy saving if we are to promote the formation of capital. Without capital, the economy cannot grow.
Without savers, we cannot form capital.
Higher interest rates alone can restore a propensity to save – and there is something deeply contradictory about a “growing” economy that is incapable of capital formation – but an immediate step would be to cease taxing interest when that interest is actually a sub-inflation return on capital.
5. “Don’t feed the golden goose on strychnine”
Historic evidence should leave us in no possible doubt that small and medium-sized enterprises are the most effective creators of jobs, growth and wealth, but our fiscal system has long done its very best to poison new businesses at birth. The name of that poison is Business Rates.
It is the enterprise equivalent of strychnine.
If the Business Rates imposition on a new business is (not untypically) £50,000, and the margin is 20%, the business needs sales of £250,000 just to pay the tax-man, even before anything has been spent on useful stuff like premises, equipment, inventory or wages. In any sane economy, Business Rates would be abolished, and the income from it replaced by some form of progressive tax on profits.
6. “We all need a home”
(Tip – it would be hard to think of a single bigger vote-winner than this one)
Obvious though this ought to be, successive governments have ignored the simple fact that a house-building programme could create worthwhile economic activity whilst also beginning to make some inroads into a horrendous housing shortage. At present, housing starts are at less than half the 250,000 level that is required even to contain homelessness at its current level.
Many people are not in a position to buy a property, and need to rent. Others, no doubt, don’t want to buy in an over-priced market, especially as there is only way in which interest rates can go.
There is a simple answer to this one – build council houses.
7. “Each to his own”
Old Labour believed in growing the state, but all too often succeeded only in growing the super-fatted bureaucracy. Swinging to the other extreme, the Blairites believed, that privatisation, and the creation of quasi-markets, would improve the public services.
Events show that neither approach works, for a very simple reason – some services are best provided by the state, and others by the private sector.
Do you fancy a nationalised plumbing industry? Would you like to see policing privatised? Obviously not. Each to his own.
8. “Competition is the natural order of things….”
(…..or should be, anyway, in a free-market economy).
Adam Smith – the doyen of right-leaning economists – had no time for what, today, is called corporatism. “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices”, wrote Smith in The Wealth of Nations.
In 1911, “trust-busters” in the US finally broke up Standard Oil using legislation passed in 1890 (and beefed up in 1914). They also broke up telecoms giant AT&T (a.k.a. “Ma Bell”) in 1982. We need to do the same now, with a particular focus on utilities, supermarkets, mobile phone operators and the retail end of energy supply.
9. “Poor workers are poor consumers”
Legend has it that, when the first production-line robot appeared in a British car plant, a gloating manager demonstrated it to a shop-steward with the words “try to get that to join your union!”
“Try to get it to buy one of your cars”, was the obvious retort. Individual businesses may benefit by driving wages downwards, but the economy as a whole needs affluent employees with money in their pockets.
I warmly endorse yesterday’s observation by CBI Director-General John Cridland that “one of the biggest challenges facing businesses is to deliver growth that will mean better pay and more opportunities for all their employees after a prolonged squeeze”.
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I hope you like these “simple thoughts” – and perhaps you can suggest some additions?
Here’s to a fabulous – a SIMPLY fabulous – New Year to you all!