In this week’s editor’s letter (out here today for subscribers) we note that much of Europe and the UK seem to think that you can buy growth. They are, we keep being told, voting for prosperity not austerity.
But you can’t just vote for prosperity. Life doesn’t work like that. You have to create it. And, given the overriding problems of the West – debt and unemployment – you can’t just create it by borrowing more and spending more.
If you are going to spend more money in a period of rubbish economic growth you have to be sure that doing so will fill certain criteria. Halkin’s Peter Warburton lists them as these:
• Will the desired activity (whatever it might be) “occur only if the public sector acts as a facilitator”?
• Will the increase in public spending have “a knock on effect such that the benefit of the action is multiplied”?
• Will the funding of the expenditure have “no detrimental effect on the funding of other economic activity”?
It is unusual to be able to say yes to all of these “even in emerging countries with modestly sized public sectors” (which is not a way you would describe those of most European countries). The IMF, in its most recent Fiscal Monitor, for example shows that there “the impact of a public spending expansion on the overall economy would be negligible.” I suspect the same could be said for Italy, Spain and probably us too.
So what can we do? Look around the ideas from all our political parties – here and in Europe –and you would think that beyond a bit more borrow/spend/print the answer is nothing. But this is a trying kind of policy defeatism and a maddening example of the ideological black hole at the core of conventional modern politics.
The truth is that we need a big idea to move us forward. The absence of solid economic growth, says Warburton, can generally be traced not so much to a lack of government spending but to “institutional rigidities.” By this he means “restrictive practices by dominant firms or public monopolies; bureaucratic obstacles to starting a business and hiring a workforce; tax and regulatory impositions that discriminate against small businesses.”
So surely the big idea that might move us all forward is not to keep spending more and more in a drive to preserve “state directed privilege”, but to take real and well-advertised action to get rid of monopolies and oligopolies (that’s the banks by the way), to “liberate economic impulses and revitalise beneficial exchanges of money, goods and services.”
Right now the populations of the one -time developed economies of the West are very vocally demanding real change. It is beyond us why their governments don’t have a real go at giving it to them. All your big ideas below please.