The Sheep have Turned13th October 2014
Now that the Scottish have had their say, it has been interesting to review a few headlines. My favourite, from a US website, was “The Sheep Have Bleated”. It makes the point that the majority, whether through positive choice, fear or misunderstanding voted for the apparent security implied by “together is better”.
Our democracies have become entranced by the 51% principle, despite the fact that it is only those floating voters at the margin who decide the outcome of most issues. The floaters who voted against independence have now committed the 100%, for better or worse, to be stuck with the depreciating British Pound, and greater tax-raising and spending powers. Plans for those greater tax-raising powers are already underway with higher property stamp duty North of the border.
No mention during the campaigning of tax reductions for a stronger economy, but hey-ho, the world will eventually understand that those who champion the idyll that Government Spending boosts the economy are little more than hustlers plying their alcoholic elixirs in the Wild West. This fate imposed on us by so-called Keynsian is due to the fact that our politically directed society has little incentive to change their ways. Authorities still proclaim a 3 to 1 multiplier as a “benefit” of state “investment”, and yet little of this spending is actually in sustaining long-term economic betterment, and most is highly counter-productive, boosting beloved Government statistics whilst leaving the majority behind.
At the centre commonly held standards are vital, such as the respect for property, although that is now under attack with certain parties threatening mansion taxes. It should be remembered that taxes that just hit the few invariably end up being paid by the many. See how the word “property” has become tarnished over time, for property once included “income”, yet income taxes have become a part of life.
Attending a recent symposium in Oxford, I was engaged by a debate on the country’s finances 200 years ago. Were not those providing their savings to fund the government’s expenditure on the Great War (for that is what they called the Napoleonic Wars at the time) taking a deep interest in the conduct of the war? Well, lets review just what enables a country to sustain its Government spending.
200 years ago, most of Continental Europe was shattered by a rampaging war lasting over two decades. Trade was stifled by the Continental System that Napoleon used in an attempt to bring Britain to it’s knees. Britain controlled the seas, and so was free to generate wealth through the early development of Empire, trading more freely and further afield than other nations. What duty and taxation there was distorted important product markets, just as duties do today. The introduction of modest income tax raised some useful funds for wartime coffers, but at the cost of reducing the available pool of local and regional investment. And so the wars required debt to fund them.
As my friend Dominic Frisby pointed out in his book Life After the State, government debt enables wars to be prolonged far more than they could otherwise be. Maybe for this reason the Whigs, in 1815, would gladly have made peace with Napoleon, and Waterloo would never have happened … but they were not in power, and history evolved with a famous allied victory.
But do the savers who lend to government really care how it is spent? And are those savers really important to the government? No. The recent experiences in the Eurozone demonstrate that savers only care if they suddenly fear that their face-value won’t be repaid in full, on time, a la Greece. Repayment is generally achieved by states issuing more debt to replace that being repaid, and more debt to cover the interest costs on continuing debts, in a cycle of greater and greater debt. No wonder politicians love this land where the choices they make don’t seem to matter to them!
Furthermore, savers are not necessary. 200 years ago, savers were all that some countries had. In Britain our system of fractional reserve banking meant that banks could and would expand their balance sheets to lend more and more to governments, in return for interest, just as they as they still do today. To ensure the continuation of the banking system that feeds them so well, governments across the world regulate and provide deposit guarantees to savers, which creates a world of “believers” in the economic system that we see around us. Indeed the UK has just extended it’s deposit guarantees to include temporarily large deposits from house sales.
Are there drawbacks? Too right there are. Our monetary systems are at the heart of mal-investment, and do little to provoke active competition between the safety provided by different banks.
This week we see Britian’s first elected UKIP Member of Parliament enter the house. Economically, Dominic Carswell is a particularly interesting character. Read his books, and you’ll see that he really does “get it”. Invariably this means Government getting out the way, rather than pretending that it can somehow “steer the economy”. Read Douglas Carswell’s book “The End of Politics and the Birth of iDemocracy” and you’ll see what I mean.
Now politics isn’t really my cup of tea, and probably not yours either. But if someone in the street suggested they could improve your personal economy by firstly taking a huge slice of your income each month, and then add to the cost of most of what you buy with extra taxes and duties you’d laugh … and yet we regularly vote for such clowns.
At times like these we need a plan. So it is fortunate that Douglas Carswell also published such a book in 2008 with Daniel Hannan, “The Plan, twelve months to Renew Britain.” It refreshingly starts with “Why everyone hates politicians” and finishes, constructively, with a thirty point plan over 28 pages. Now there is an oven-ready manifesto just waiting to be printed.
I wonder how much of that will reach a certain manifesto next year? If it does, it could be that rather than bleating, the Sheep will Turn. Perhaps we have already turned. If workers and investors are given the right incentives there is no end to what we can achieve together. Forget big government, and bring on trade.
As Woodrow Wilson, 28th President of the United States said “Liberty has never come from government. Liberty has always come from the subjects of government. The history of liberty is the history of resistance. The history of liberty is a history of the limitation of governmental power, not the increase of it.”