Our economic situation - Part three
What should we be doing instead?
This is the last of three articles on our current economic situtation, and what we can do about it. The first and second parts of this series may be found here and here, respectively.
What should we be doing instead?
The priority should involve finding ways to aggressively grow the economy. Truss and Kwarteng made this their priority but seemed to simply assert it would happen as an article of faith, in combination with a kind of right-wing Keynesianism that spooked various market forces. They mentioned something vague about supply side reforms to follow, but with little substance- they were forced to fold as they tried to put the roof up before embedding the foundations.
Supply side reforms are the key to unlocking economic growth. We could avoid some of the worst effects of rising interest rates (that private businesses and individuals will default on their borrowings, and the government will have an increasingly expensive debt to service). Instead of relying exclusively on interest rates to dampen inflation, reforming and deregulating many sectors will allow providers to produce things more cheaply and abundantly, reducing prices, and alleviating inflation.
First and foremost- we need to build more. This government has no courage and caves to every vested interest. The nimbyists render a huge influence over national and local government across all political parties. The Town and Country Planning Act 1947 is used to block virtually all building; both of houses and crucial infrastructure. Only vanity white elephants, such as HS2, seem to get through the planning system.
The Tories will suffer badly due to this short termism. On housing-if one cannot accumulate capital why on earth would you support capitalism, or vote for the party who advocate for it as an economic model? Young people are being excluded from their stake in society. We should reform house planning immediately as a top priority, making it much easier to develop new housing. House prices, and rent levels, can be tamed by boosting the stock of homes available. As Ed West mentioned in a blog post earlier this month, if new urban environments are modelled on the likes of Oxford and Bath, as opposed to Milton Keynes, we can ensure aesthetic beauty and mitigate the necessary loss of a small proportion of the natural environment.
Secondly, energy self-sufficiency has no credible plan and needs one. The picture would be much rosier if we had this now. Fracking continues to be banned and trials not even considered. On-shore wind remains prohibited. Both are suppressed to appease the powerful NIMBY lobby. Nuclear energy is still neglected, with Hunt presenting plans for a plant he has inherited, as if it were a new commitment of his. Without change we will remain (and perhaps increasingly become) dependent on imports and slaves to geopolitical instability.
Aside from housing and energy, there are plenty of supply side reforms that will benefit economic growth. Reversing sin taxes, such as those applied to sugar and alcohol, alleviating the regulatory burden on childcare providers, rebuilding the lost railway infrastructure from the cuts of the 1960s, investing in city tram systems, and metro systems in places other than London, as well as cycling infrastructure, could all be included in a viable growth strategy. Not to mention simplifying, or in some cases abolishing, our incoherent environmental measures.
Inevitably, a huge challenge any government would have here, is that cross-party support would be beneficial for many of these supply side reforms to succeed. Changes are often opposed by locals or lobbyists, so need a consensus to be made politically feasible. This is however unlikely to happen as Labour have a big opportunity to become the largest parliamentary party at the next general election, for the first time in years, so will have every incentive to be belligerent. We cannot afford to wait until 2024 when we will perhaps have some semblance of political stability to begin these reforms.
An immediate election and a stable Labour government, if committed to supply-side led economic growth, would therefore be better for the economy than for the status quo to endure. However, this is also impossible, as the Tories are 20+ points behind in the polls and would face electoral wipe out if they triggered a general election. The Hunt-Sunak regime want to ensure the Tories are seen as ‘adult’ enough to survive the next election as a feasible party to re-emerge one day in the future. They appear to have given up on remaining in office, and hope that out of the ashes of defeat something might grow. But they need to wait it out in Downing Street for a bit to regain some trust before facing a more palatable election defeat.
What politicians should do is to be braver and less selfish. Take on the various blocks of vested interests who prevent these reforms, and screw short-term popularity. The Tories will lose the next election anyway, so why not? Or if it is Labour, they will likely just be beginning a period of government, so will have plenty of time to recover from short-term unpopularity as the improving economic record would speak for itself.
If we took this route, the country would be by no means perfect. Serious reform is needed in healthcare, education, crime and justice, and immigration policy. We need to rethink what the objectives of our foreign policy are, remind ourselves of the importance of civil liberty, and work out how to address the various aspects of social breakdown that plague the country. But making Britain a bit cheaper to live in, and creating the conditions for prosperity, is urgent, and, in fact, a prerequisite for addressing our other problems. Economic growth cannot be postponed any longer, without serious consequences. Alas, based on last week’s budget, things can only get worse.
