The Recession 2: What Osborne Should Do

Our once esteemed Chancellor George Osborne, whose highly anticipated 2012 budget collapsed in a smouldering heap weeks after its delivery, a man who has been described by his own MPs as an ‘arrogant posh boy,' must be wondering what lies at stake for him for the future in public office and in his political career. 

His current part-time role as Chancellor, and stated objective of economic growth, has been a dismal failure. The extremely modest deficit reduction achieved so far has occurred mainly through stealthy tax hikes and his extreme monetary easing policies are doing nothing but storing up inflation and anger for the future.

His opponents on the other side of the commons can offer no better. Labour’s answer is, as usual, a call for more Gordon Brownesque demand side Keynesianism, more borrowing, more stimulus, and an avoidance of the real problems for a braver leader of the future. 


This two part series argues that the ‘austerity vs growth’ debate of recent months is disingenuous and misleading. The first part focused on the austerity side of the debate, and gave examples of how deficit reduction can be achieved without it. This second part focuses on growth, a word which has been hijacked by Labour in recent times to mean ‘more spending,’ and a concept that continues to elude Mr Osborne.

In order for Osborne to keep his office at the Treasury, he will probably have to give up his role as Tory election campaigner and will almost certainly have to change his economic strategy in some regard.

What the country needs is real plan for growth. A strategy that will actually makes it easier for people to trade and create jobs, but also a strategy that does not involve piling more debt onto our bankrupt government.

This post argues that growth can be achieved without spending excessively and can be done immediately with demonstrable results in as little as a few years.

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Some may have seen Simon Jenkins’ two cents on the BBC championing Keynesian ‘stimulus’ money distribution, eloquently and coherently delivered, complete with visual aids for the numbers and even a small quiff about bankers. One can only admire his style and approach, relished with electric guitars and a academic library backdrop.

Mr Jenkins makes two very good points. Firstly that the government’s plan has failed, which indeed it has, and secondly that the government’s monetary stimulus (aka quantitative easing) is even more of a failure, which it was always going to be (as it is just printing money after all).

My favourite part of Jenkins’ short video is the part where he explains that the credit crunch (or ‘liquidity trap’) is the “black death,” the “curse” on the economy, and then goes on to say that “the money” should be given to people and not to businesses.

There are two fundamental errors with this analysis. Firstly there is the assumption that creating more money is the only way to solve a liquidity crisis, or in other words the denial that there are other ways to solve a credit crisis which to promote would perhaps be a more valuable use of his time. Secondly there is the use of the phrase ‘the money.’ Jenkins says that instead of giving ‘the money’ to the banks, we should instead give ‘the money’ to the people. What money is this then? It is truly worrying to hear politicians fronting the same fraud that has been going on for years now.

If anyone is still unsure: Printing money = inflation. Giving everyone more money, does not make us richer, it only means that there is more money in circulation and that prices will therefore rise. Giving money to the banks is also fruitless; it just means that banks and big businesses get richer and ordinary folk get poorer (through higher prices).

Needless to say, there is no money. We are heavily in debt, and this money that the government declares it will pump into the economy is, as Jenkins quite rightly points out, - a fraud, a scam, a lie.

So Jenkins is right about one thing - there is a credit problem. There is lots of money sitting in bank accounts inactive. People do not want to lend. People do not want to spend. The economy is withering. But our wealth, our standard of living, is not measured by how much money we have; it is measured by the goods and services that we can afford, i.e. how much our money can buy - the purchasing power of our money. Giving us cash is meaningless if prices keep rising to counteract this illusion of wealth.

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Given the visceral rivalry between Osborne and Balls it is incredible that their economic plans are so similar. This constant push for quantitative easing and the ridiculous ‘credit easing’ gimmick, appear to be a continuation of the ‘hope and pray’ Gordon Brownonomics which earned Labour such a dreadful reputation in financial competency.

There are in fact ways of getting growth in the UK, if that is what people want, without vast amounts of borrowing, as Labour would do, and without the disastrous money creation, that Osborne is pursuing. So what is to be done?

What we need is supply side reforms, for a business friendly environment where people can make things, sell things, start companies, employ people, and invest in long term projects. But sometimes in order to make an omelette you need to break a few eggs, and if this country is to have any hope of getting growth, that is based on something more than phony credit and fake money, then we need to roll back the burden of government.

This means we need to stop spending peoples’ money collectively, and let them spend it themselves. It means actually making it easier for people to trade with each other, grow their businesses and employ people. Here are some suggestions, which Cameron and Osborne could do immediately, without leaving the EU, which would genuinely lead to economic growth:

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Liberalise employment regulation.

Business owners create jobs. In order for there to be jobs, you need businesses. If businesses do well, they expand, and there are more jobs. Simples.

What makes it difficult for businesses, is a vastly increased cost of taking on new employees and the fear of employing someone, finding out they are not right for the job, and then being unable to let them go for fear of a costly employment tribunal.

To give some examples: From the EU we have seen the Agency Workers Directive, which forces employers to offer full holiday and benefits etc. to part time workers. Many employers actually go through the laborious process of offering fixed term temporary jobs and rehiring and retraining new part-time staff, before they have to give them full benefits, just to get around this rule.

Further legislation will grant workers the ability to call in sick on their holiday to reclaim the days on which they were ill!

Plans to standardise maternity leave and include more paternity rights, will also have the same effect of comprimising individual states' customs and cultures and increasing costs for businesses.

Few disagree with workers rights in principle – the right to holidays, sick leave, maternity leave, fair dismissal etc. But there has to be a limit. As good intentioned politicians continue to pass swathes of laws to give workers luxurious rights, minimum working weeks, more leave and sick pay, more job protection etc. the small traders and medium sized businesses simply cannot afford to hire as many people as they would otherwise, and the overall effect is less jobs and less trade.

An Act could be passed urgently in parliament in the form of exempting small sized businesses from most employment regulation. Scrapping the employment regulations would be directly defying the EU as the bulk of them come from Brussels, but it will be not be the first time that the will of our overlords has been second guessed. The Danes long ago rubbished the Shenghen agreement, and the Greeks continue to haggle the bailout agreements.

If our small businesses are freed of all these new regulations and encouraged to take on school leavers and offer apprenticeships, our youth unemployment problem could be solved in just a short couple of years.

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Bury the Climate Change Act and commit to cheap energy.

Powerful climate change zealots have sold Britain onto a path of unproductive anti-growth fanaticism. We have committed to switching our energy to ‘green’ sources and to ditch cheaper energy methods in order to cut CO2 emissions.

The pledges made by Blair in 2007, to switch 15% of all energy to ‘renewable’ power was estimated at a cost of £25milllion a year by Citigroup. The energy itself, solar and wind etc, is of course more than twice as expensive as fossil fuels.

Yes, burning coal produces carbon dioxide, and yes, nuclear power in Japan did go wrong, but if we take a step back and actually look at the facts, our energy policy is literally madness.

The historic move to fossil fuels was a vast improvement in energy efficiency and environmental cost. Without the industrial revolution, we would be stuck in a world of intensive logging, windmills and watermills etc. that would blight untold acres of land just to power human lives. It seems that many people in Europe actually want a return to that, at least in part, while the rest of the world maintains it sanity.

Even if you were worried about man-made CO2 emissions, taxing our industry and closing down our power stations just speeds up the industrial revolution in India and China, where they build new coal fire stations every week. We are effectively paying to de-industrialise our country, moving jobs from Britain to India, and all the while the net effect on CO2 emissions worldwide is zero.

Sadly, in real life they are not so picturesque.

We pay vast sums of money to subsidise wealthy land owners for wind farms, which only provide intermittent wind-dependent electricity. What’s more is that the effects of this wind farm colonisation that we are experiencing across our countryside and seas is certainly not ‘green.’ Wind turbines are aesthetically displeasing hulks of concrete and steel that ruin our green landscape and slay any bird unfortunate enough to get too close.

By putting an end to this climate change lunacy, we could create growth by harbouring cheap energy sources, therby reducing factory costs and materials prices, and supporting what little industry Britain has left.

The rewards of such a policy would only be reaped in a few years to come, but Cameron and Osborne could get the ball rolling overnight.

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Recycle government waste and slash taxes

Tax cuts are a well known and practised method of growth creation. It effectively gives people money, rather like Simon Jenkins’ idea, but without the ‘getting something for nothing’ connotation. Of course, tax cuts without balancing spending cuts would be adding to the deficit, which we are not in a position to do thanks to the profligacy of past chancellors.

There is, however, lots of things to cut. Take for example - the Department for Business, Innovation and Skills (BIS). The BIS and its associated quangos suck £21 billion out of economy every year, and for what exactly? What on earth can a big building full of government bureaucrats and researchers teach managers and entrepreneurs about business and innovation? If anything the teaching would be the other way around. The business secretary Vince Cable actually called for the abolition of the BIS way back in 2003, when it was then the DTI, but mysteriously seems to have changed his tune now he is head of the department. The whole department, as are many other government projects, is a gigantic waste of taxpayers’ money, which only serves as a means by which big corporations can influence government. The money used for its funding would be far better used in the real economy, spent by people that really earned it, to create real jobs.

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Provide some real leadership

The most important action that the government should take is strong steps towards the resolution of the great constitutional issues of our time. The uncertainty surrounding the future of the Euro, Britain’s place in the EU, and Scotland’s place in the UK is causing what has been described as a black cloud hanging over the economy.

People do not wish to spend because they are saving for that rainy day. Businesses do not wish to invest as financial conditions and business and regulatory landscapes cannot be factored into investment appraisals. Banks do not wish to lend as they too are unsure about the future financial positions of themselves, their debtors and the economy. We are in a temporary stasis, with everyone in a 'wait and see what happens’ mode.

The government can do more than just encourage discussion; they can keep the debate raging, point the way forward and get these referendums over and done with. By the time Berlin finally decides that the cost of the Euro is too much, and initiates the beginning of the end of the EU project, we may already be deep in recession, and hurtling towards our own jobs crisis at the same time as the Euro collapse. If we work hard to build a national consensus over the next year or so, and decide to go our own way with a credible growth strategy a vision for an independent Britain, it may not be too late to leave the EU and minimise our potential exposures before the whole thing comes down.

If we manage to get our democracy back and figure out an equitable solution to the English question before the numerous social issues in the UK get any worse, we should be able to hold back the forces of English nationalism and keep the Scots in the union, which we deep down we all want.

Once these constitutional issues are resolved, and we all know which country is which and who governs whom, businesses and consumers will then go about arranging their lives and financial affairs with more confidence. Demand will increase and banks will start lending again.

As is so often the case in twentieth century European politics, every issue leads back to the European Union and what we can and can’t do as a consequence. The worst is yet to come, but the sooner the EU is dismantled and countries can once again act in their own interests rather than the EU’s interests, we will see a great lurch forward for all the economies of Europe. Cameron and Osborne have a chance to seize the bull by the horns and provide some leadership not just for grwoth in the UK but for a Europe that embraces freedom, innovation and entrepreneurship. The time is now.