In a few days the British Conservative Party will select a new prime minister from within its ranks. The new PM will have a short-lived opportunity to select new ministers. But more importantly, due to the inevitable adverse consequences of a decade and a half of unprecedented money printing, little real action to complete the promise of Brexit, and war in Ukraine, the new PM can select ministers pledged to sound money, a rational and pro-growth tax policy, free markets, limited government, and a non-interventionist foreign policy.
In perhaps an apocryphal story, it is held that Ludwig von Mises was once asked what one reform he would select if allowed only one. He quickly answered…return to sound money. By sound money, Mises meant a money not controlled by government but rather by the market. Without a doubt the market would choose a commodity based money, most likely gold. Sound money would force government to live within its means. Under a sound money regime, it becomes clear that every pound or shilling spent by government comes directly from the people. Government spending reduces private spending pound-for-pound. The so-called “spending multiplier” by which one pound of government spending increases total spending by multiples of that amount is a complete fallacy.
New taxes will always be unpopular and rightly so. Increase in government borrowing can only happen by pre-empting private borrowing, via higher interest rates, which is recessionary by its very nature. It is natural and good that government must overcome the public’s reluctance for new taxes and more government debt in order to increase spending. Government must justify their increased spending plans to the people. By the same token, government spending cuts will mean that the public will have more to spend themselves.
A Rational Tax Policy
Like the need for sound money, the need for a sound taxation policy is one of the most important, yet least understood, aspects of government. Even the current debate between the final two Prime Ministerial contenders, who of all people should be better briefed, reveals a profound confusion that exemplifies Frederic Bastiat’s distinction between what is seen and what is not seen.
Every time one of them declares an intention to cut, say, corporation tax and, more recently, even income tax, the predictable counterblast is “but that will cost the Exchequer ‘£x billion’ per annum and will mortgage our children’s future, creating ‘£y billion’ of additional borrowing that will take ‘z years’ to repay. The nation can’t live on credit-card economics! I will first address the problem of inflation, and only then cut taxes – that’s the responsible approach!”
These emotive responses perfectly illustrate Bastiat’s “what is seen” – but it completely misses the vast potential increase in tax revenues that might flow from a lower rate. What is not seen is the effect of international tax competitiveness on the number of businesses that will register their residence in the UK because it has a comparatively low rate of corporation tax – witness Ireland, which has a corporate tax rate of only 12.5%, compared with the USA rate of 21%.
Consequently, what is not seen is the gain to the exchequer of welcoming thriving, profitable companies into the UK, rather than the converse – losing UK businesses to jurisdictions with lower tax rates.
Also “not seen” is the economic benefit that will flow from the presence in this country of thousands of employees and their families. Because it is not seen, it is also unquantifiable – but what is certain is that we shall see supply-side net economic growth. The “tone” will have been established – and the direction of travel is bound to be positive. It will result in a bigger pie – not a bigger slice of a diminishing pie.
What is seen is always limited – such as revenue from new tariffs on imports – while ignoring the harmful market distortions and negative price impacts that impinge directly and indirectly on the cost of living. There are important lessons here.
The examples of the failure of government run programs is there for anyone who is not an ideologue to see. Just this past week, the Financial Times reported that the government may halt all increases in new housing in the London area due to the lack of adequate capacity in the power grid. In other words, Britain’s publicly owned and operated power system is not producing enough electricity. A top to bottom privatization of not only power generation but fuel sources is required. Scrap regulations on all sources of energy including nuclear and fossil fuels. Nuclear power is one of the safest and lowest cost sources of power available. Its higher costs are completely the result of unnecessary regulation that, frankly, seems intended to end nuclear power completely. Britain has been a leader in nuclear power technology for over half a century. All its important warships and submarines run on nuclear power, and hardly anyone thinks a thing about it.
Britain has been a fossil fuel giant since the eighteenth century. Coal made the industrial revolution possible. North Sea oil has never met its full potential. There is no reason that Britain need import fuel, unless it can be purchased more cheaply elsewhere, such as the Middle East or even, dare we say the word, Russia.
Limited government means two things–limited government involvement in the economy and limited spending. The two go hand-in-hand. An additional benefit is that limited spending can be funded out of lower taxes. The British legal system, based upon the common law, is all that is required for the smooth regulation of economic matters. For example, fraud and contract law are well defined in the British legal system for the smooth regulation of commercial life. Tort law regulates harms actually inflicted, making product liability laws, for example, unnecessary. Just as a better mousetrap drives less effective ones from the market, better and cheaper products drive less effective and more expensive ones from the market, making product regulation completely unnecessary. A better template than the unitary state is the Swiss principle of subsidiarity. Switzerland is a multi-ethnic land, making a one-size-fits-all government impractical. Therefore, government is pushed down to the lowest governmental level possible wherever practical, and it turns out that much of day-to-day practical government can be handled at local levels where the people really do have a voice. Britain should try this approach
The National Health Service is a disgrace on almost any objective basis of functional and cost-effective analysis, and it’s getting worse rather than better. End taxpayer support and put a fee-for-service price on its operation, forcing it to compete with private healthcare providers.
Needless to say, there is no room for EU regulations, quotas, etc. in a sovereign country ruled by common law with limited government. Only Brexit supporters should be considered for ministerial jobs.
A Non-interventionist Foreign Policy
The war in Ukraine has illustrated how nations can be dragged into war when their own national interest has not been threatened. NATO expanded eastward after the fall of the Berlin wall three decades ago, until it ran into real opposition in the form of Russia. There was no need for this expansion and there is no need for Britain to be involved in Ukraine in any way. The war there has taken on a life of its own and only a strong leader with a dedicated cabinet of peace minded ministers will be able to dislodge Britain from this conflict and prevent Britain from being dragged into similar conflicts, such as the new dispute between Serbia and Kosovo. Instead of taking sides in purely local conflicts, Britain should do all it can to create a new Concert of Europe. This will require real statesmanship. Britain can and should lead the way. A truly sovereign Britain can defend itself when its real interests are threatened. Armed neutrality requires a strong national defense and a non-interventionist foreign policy. The emphasis is on “defense” and “non-intervention”. A good maxim to follow is “Mind your own business and set a good example”.
(endorsed by Godfrey Bloom, Alasdair Macleod, Simon Hunt, and Claudio Grass)
© Patrick Barron and Emile Woolf 2022