Let’s stop kidding ourselves


16th-century Fordwich Town Hall in Kent
John Salmon, CC BY-SA 2.0, via Wikimedia Commons

Columnists write glibly about the “cost-of-living crisis” as if it were an affliction visited upon our unsuspecting community and that, as usual, it is the duty of government to cure it. The fact that the crisis was itself caused by the government’s own ineptitude doesn’t, in the public mind, lighten the burden of its responsibility.

The phrase “cost-of-living crisis” connotes nothing more than the unaffordability of an acceptably decent standard of living for working people, comparable with what they enjoyed before. It’s not that prices have climbed out of reach, rather that our currency’s purchasing power has collapsed, due to the state’s own destructive actions. An intelligent remedy would consequently require a two-pronged approach – the first being to stop hiding behind gambits such as quantitative easing (QE), which is just a fancy name for counterfeiting; while the second is to remove state-imposed impediments in the way of production.

Let’s pause right there to consider. The evil of currency debasement cannot occur under a “gold standard” because even the clever denizens of Threadneedle Street can’t counterfeit gold – believe me, they would if they could. But they can’t! The function of a gold standard, as Alasdair Macleod of MacleodFinance reminds us in his essays and podcasts, is to anchor the value of credit so that it can be used both as a medium of exchange and as a store of wealth.

But when the gold standard was abandoned in 1971 the value of credit lost its anchor. As Alasdair notes, under a gold standard you could present a pound note to your bank in exchange for a gold sovereign. To do that now, however, would cost you around £460. That’s what currency debasement does to nominal prices! What we call money is merely credit, the counterparty to which is government debt, now costing the Treasury more and more in interest charges that continue to rise as it battles the inflation of a dozen years of unanchored QE. Half the government’s annual deficit is now attributable to interest on its £4 trillion debt.

And production?

It will not have escaped you that even a stable currency, such as one denominated in gold sovereigns, cannot of itself prevent a cost-of-living crisis if the economy’s productive resources have been severely misallocated. Bleating about the price level doesn’t help; the logical way to bring down the price of things is to increase their supply. The problem is that our politicians and academic economists are still mesmerised by the Keynesian obsession with demand. Nor can you shift this A-A-F approach [forgive me: arse-about-face] that continues to advocate demand-stimulation as the key to economic recovery and growth. This is why Keynes was lionized in his day – political leaders seeking popularity love nothing more than a theory that justifies spending your way into the nation’s gratitude – just note how, in this election year, politicians are falling over themselves with promises of tax cuts and increased welfare spending that only a gullible fool will find credible.

Stimulating demand is a stupid idea anyway because, unlike supply, there can never be a lack of it. Does a new-born infant’s demand for milk require stimulation? What it needs is milk. Producing goods and services is the most basic, natural activity because it creates the wherewithal with which to consume.

As Professor Pat Barron regularly reminds us, removing the barrier to free flow of production would necessitate the dismantling of a bloated state regulatory superstructure that serves as the excuse for justifying wasteful spending. While there are always civil services to be performed and, although many are currently undertaken by public sector workers, this is by no means inevitable – just note, for example, how Amazon has flourished at the expense of traditional state deliveries. Roads and sidewalks need fixing and cleaning; and refuse has to be collected and disposed of. But little can be accomplished without work. State sector productivity is now under severe threat – not from competition with outsiders, but from its own vastly over-privileged top brass, who haven’t noticed that Britain is one of the few countries in the world whose private sector workforce is still smaller than it was before the pandemic.

Furlough was  initially designed for 3 months to mitigate the ravages of lockdown policies by supporting workers and businesses. It was dragged-on for nigh on 2 years, more than 11 million people were paid, and companies, many of which didn’t exist, were helped with easy loans – needed or not. As the Bank of International Settlements has clearly demonstrated, where covid-related support was largest, employment recovery has been slowest. Whenever ministers lash out on benefits, fiscal restraint is no match for welfare. Why else did lockdowns give way to a drastic worker-shortage crisis?

Why work?

While “working-from-home” is already entrenched, the UK’s pampered public sector workers are now drifting inexorably towards a 4-day week. According to a panel of “experts” (all public sector representatives assembled by the Welsh Government) this will somehow “improve productivity, employee well-being and environmental sustainability while also enhancing work-life balance, gender equality and employees’ mental health and reducing carbon emissions, lowering costs of recruitment, training and sick leave.” All this, just by reducing work time by 20pc.

Well, if you believe that, you believe fairy-tales. The reality is that ever since the pandemic, as working hours have been reduced, public sector output has stagnated while its costs have rocketed. Only this month the Taxpayer’s Alliance published its latest report, revealing that over 3,000 town-hall officials enjoy salaries exceeding £100,000 pa, over 800 are earning over £150,000 and 175 are being paid over £200,000 pa. They certainly know how to look after their own! But they never stop to ponder why more and more local councils are entering bankruptcy every month while services are falling apart.

The criterion of effectiveness in improving the lot of taxpayers has been superseded by the insane notion that the size of their pay-packets should rather reflect the size of the departments under their control. Parkinson’s Law? You bet! Society’s few remaining clear-sighted souls recognise the looming end-game. When there’s little left to tax, the state’s coffers will run dry. Savings, the bedrock of community wealth, will be insufficient to meet welfare’s primary purpose: helping those in need.

I have always maintained there is a way out of this disaster zone, but knew it would never be painless, for “as you sow, so you reap”.

Epilogue – some lessons

1 – The true and lasting role of a state is to protect the life, liberty and property of its citizens.
2 – The real interest rate is determined by market-based time preferences, not by central bank manipulation.
3 – Government can’t spend its own money because it doesn’t have any. It taxes only by consent and that will lapse sooner than it thinks.
4 – Any bureaucracy thrives on useless activity. Salvation lies in real work and savings – not spending on business loans, subsidies and welfare for those who can, but don’t, work.
5 – You don’t help people by giving them more and more of other people’s money.
6 – Anyone paid to detect regulatory breaches is guaranteed to find them.
7 – Learn to distinguish real work from fake work – workers (in both private and public sectors) engaged to monitor compliance with regulations on health-and-safety, net-zero, equality, diversity, gender politics, and so on, contribute absolutely nothing to the communal good and should seek real jobs.

© Emile Woolf March 2024 (website)