Simon Dawson / No 10 Downing Street, OGL 3, via Wikimedia Commons
Each of the sections in this essay warrants a whole chapter, but this abbreviated format should capture the essential features that prevail throughout the West today.
The immigration question
1 – One of the key criteria for the sovereignty of a state is its ability to control its own borders, and keep them secure from unwanted infiltration. Tony Blair doesn’t like being reminded of the destructive impact on Britain of his 2004 decision to open the floodgates to mass immigration from Eastern Europe. He recklessly underestimated how many would head for the UK, a miscalculation for which we are still paying a heavy price. Also in 2004, the EU admitted 10 new member countries, adding 74 million people to the EU community. Although Blair’s government had the right to limit free movement from new members for up to 7 years, the UK was one of just three members that chose not to apply transitional controls. As Blair now rightly points out, many arrivals had skills that made a positive contribution to the UK economy, notably its medical and hospitality sectors, and integrated well – but he concedes that this pattern did not continue and there were “strains”. Indeed, we are now overwhelmed by many more recent entrants who have not integrated, do not work, and constitute a burden on social resources borne by taxpayers. The blatant indolence of many who have been permitted by the authorities to enter the country and remain here illegally is a blight on urban life, and a disgrace to our failed civil authorities. Much nefarious activity on high streets today is supported by prostitution, drug-taking, illicit trading – and, inevitably, a fair measure of corruption.
J.M. Keynes – his policies are still followed
2 – In his latest essay, Professor Patrick Barron asks why governments continue to apply the same economic policies despite clear evidence of the harm they cause. As Barron observes, there is in human nature an innate reluctance to concede error and change course, coupled with the fact that Western governments have been slavishly wedded to the economic philosophy of J M Keynes ever since the publication of his magnum opus “The General Theory of Employment, Interest and Money”.
Keynes considered a falling price level to be an economic setback (even when welcomed by consumers). He believed this deflation to be caused by “overproduction”, despite the fact that in a free society with a market economy the level of production is determined by the laws of supply and demand operating within a competitive private sector – and hence there can be no such thing as overproduction. His remedy for this non-existent problem of “oversupply” was simply, but mechanistically, to balance the equation by stimulating what he termed “aggregate demand” through government spending . Keynes could not grasp that in any community “demand” for goods and services exists implicitly and requires no stimulus. The role of the entrepreneurial provider of goods and services is simply to read (and respond to) prevailing signs and signals – not to “know better”, which was Keynes’ abiding conceit. But the most pernicious feature of this folly was (and is) its dependence on government spending of taxpayers’ money. No wonder Keynes was hailed by vote-seeking, free spending (same thing) office-holders everywhere – his spendthrift policies provided a justification for their destructive monetary policies, from relentless welfare provision to the decade-long plague of money-printing recently inflicted by every Keynesian economy, and the destruction of purchasing power of the currencies concerned.
[Old Scottish story: the Good Lord peered down into the fiery pit and heard the wailing from the sinners below: “Lord, Lord, we dinna ken.” “Weel, ye ken the noo”, came the reply from on high.]
Wealth creation? No sign of it yet
3 – Before the UK’s latest election, PM Keir Starmer insisted that his was a manifesto for wealth creation, or “growth” as his chancellor Rachel Reeves tells us on a daily basis. Her hike of £25 billion in higher rates of employers’ national insurance, however, will find its way to penalising employees too – firms will invest less and hire fewer staff in the face of this tax on the act of engaging “working people”, the very sector that Labour promised to protect. The Labour leaders clearly don’t know how taxes operate: a tax on employment diminishes the livelihoods and opportunities of both businesses and employees. Given their working class and trade union affiliations Labour’s front benches have been surprisingly acquiescent in Reeves’ CGT tax-hikes, inheritance tax (now applicable even to small family farms), unused pensions, and the sudden imposition of stamp duty on sale of second homes imposed at less than 24 hours’ notice. Much of the £22.5 billion handed to failing hospitals in the NHS will be wasted unless followed up by a reformed administration, increased productivity (and falling waiting lists). The single action of imposing VAT on private school fees confirms the economics of envy at the heart of this administration; according to the OBR 35,000 private pupils will be priced out of independent schools. What the markets know is that £143 billion of state borrowing over 5 years is justifiable only if it catalyses private sector investment – not the insidious crowding out of businesses by the state.
State meddling proceeds undaunted
4 – No one in the government appears to have the faintest idea of what legitimately lies within its capability – not, I stress, as a matter of legitimacy, but rather of competence. As usual, puffed up with “do-gooding” aspirations on prominent display, the Chancellor is now exploring plans to support Britain’s ailing high streets. Rather than relax the state-imposed obstacles in the way of planning changes, so that businesses can locate optimally, her approach is to inflict higher taxes on Amazon, penalising one of the most successful and innovative business models seen for many years in an attempt to make it uncompetitive compared with traditional shops. Why not allow customers to decide? How many ministers have ever run a successful business? Taken responsibility for employees? And customers?
Economic Growth
5 – All this confusion and ignorance demonstrates that a proper understanding of the true economic meaning of growth is missing. Let’s remind ourselves by keeping it really simple:
(a) It starts with Profit – a dirty word in the Marxist lexicon, because it carries totally unwarranted connotations of exploitation. Objectively, however, it is the surplus that remains of business revenues after:
* direct costs (eg materials)
* indirect expenses (overheads)
* amounts set aside for replacement of worn out capital equipment (depreciation)
* amounts set aside for replacement of obsolete equipment
* amortisation of intangible assets
* interest on capital employed
have been paid.
(b) Retained profits (savings) are what remains after dividends and taxes have been paid and represent an addition to wealth.
(c) Savings are the source of new investment, and may be referred to as “ploughback” or the “seedcorn” of innovation.
Essentially, growth achieved during a defined period constitutes the retained profits(or surplus) accumulated during that period. Just as this is true of any commercial enterprise, it is equally true of the finances of the country as a whole. There may, of course, be different headings for costs and allocations, but what must be borne in mind is that (a) imports enhance our living standards and hence enrich us (why else would we do it?) while (b) our exports represent the means whereby we pay for those imports. Consequently, what we refer to as a balance-of-payments deficit must be balanced by investment from overseas trading partners.
Policies incompatible with Labour’s own aims
6 – It is probably unnecessary to remind readers that the activities contributing to growth in an economy necessarily take place in the private sector. Activities occurring in the public sector, such as transport and local government services should, if working optimally, facilitate and enhance private sector performance, but the absence of any relevant economic measurement causes their efficacy to be obscured. Such measurement as is available demonstrates that under this government pay rises for those in state employment are overtaking those in the private sector for the first time since the pandemic, even though their output has yet to recover to pre-Covid levels – in other words, state employees are getting more for doing less and suffering the loss of public trust that goes with enjoying a 33-hour week with full pay and a right to work from home.
The current administration cannot grasp the fact that there is a public cost to uncompensated, freewheeling largesse, inflation-busting pay-rises to union members, the government’s extension of workers’ rights as well as the rise in the minimum wage to one of the highest in the world . If you add in the hike in employers’ NI – a direct tax on employment – you are bound to wonder how Starmer, Reeves, and the other members of this sainted cabinet are able to remain blind to the fact that everything they do is a betrayal of the very principles the Labour Party has espoused since its inception more than 120 years ago.
© Emile Woolf November 2024 (website)
