The week that Osbrown economics failed
It is not the constraints of Coalition that are holding us back, but a lack of ambitious, radical thinking inside the Treasury
On Wednesday the Chancellor will confirm what many of us long suspected; the Coalition will fail to meet its own deficit reduction targets.
By 2015, not only will UK public debt have approximately doubled within a single Parliament, but we will still be adding to it.
Who'd have guessed? Well, pretty much anyone who cared to count, rather than recycle Treasury spin, actually. But it is not simply a case of Team Treasury maths not adding up. The problem has been their misplaced assumption that growth would ride to the rescue.
How come Team Treasury got it so wrong on growth? Because they've retained an essentially Brownian view of what produces prosperity.
Gordon thought easy money was pretty much all that was needed to produce an endless expansion to the tax base, which he could then siphon off to fund more government.
So, too, the current Treasury team. Easy credit was supposed to conjure up growth – raising with it the additional tax revenue needed to make the maths add up.
There's only one small flaw in this Osbrown way of thinking: more cheap credit does not make us rich. It does not produce prosperity or mean more tax revenue. Thus has the Coalition – like Gordon – ended up spending money it does not have on a gargantuan scale.
We need an alternative to this disastrous reliance on monetary stimulus. The Treasury needs to recognise that years of excessive credit did not make the economy strong. It produced chronic malinvestment. Until that malinvestment has unwound, growth will be sluggish.
To prosper, Britain needs not more cheap credit, but to be made more competitive. For two and a half years, too few minds in the Treasury have been even thinking along these lines. Nothing has been done to curb non-wage labour costs, which continue to rise faster here than in the Eurozone. Energy costs have been allowed to rise to levels that make it hard for anyone in Britain to make a living making things.
Even now, when Team Treasury does at last grasp what the shale gas revolution might achieve, what do they propose? Their response to shale gas has been quintessentially Brownian – it’s all about tax breaks and complex corporate handouts. Not enough emphasis on just getting government out the way.
It is not the constraints of Coalition that are holding us back, but a lack of ambitious, radical thinking inside the Treasury.
Douglas Carswell is the Member of Parliament for Clacton. This post originally appeared on talkcarswell.com
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