Supply-Side Solutions

Last week I attended a lunch with EU Commissioner Almunia, responsible for Monetary Affairs.  He reminded us how lucky we were to have the strength and stability of the euro during these difficult times, and asked us to contemplate how difficult things would be if Euroland states still had separate currencies.  So I contemplated.  I contemplated how the Irish Punt would have tracked Sterling and the Dollar, not the Deutschmark, so that the Irish economy, while facing difficulties, would not be looking in to the abyss.  The PIGS — Portugal, Italy, Greece and Spain — would have exchange rates and monetary policy appropriate to their national circumstances.  Italy would not be disadvantaged 30% in terms of unit labour costs versus Germany.  Greece’s tourist industry would not have collapsed, and quite possibly the eruptions of street violence in that country would not have occurred.
 
Commissioner Almunia went on to say that anyone suggesting that any country might leave the euro-zone was either ignorant or mischievous.  He sounded very much like a man whistling in the dark to keep his spirits up.  The bond-spreads between euro-zone countries — and the amazing cost of insuring Irish government bonds — tell their own story, without the Commissioner’s optimistic gloss.
 
And he went on to tell us of all the wise and appropriate things that the EU would be doing to address our current problems, not least a vast and coordinated programme of fiscal stimulus.  I wanted to grab him by the lapels, and shake him, and tell him a few home truths.  We don’t need to EU to do new things.  We need it to undo some of the damage, and relieve some of the costs, which it has already imposed.  We need it to do less, not more.  We need a bonfire of the regulations, and a reduction in the costs and tax burdens we impose on individuals and businesses.
 
EU regulation has accumulated like barnacles on the bottom of an ocean liner, slowing the ship, reducing efficiency, adding to running costs.  We have created disincentives to work, disincentives to employment, disincentives to investment.  We have imposed vast new bureaucracies, and unproductive activities, and excessive costs on our economies.  I sit in the parliament’s Unemployment Committee, and I see week by week how new burdens are placed on employers.  The working Time Directive, the Temporary Workers Directive, more “rights” for workers and for sub-groups of workers.  They totally fail to see how one worker’s “rights” are another worker’s P45.  Their measures may provide short-term help for a few people who are in-work, but they militate against the unemployed by making employers reluctant to hire.  And they keep workers on in failing industries, when they should be retraining and moving on to sunrise industries.
 
I sat on the parliament’s Temporary Committee on Climate Change, and I followed the way in which the EU’s Emissions Trading System (ETS) added huge costs to industry, and created vast market distortions, and non-productive carbon-trading jobs, without ever making any difference to carbon emissions.  Like so many EU measures, the ETS, and its bastard son the CDM (don’t ask!), have the primary effect of making the EU less attractive as a place to do business, and moving jobs and work and investment to off-shore jurisdictions with lower safety, social and environmental standards.
 
It is just the same in agriculture, where in short order we have seen the Pesticides Directive, Electronic Ear Tagging for sheep, and the Integrated Pollution Prevention and Control Directive (IPPC, not to be confused with IPCC!), all of which will reduce food production, reduce food security, reduce the viability of farming in the EU, and increase imports of lower-quality food.  Well done Brussels.  I have the greatest admiration for entrepreneurs who can hack their way through the thickets of regulation and actually get a new business up and running.
 
We have read criticisms that while we on the right may criticise the abysmal failures of our Labour government, we have no solution of our own.  But we do indeed have such a solution, and it was set out very clearly in a full-page ad by The CATO institute in the US press, and signed by a hundred distinguished economists.  Our solution is a supply-side solution.  We must take a machete to the thicket of regulation.  We must set the people free to work, to employ, to invest, to make things and sell things.  And we must not raise taxes.  I still hear suggestions that our dire fiscal situation will require higher taxes.  But higher taxes will simply delay recovery and depress economic activity — they will not raise revenues.  We must balance the books, but the only viable way to do so is to cut spending, not raise taxes.
 
Our answer is not to increase spending and increase debt and increase the size of government.  Our solution is to set the people, and the economy, free.

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1 Response to Supply-Side Solutions

  1. chris southern says:

    Just turn THE PLAN into a contract between goverment and people after the elections roger, it would sort out most problems.
    That’s if David would go for it though.

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