Douglas Carswell's Blog

02 JUL 2015

Osborne economics means £12 debt for £1 growth

Imagine if for every £12 you spent doing something you got only £1 back. If your aim was to make yourself richer, I hope you would soon have enough sense to stop doing it.

Not so if you are the Chancellor of the Exchequer.

Over the past eight years since the financial crisis, successive administrations have tried to stimulate the economy by spending. For all the talk of "austerity", since 2007, government has spent £839 billion more than it has taken in tax.

The past eight years have seen, by definition if not by Treasury description, the biggest Keynesian stimulus in British history.

How much growth extra output has all this fiscal stimulus generated? £71 billion more.  Got that?  £71 billon more output for £839 billion more debt.  

A 130 percent increase in debt has been used to generate a 4.1 percent rise in output. Doh

Britain may well be the fastest growing economy in the G7. But we are the only economy daft enough to have spent £12 of debt to purchase every £1 extra prosperity.

Things might not feel so bad right now. But we can't go on like this.

01 JUL 2015

Northern power house does not mean more power in the North

It's not been a great week for the Northern Power House, has it?

First fracking. Despite sitting on enough natural gas to fuel the kind of industrial revival seen in America, it is proving almost impossible to get the stuff out of the ground. Why? It's not the laws of physics that are different on this side of the Atlantic, but the laws of regulatory restraint.

The gas must remain underground. Any dream of a northern industrial revival on the back of cheap energy must remain precisely that.

Then the rail upgrade between Leeds and Manchester got scrapped.

A day after this much heralded investment in northern transport infrastructure got cancelled, we learned that either Heathrow or Gatwick is going to get an extra runway. So much for regional rebalancing.

Despite all the talk of a Northern Power House, the economy in the north of England is barely back to where it was before the financial crisis.

The economy of London, meanwhile, surges ahead, the financial service sector fuelled by subsidies from central bankers and lashings of easy money. Quantitative Easing (QE) has been a great boon for corporate banks in the south of England.  

If you handed out free flour to bakers it would be a massive subsidy to the baking industry.  QE does something similar to banking, with easy money handouts to the banks.  No wonder the London economy is roaring ahead, while the north struggles.

Far from rebalancing the UK economy, government policy is exacerbating differences. Rather than empowering the north of England, George Osborne's wheeze makes the north of England ever more dependent on the whim of those inside the Treasury.  

30 JUN 2015

Technological innovation needs protecting from politicians

There is nothing inevitable about innovation. In fact, for most of human history there has been a striking lack of it. For most of the past hundred thousand years, one generation of Homo Sapiens lived with the same misery-inducing level of technology as the one before.

When new technologies do come along, what stands out is how often attempts are made to suppress their wider application.

Ming China restricted the use of printing technology to official texts. Efforts were made to curb the use of new spinning machines during the industrial revolution in England.

Often it is not so much an outright ban that is the problem, but regulatory restriction. 

Rather than welcoming newly invented motor cars, MPs in the late nineteenth century passed the Locomotives on Highways Acts. Amongst other things, this required a man with a red flag to walk in front of any motorised vehicle on the grounds of what we would today call "health and safety".

It's a relief to think that we are far to sophisticated and tech-savvy today to go in for any of that sort of reactionary nonsense. Except we are not.

We have been putting lots of men with red flags in front of technological innovation to slow it down.

Yesterday, councillors in Lancashire voted against a fracking development.  A new technology that would enable us to access billions of cubic feet of gas trapped in rock beneath our feet, cannot be applied because government has put in place dozens of regulatory obstacles.  

Of course, no one has actually banned shale gas extraction.  Instead we have created a red flag regulatory system that makes it practically impossible to get any of the stuff out of the ground.  

Medical science is making some extraordinary advances. A whole new range of drugs, based on our understanding of genetics, are being developed. Yet EU clinical trial rules and data protection insanity have put a series of red flags in front of their practical application.

Technological innovation means that cheap air travel is increasingly accessible to millions. Yet we put red flags ahead of aviation capacity.

In France yesterday it wasn't just a case of red flags slowing down innovation.  French officials actually arrested a couple of executives working for the taxi app Uber. (How is that new, competitive dynamic Europe thing coming along, by the way?)

Ours may be the most technologically advanced generation to have ever existed.  If we want innovation to keep happening, we need to ensure that politicians and vested interests are not able to prevent its further application.

26 JUN 2015

Dave's new deal means no real change

The rest of Europe knows that David Cameron is bluffing.  

Whatever new deal they offer him, they know that Mr Cameron wants to lead the referendum campaign in Britain to persuade the rest of us to accept it.  Not really a great negotiating position to be in, is it? 

Read my Telegraph blog which elaborates on the disaster that is Dave's new deal ......

25 JUN 2015

Nothing too grand for the Eurocrats

I popped over to Brussels this week to meet team UKIP in the European parliament.

One thing that struck me was the sheer scale of the EU's imperial ambition. It is reflected in the architecture of the parliament building, with its sweeping glass and chrome façade. It is moulded in the art that litters the corridors. It is etched on the faces of the Euro grandees that strut around the coffee bars and corridors.

If only folk back home could see this, I kept thinking.....

So here are a few photos that try to capture that atmosphere of Euro entitlement.

With so many vested corporate interests embedded in the EU corridors of power, there are special signs for lobbyists (Hat tip Steven Woolfe).

The coffee counter has two separate queues; one for mere mortals, the other for Euro politicians.

Outside the parliament building were several thousand Euro lefties on strike. They were protesting that they, too, should be allowed to live at someone else's expense.

The productive base in Europe today is no longer big enough to sustain a bloated welfare burden. And the EU grandees are too encased in their chauffer driven world to do anything about it.

No wonder Europe's economy is such a mess .....

18 JUN 2015

The left is dying

What is the point of the Labour party?

I don't pose the question to offend. It is what I found myself asking as I followed the turgid Labour leadership "debate" last night. What is Keir Hardie's party for?

The original purpose of the Labour party was, as the name suggests, to stand up for the interests of organised labour. Socio economic change means that we are no longer defined in quite the way that we once were. If the old sectional interest that the Labour party once represented has gone, what sectional interest does the Labour party in Westminster now stand for? That of career politicians, I'd suggest.

The contemporary Labour party is a cartel. It exists to sustain its MPs in office and its staffers on the payroll.

Perhaps the most extreme example of Labour as a self-serving cartel was Scottish Labour. Remember the Falkirk selection row? A small clique were accused of fixing the party's selection process.

That, I suspect, was just the tip of the iceberg. For decades Labour ran its Scottish seats as fiefdoms. The result was that some deeply unimpressive MPs were sustained as MPs in "safe seats".

Yet without choice and competition, pressures built up, erupting in a political Krakatoa in May.

But surely the triumph of the SNP, who replaced Scottish Labour, suggests that the left is alive and well?

I'm not convinced. It might not seem that way right now, but the SNP appears to me to be an aberration sustained by the Barnett formula. It is the by-product of a McPolitical system north of the border in which everyone gets rewarded for complaining about injustice, but no one needs to take responsibility for paying the bill.

Once the Scottish government has to live within a Scottish tax base, the centre of gravity in Scotland will shift dramatically. Give Scotland fiscal responsibility, and the land of Adam Smith will indeed be reborn – if not quite the way that uber lefty SNP MPs intend.

What happened to Labour north of the border could happen further south.  It is not simply that my own party, UKIP, achieved four million votes to Labour's nine million.  Nor is it because we are a close second in many northern seats. Something more profound is going on.

We live in a world of self-selection. From Spotify to our career decisions, making choices for ourselves has become a cultural norm. Who, in such a world, is going to vote for a party that offers only blue prints for how we organise society?

Twenty years ago, a sizeable slice of the electorate had memories of wartime rationing. They had grown up in a mid-twentieth century world in which the state presumed to know best. That has faded away. The last vestiges of mid twentieth century state rationing that remain have become by-words for delay and dissatisfaction.

On all the major topics of the day, the political pundits have shifted their stance dramatically over the past decade – and they've not moved to the left. Governments, they recognise, cannot keep spending money they don't have and call it investment. Uncontrolled immigration, they are willing to concede, is not always an unqualified blessing. Even (Lord) Danny Finkelstein is now willing to accept the need for an In Out EU referendum.

The left's crisis is existential. The left was born of the idea that human social and economic affairs are best organised by grand design. Digital dooms such gigantism.

Politics was once an argument between the capital and labour. It is increasingly a dispute between corporatism and the free market.

Interesting new ideas – on banking and money, political reform, the future of the EU, the digital economy – come not from the left, but from the free market, socially liberal right.

The Labour leadership candidates have little new to say because the left no longer has much new to say.

18 JUN 2015

Default? Which MPs dismissed the idea as "Eurosceptic scaremongering"?


Which MPs saw a default coming - and which ones dismissed it all as "Eurosceptic scaremongering"?

Four years ago, MPs debated the prospect of a default in the House of Commons.

Some MPs could see what would happen - and spoke up.

Others, such as Jo Johnson, MP for Orpington and Claire Perry, MP for Devizes, dismissed the idea of a default as "Euro sceptic scaremongering".  "Highly, highly unlikely" said Jo.

Who's judgement will you trust when the referendum happens? 

17 JUN 2015

Why we can't afford to gloat over Greece

All eyes are on Greece. A grossly indebted country, with underlying structural problems, has been living beyond it means for years. Something is going to give.

But might the same not be said about the UK economy too?

On the face of it, there is no comparison. UK output is rising fast, while GDP has collapsed in Greece. More jobs have been created in the UK in the past decade than there are jobs in Greece.

Yet before we get too cocky, the UK economic performance is not as good as it might seem.

For several years, our economy has been on the receiving end of a massive stimulus, both fiscal and monetary.

Despite all the talk of austerity, the government has in mathematical reality spent billions of pounds more than it has taken in tax, thereby injecting massive amounts into the economy. In doing so, the government has approximately doubled the national debt while adding a few percentage increases to output in return.

UK debt has grown faster than the economy. This is not the economics of a sustained recovery but of the credit card debtor.

Then there is the monetary stimulus. Governments have hosed cheap money and credit around to stimulate growth. Again, output has increased but, in the context of such a massive stimulus, not by much.

To get a sense of the economy's underlying strength, imagine if the stimulus stopped? What if the government ran a balanced budget? What if interest rates were back at the kind of level that incentivises savers to lend?  

House prices continue their dizzy upward spiral, especially in London. Savings ratios remain far too low. Household debt continues to rise. And our current account deficit – the difference between what we sell to the world and what we buy from the world – grows.

All of this, to me, suggests an underlying problem of chronic malinvestment: House prices rise not merely because of supply constraints, but because candy floss credit keeps being poured into bricks and mortar. Savings ratios are low because saving does not pay.

Household debt rises because monetary policy madness stimulates overconsumption. And the current account grows because monetary stimulus encourages us to live beyond our means, while the malinvestment it generates constrains the ability of companies to innovate and export. Oh, and malinvestment might also help explain Britain's chronic productivity problem too.

If the underlying UK economic problem is malinvestment, then one day that candy floss credit will have to come out of the system. It won't be pretty.

16 JUN 2015

The free trade case for Out

In 2006, 65 percent of UK exports went to the European Union. Last year, that figure had plummeted to 46 percent, according to ONS data.

Europe grows less important with each new set of trade statistics not merely because of the Euro crisis. Something more profound is happening to world trade.

Back in the 1990s, international trade meant developed countries buying and selling things from other developed nations - with a little bit of import and export with the less developed nations on the side. As late as 1990, trade between less developed nations was minuscule, accounting for a few percentage points of total global commerce.

This has changed dramatically in little more than a decade. Today, over a third of all global trade is between developing / emerging economies. It's happening without the old advanced Western countries involvement at all.

International trade in 2014, according to Liam Halligan, was worth $18,500 Billion. Of that, $6,000 Billion was trade between the developing world.

Africa's most important trade partners are no longer European or North American, but Asian. As late as 2000, Chinese trade with the whole of South America was worth less than $10 Billion. By 2013, it was worth $280 Billion. In 2009, China overtook America as Brazil's premier trading partner.

Of course the EU is becoming less important for the UK.  Our trade deficit would be in an even worse state it that were not the case.

Rather than sitting comfortably inside the world's only declining trade block, Britain needs to look to do deals with the parts of the world that are growing. Trade between the old industrialised states has been virtually stagnant for since 2007.

Being in the EU means we are stuck behind a common external tariff.  Worse, every British business is subject to a burdensome regulatory framework.  And we can't make trade arrangements with the parts of the plaent where the growth is.

"Being part of the EU means we have clout" insist the Brussels lobby. "It allows us to negotiate favourable terms".

On the contrary. Being part of the EU means not having trade deals at all. Outside the EU, Switzerland now has a trade agreement with China. When might we?  Due to various vested interests in Brussels, Britain does not even have free trade with India – despite the fact that Jaguar Land rover, a highly successful UK based business, is owned by an Indian parent company!

The idea that we need diplomatic clout to trade with the world is based on a misunderstanding as to why trade happens. Trade occurs when someone in one country wants to buy from someone in another. It's a question of mutual advantage between buyer and seller, not how many diplomats you have sitting at the top table.

For trade to happen, officialdom needs to get out of the way. That requires mutual standard recognition so that if it is legal to produce and sell product X in one country, it's legal to buy it in another.

When UK trade ministers (who despite all the first class air travel are famously bad at boosting trade) talk about negotiating favourable trade deals, what they really have in mind is more regulation. Their idea of a trade deal is to make it impossible to produce and sell product X in any country unless it conforms to a uniform regulatory standard. Big vested corporate interests tend to encourage this kind of arrangement, since they get to decide those single regulatory standards.

If Britain left the EU, we could, under Article 50, offer the EU genuine free trade. If it was legal to buy and sell a product or service in Colchester, it would be legal to buy and sell it in Cologne or Copenhagen too – and vice versa.

Of course, the EU might reject such a trade deal, insisting that if we wanted to sell to the EU we would have to comply with Single Market rules. But we have to do that already today.

If we only had to comply with Single Market rules when selling to the Single Market, we would be free from much of the harmful EU regulation when seeking to sell to the world. Given that almost 60 percent of our exports are now to the rest of the world, it makes little sense to bound 100 percent by every Single Market regulation.

If the EU rejected real free trade, and insisted that when selling to the Single Market we had to comply with Single Market rules, fine. There would be nothing to stop us going on to negotiate genuine free trade with the parts of the world that are prospering.

Given that the EU accounts for a rapidly diminishing share of our total exports, the case for being free to trade with the world beyond Europe grows every day.

15 JUN 2015

Europe's response to the Greek crisis - years of debt and delusion

Soon after the 2010 General Election, European leaders got together to discuss the Greek problem.

A decade of Euro membership had allowed the Athens government to borrow vast amounts of money off the banks. The debt, in Euro denominated bonds, was so vast, Athens could barely service the debt, let alone repay it. What to do?

One idea would have been to write off the debt. When a person or a country gets so into debt that they can't pay off what they owe, the least worst thing is often to make it the lenders problem.

A Greek default would have meant decoupling from the Euro, and re-establishing a Greek currency. All those debts could then be paid back, but in low value Drachmas, rather than Euros.

The consequences would have been painful. Output in Greece would contract. Credit would contract. Unemployment would rise. The banks that lent Greece all that money would have lost it.

But economic resources would have been rapidly reshuffled in the real Greek economy. As Argentina discovered after devaluation, or Britain found out after leaving ERM, growth would resume. Five years on, Greek output and living standards would be on the up.

Yet what did the people that preside over Europe do instead?

Almost unbelievably, they increased the size of the Greek debt through a series of catastrophic blunders they called "bailouts". Contrary to what the term implies, the bailouts did not alleviate the debts. Each one meant lending Greece more money, pushing Greece further into debt.

Secondly, the European governing classes used the bailouts to turn the Greek debts owed to private - often German – banks, into public liabilities. Foolish lenders were rescued from the consequences of their own idiotic fixed income investment strategies – and everyone else was left to pay.

Five years on, Greece is thirty percent more in debt than she was. The Greek economy has shrunk by a quarter. Millions of young Greeks have spent all that time with few prospects.

Yet here's the real tragedy;  For all that, Greece is still going to end up having to default, decouple and devalue all the same. But because the debts are that much bigger and the economy that much weaker, things will be even worse.

Europe's delusional elite, obsessed to the point of madness with their grand Euro projects, have spent five years making things worse.

The irony is that Greece is now looking to non EU Iceland for a solution. Far from passing private liabilities on to the public, Iceland told foolish bankers to take a hike. Some banks went bust. The currency devalued. The reshuffle started. Growth resumed.

Five years on, Iceland is doing pretty well. The next generation in Reykjavik will do better than the one before. How many Eurozone countries can say the same?

See older posts (2691 more)Loading...

See all posts (2701)

The End of Politics and the Birth of iDemocracy

"A revolutionary text ... right up there with the Communist manifesto" - Dominic Lawson, Sunday Times

Printed and promoted by Chris Lowe on behalf of Douglas Carswell, both of 105 Station Road, Clacton-on-Sea, Essex