Douglas Carswell

UKIP economics

The UK economy is growing – and rather fast compared to other Western states. Great.

But so it should be given the size of both the fiscal and monetary stimulus.

This year, the government will spend £ 75Bn more than it will take from the economy in taxes. For all the talk of austerity, the government been engaged is a massive Keynesian spending stimulus for almost a decade now.

To put it into perspective, this spending stimulus has ranged between 5 and 11 percent of GDP for seven years in a row. That dwarfs the sort of spending stimulus we saw in the 1960s and 1970s, the supposed heyday of Keynesian orthodoxy.

At the same time, the economy has been hosed with cheap credit and Quantitative Easing.

What would be remarkable, given all this stimulus, is if there had not been any growth.

"But" I hear you say "if there's really has been so much stimulus, where's the inflation?"

Of course the prices of some things, such as houses and other assets, are rising. The prices of various consumer goods, however, are not. Might this not have something to do with the massive expansion in productive capacity that has occurred as Asia and the rest of the world industrialise?

There are limits to what stimulus economics can achieve. Sooner or later policy makers will discover that growth needs something else.

First, we need supply side reform. That is to say, instead of creating growth by making people spend more, we should make it easier for wealth producers to produce wealth. Sajid Javid's arrival at the department of Business, Innovation and Skills could, potentially, be very good news – if the EU rules allow him to deregulate.

Supply side reform also means making it easier for energy producers to generate cheaper energy. We need to break the energy cartel and replace it with a functioning market.

Secondly, we need to put some serious thought into the impact of in-work benefits.

Gordon Brown created a Byzantine system of tax credits, which in effect subsidise low wages. If you subsidise low wages, wages stay low.

There is a growing clamour for a "living wage". Might it be that many people are on less than the living wage because the state is actively subsidising their employers to keep paying them below the living wage in the first place?

As well as keeping wages low, could in-work benefits also explain poor productivity growth? Might it not have some impact on migration, too? Surely that is worth asking on the day that net migration tops 318,000?

Flush with their recent success, the Conservatives (Sajid and one or two others aside) seem in no mood to question the corporatist orthodoxies they find in government. Labour, faced with an existential crisis, can't. It is up to UKIP to develop a coherent, credible alternative to the government's carry on corporatism.

Back to all posts