Douglas Carswell's Blog

Voodoo economics isn't working. It is time for a different approach

The economy has contracted for three successive quarters. In the second quarter of this year, economic activity was down by a whopping 0.7 percent.

It will not do to blame this on the Eurozone. Trade with the Eurozone accounts for less than 10 percent of all economic activity in the UK. Even if the Eurozone were to have experienced a 10 percent fall in economic activity (thus far it has been nothing like that), that would equate to about a 1 percent reduction in UK output.

It is not the Eurozone or the United States that are to blame for the state of the economy. We are in this mess because of Treasury policy, which under successive administrations has assumed that the government can conjure up growth and prosperity. Today’s figures are further evidence this voodoo economic approach does not work.

Yet ever since the financial crisis struck, the Treasury response has been about trying to conjure up growth. They have tried to do this first and foremost via monetary stimulus - low interest rates, easy money and print-money-and-pray economics - the technical term for Quantitative Easing.  (With the Treasury spending £100 Billion more each year than they take in tax, it is arguable that there has also been a fiscal stimulus in everything but name).

By ploughing ahead with the stimulus-growth-magic approach begun by Gordon Brown, the Coalition has generated more debt, more malinvestment – but not a lot of growth. If you run the economy the way Gordon Brown did, you end up in the mess he did.

Instead of trying to magically produce growth by showering the economy with cheap credit, the Treasury needs to address the underlying problem of uncompetativeness, which prevents the economy from expanding; Labour market reform, ideas for so-called “default deregulation”, tackling crony corporatism, ensuring credit is allocated by price, not political fiat, lower taxes, less government.

We need a free market approach, based on honest money and open competition, to lift us out of this mess.

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