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LAST REFLECTIONS OF THE DECADE
Reviewed by ANDRE BEAUMONT
We absolutely reject that conservatism, in contrast to communism, social democracy and libertarianism, is short of ideas. Be patient, as Talleyrand was, and they will be expressed. We are in the midst of a revolutionary period but mercifully not as violent as his.
In the old day, government deficit spending made use of spare capacity in the economy and when the capacity was filled, inflation and, sometimes, financial crises took hold - especially when exchange rates were pegged or the government acting was not fully sovereign or lacked power in the financial markets.
Nowadays, with a global economy, the capacity to be filled is almost limitless. Once a government's spending appears to be consuming all the real slack in the economy it can still tap the global economy to provide the supplies it needs.
This is why the first choice for regenerating an economy is usually deficit financing not taxation. Taxation has a braking effect.
This is not a case for what might be deemed a 'splurge'. Gordon Brown pushed up government borrowing to dangerous levels in 2004, before the banking crises of 2007 and 2008. Increases afterwards were much more understandable.
The U.S., with its reserve currency, has consistently tapped the global market for goods and services in exchange for its currency.
It has run large fiscal deficits, as have the next two largest economies, China and Japan, as a matter of policy. The difference with the last two is that it was not to suck in imports but to maintain domestic demand in the case of Japan and domestic investment in the case of China.
To some extent governments get something for nothing when they run deficits that do not spook the markets. Financial markets are inherently willing to redistribute risk.
One consequence of this is that there is plenty of capital in the world, more than can be used productively.
Herein lies the opportunity for the type of conservatism advocated on these pages. We advocate a wider distribution of capital but used relatively inactively. If all available capital today were used as intensively as it could be, the overall return on capital would be very low, not worth taking entrepreneurial risk for.
Industrialised agriculture is an example of intensively used capital, peasant farming an example of relatively inactive use. Provided everyone can be fed relatively efficiently, we are in favour of both coexisting.
Britain's is not a peasant agricultural economy.
Magaret Thatcher got it. Greater home ownership tends to produce a wider distribution of capital used relatively inactively. The percentage of home owners increased for many years but is now in decline. The percentage of privately rented property declined but is now on the increase - it uses capital more intensively. So it may be no surprise that these pages advocate a removal of interest relief, both corporate and personal, on all types of asset - to reduce intensity of capital use, to reduce dangerous overgearing as has happened, for example, in the social care homes sector, and to allow lazy capital a better chance to subsist as it is a bulwalk against oligarchy.
Our conservatism is after a wider distribution of capital but there is little in central bank policy that leans in that direction.
So fiscal policy has to play a part. People have to be allowed to accumulate capital. If the fiscal policy we have had since 2010 is allowed to continue, with its triple drain on capital held by those not in the financial sector through an increasing take from inheritance tax, capital gains tax and stamp duty, the number of citizens who own homes or other significant asset stores will decline.
We also have to be cognisant of orthodoxies people profess to agree with but do not in practice go along with.
We know that industrial production has moved to China and that if price points have to be hit, it is better at using capital intensively and delivering economies of scale than we are.
We do not want extensive reindustrialisation with its attendant pollution risks to our neighbourhoods, wherever they may be, however often we may bemoan that nothing is made in Britain anymore.
The oldest generation may have had over 50% who had to work via manual labour. For the youngest working generation now that figure must be well under 20%. So we cannot go back to being the world's biggest shipbuilder or anything else similar.
Likewise, we have trumpeted recent near full employment but it does not mean we agree with it. Lifetime full employment is virtually absent, nor do we necessarily wish to reach it. If China can make the goods, so be it, our society has moved on.
We advocate a society where people could work on an income basis for a couple of decades, build capital and then move into something else.
It was a concept taken for granted as possible before the turn of the millennium.
Capital should be sufficiently easy to build that the mechanic could give up to become a sculptor for the second half of a working life.
We are not dirigistes, we just would like a plurality of possibility with the new conservatism not a norm. We would be equally happy to facilitate someone working three days a week.
Since you do not actually have to balance a budget to make the economy work efficiently, raising so much in capital taxes is unnecessary. Australia has no inheritance tax, The Netherlands no capital gains tax and in America you can inherit ten times as much tax free. We anticipate that these countries will continue to do better than us economically without fiscal changes here.
We have persisted with these points for a decade out of dismay that the conservatism of the exchequer has taken us in the wrong direction. We hope to move on in the new decade.