The ‘Old Economic Model’ which brought many years of economic growth relied on people spending beyond their means and getting into debt. People like Vince Cable warned against this, but Gordan Brown didn’t listen, and now the bubble has burst – and we are all paying a very high price.
We need a new model, the old one is broken.
But what is this new model? What is going to drive growth in the fututre now that we cannot return to the old model? Or is infinite growth a Utopian fantasy, and that, apart from places like China and India, we should come to terms with not having any significant growth from now on?
Over to my fellow Lib Dem Voice readers…
Geoffrey Payne is a Liberal Democrat member in Hackney, and occasional contributor to LDV.
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14 Comments
I know that growth isn’t quite so simple as this, but broadly speaking it comes down to: the planet and its resources are only finite, therefore infinite growth is impossible, therefore at some point an economy and economic model based on “growth is inherently good” will collapse.
http://www.csiro.au/news/The-Limits-To-Growth.html
Oh I don’t know – say inflation at 2%, credit that is payed back at a reasonable rate and steady jobs with average wages.
I wonder whether we’ve tried it before? Let’s call it `perpetual spring` – moderate but hopeful with constant green shoots.
Surely there is only one answer you can possibly expect… 😉
Land Value Tax
We are going to have to think beyond the conventional growth model.
Not least because as soon as any ‘consumption growth’ comes back to western economies – the price of Oil will start back up again.
There is actually nothing wrong with the old model (and sticking with the motoring metaphor) except that it was modified by juvenile hoons, and thrashed into the ground. They blew up the engine by trying to keep it into the red-line region for far too long.
We just need to strip it down and do a complete rebuild.
But a new model? Yes, maybe, but with a twist. Disband the mutant Keynesian/monetarist Franken-onics the muppets have used to crash and burn the economy, and revisit the Austrian/Von Mises/Hayek school of economics; an older model… with a few tweeks to bring it up to date.
The business cycle is a fact of life and the ludicrous attempt to banish boom and bust was a folly of the highest order… especially in trying to engineer a perpetual boom.
The business cycle, like the seasons, is something to plan for and embrace. In that sense, “pure” Keynesianism may have a chance of working. Unfortunately, political expediency causes governments to seriously *&^% around with the model, swapping from whatever school’s prescribed tinkering will make them look the best at the time.
Voila – Franken-omics.
Should have added that at some stage, perpetual growth may be impossible. Whatever model we embrace should be able to survive that. The current system will cause massive long term deflation when that point arrives.
Land Value Tax, and just as importantly “Sound Money” through “Free Banking” so that the state can no longer manipulate its way out of debt through debasement of the currency.
Then we will be able to cut taxes substantially as predistribution will kick in. Taxes on production, and commercial debt (and debt based money) stifle production and so only the most profitable things – which are usually designed for obsolescence of course – will be worth producing.
With Free Money, Free Land and Low Taxes, more of the economy’s productivity can go into next year’s productivity – whereas at the moment fifty per cent of it or so is lost to government (who do not have revenue of their own of course but must steal it from the productive economy – us – but the more they steal the less there is left to stimulate the economy to produce the same sort of levels of activity in the following year and if you get above somewhere around 50% being stolen in taxation chances are that there will not be enough wealth left in the economy each year to enable it to produce a similar amount of new wealth the following year, so everything starts to contract (including the taxable wealth production of course).
We don’t just need a new economic system, we need a new political settlement.
Both need to be decentralised and based upon voluntary cooperation, neither of which the state is willing to allow to happen.
Terra isn’t a zero sum system. It receives a collosal external imput every day in the form of sun light. Since the first Cave Art c 27000 to 30000 years ago Human beings have been able to create “value” greater than the objective market rate of the source materials.
Sun Light + Intellectual Property means we don’t need to worry about growth per se for Millennia.
That isn’t to say that the current model of growth won’t trigger runaway global warming, a Lovelockian nightmare and the collapse of Western Style civilisation but I don’t buy Zero Growth as a philosophical or economic iron law.
“But a new model? Yes, maybe, but with a twist. Disband the mutant Keynesian/monetarist Franken-onics the muppets have used to crash and burn the economy, and revisit the Austrian/Von Mises/Hayek school of economics; an older model… with a few tweeks to bring it up to date.”
Or let’s not go the laissez-faire route.
Why on earth not? It’s the one alternative that has never been tried. Even in the so-called “Laissez-faire” world in the 19th century no government (here or elsewhere) actually attempted to break down the systemic economic disadvantages caused by state money and land privilege.
Laissez-faire is an optimistic ideology about people in which more people would be able to look after themselves and help others altruistically the less some superannuated professional politician interferes in their lives, distorts markets and protects inbuilt inequity in the current system.
Such would be truly radical left-liberal moves, but so many have been hoodwinked by the idea that there are some things which only a nation state and its government structure can deliver or protect and the general fake aura that socialists have cleverly exuded over the last century of concern and general “progressiveness” and failed to really deliver that it appears almost axiomatic to many Lib Dems that all we need to do is to tweak here or tweak there more or less the current unjust systems and state models of delivery.
State socialism is in fact to the right even of conservatism in its expressed intention of ever more state control in the name of achieving a “fairness” that has completely elluded them over the past 93 years. We must educate people away from this fixation and promise to deliver the truly radical, “spikey”, liberal state which is the only true left-wing ideology combining liberty and equity for the ordinary person.
The major problem with the current system is that it does not empower certain fields I am talking about Academia, Science, and Agriculture.
Their impact on society must be bigger in the future and in order for that to happen we must give them some clout.
Laissez-Faire while it is beautiful in it’s simplicity and efficiency, it does not reward people based on their contribution to society.
Maybe we’ll see more of these professions as part of the government then. Currently it seems to be a Lawyer/Businessman/Politician(!) saturation. It’s pure hearsay thought as I couldn’t find anywhere previous professions were listed.
“Laissez-Faire while it is beautiful in it’s simplicity and efficiency, it does not reward people based on their contribution to society.”
That’s a debatable point. Laissez Faire economics is quite a broad church and does have scope for rewarding the worthy (subjective as that is). What it tries very much to avoid is rewarding the unworthy.
Yeah, it’s really tough to find the words here.
It is my feeling that our society under represents these fields in both income distribution and political power.
These professions have concrete benefits to society yet the system doesn’t do them justice. They are usually beholden to the money men which may not be the most productive way to produce innovation. They are not interested in sustainability, social issues or health. Of course this is not because they are bad people or morally corrupt.
As Milton Friedman said:
But it’s always been true that business is not a friend of a free market… If free markets weren’t so damn efficient, they could never have survived because they have so many enemies and so few friends. People think of capitalism or free markets as something that obviously is supported by business. People think that if a business party is a party in politics, it will promote free market. But that’s wrong.