"De-growth" or how Greens think drinking less take-out coffee is an economic policy

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The Greens and their associated useful idiots are a pretty strange bunch. But nothing is stranger than when these good, kind and utterly barmy people start talking about work:

“Why do we work? What do we do with the money we earn?” asks Anna Coote, head of social policy at the New Economics Foundation. “Can we begin to think differently about how much we need—to get out of the fast lane and live life at a more sustainable pace, to do things that are better for the planet, better for ourselves?”

Now I'm not sure how many hours Ms Coote puts in or precisely how much she gets paid to spout this sort of stuff. But I'll guess that her take home pay is a damn sight more that the average pay for the average British worker.

And here lies the problem. I once had a conversation with a hairdresser about his business. He wasn't moaning just making the matter-of-fact observation that, with the shop open long hours, the time spent managing stock and staff plus the time at home in the evening book-keeping, paying bills and planning, his hourly income was below the minimum wage.

If Ms Coote and her sort - comfortably off, employed people - had their way, the cost of basic things like having your hair cut or the windows cleaned would soar. Even worst people would have us believe that somehow we can get out of the fast lane - presumably while they carry on with big salaries and pleasant jobs, the rest of us can lump it on less money.

Such people - when they aren't weeping crocodile tears about 'the poor' - believe that every job is like theirs. The sort who subscribe to Sierra Magazine where they suggest:

"...you move to a smaller house or an apartment, downsize to one or no car, or simply have fewer lattes to-go, a smaller paycheck could reduce consumption overall...” 

Isn't that lovely! We're going to save the planet by having fewer take-out coffees! These people really do live in a bizarre otherland. OK it's not quite living in teepees and growing organic vegetables. In fact it's probably worse because it implies some sort of moral urbanism exists in the green mind - presumably because the core constituency for modern greenery is decidedly urban and hipsterish. It's more about planting herbs in gutters than a return to the land.

Now don't get me wrong, I'm not against down time - all work and no play does make for a dull life. But the idea that there is some sort of Malthusian imperative requiring "de-growth" is ridiculous. If people only want to work 20 hours a week that's fine by me and I hope they enjoy the free time but don't try to pretend that your different lifestyle is somehow not consumption, somehow superior to those folk who like a take-out latte and a shiny new car.

What Ms Coote and her friends fail to appreciate is that by stopping all their consumption they end all those businesses, all those jobs that serve such sinful indulgence. All the baristas, the car salesmen, the brewers and cake makers - gone. And with less money circulating that means lower tax revenues - less money to sweep the streets, teach children and care for Ms Coote's elderly relatives.

If these ideas come to pass we'll be less healthy, less happy and live shorter lives. But we'll have saved the planet!

As I said these people are utterly barmy.

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Predistribution: In which The Eds dress up in flares, put on kipper ties and groove at the disco

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It's that deja vu all over again. Labour wants to return to a snappily rebranded version of wage and price control. The Eds present this as new an radical but I think we've been there before:

In order to safeguard the real value of wages, the Labour Government launched the first serious attack on the rising cost of living. The weapon specially fashioned for this attack is the policy for productivity, prices and incomes, which forms an essential part of the National Plan. Without such a policy it is impossible either to keep exports competitive or to check rising prices at home. The alternative, in fact, is a return to the dreary cycle of inflation followed by deflation and unemployment.

Substantial progress has been made in working out, with management and the unions, the objectives and criteria of such a policy. An essential part of the machinery, the Prices and Incomes Board, is now operating. But the policy needs further development. 

Yes folks, that was the 1966 Labour Manifesto. A manifesto that ushered in the age of tripartite meetings over beer and sarnies in Downing Street - the new age of the "National Plan". A manifesto that (coupled with the sheer incompetence of Heath's 1970-74 Conservative Government) paved the way for the collapse of manufacturing industry, inflation rates of over 25%, an endless parade of strikes and levels of unemployment not seen since the 1930s.

And Labour is returning to this?

The great strength of predistribution is that it does not cost the state a penny to pursue. Rather than relying on taxation to narrow the gap between the rich and the poor, Miliband will harness the instruments of legislation and regulation. Rail companies, for instance, would be barred from raising fares by more than 1% above inflation

The central element in this is that first sentence - there is no cost to the state. Instead, the use of regulation means that costs (in the form, it seems, of wage and price controls) are placed on businesses. And this, of course, means that you and I pay a de facto tax when we purchase goods and services.

Even the fans of socialist economic policies have their doubts:

Let's take the original(ish) and bad part of this first - the idea of capping rail and utility prices. This runs into several problems:

- It redistributes most to heavy users, who are not necessarily the poor. Commuters and people living in big houses gain more than poor people in small flats.

- Lower prices encourage the use of scarce resources. High prices, remember, are signals to use the product sparingly.

- Price caps tend to reduce profits. To offset this, companies will try to cut costs - for example by reducing maintenance spending. The upshot will be a worse service and job cuts.

For reasons such as these, economists have traditionally hated the idea of using the price mechanism to redistribute incomes - a dislike embodied in the second theorem of welfare economics.

Not a ringing endorsement of 'predistribution' there from the left!

In truth this entire policy is simply to revisit the idea of a partially planned economy. A system where prices and wages aren't determined in an efficient market place but through inefficient negotiations between government ministers, business leaders and trade unions. Or worse where this tripartite arrangement is replaced by a bureaucracy of price and wage control.

With each iteration of its economic policy, Labour inches closer to that 1970s model of regulated wages and prices, protectionism, credit control and implicit bureaucratic direction of business and industry. Decisions about prices for essential goods - food, fuel, housing - will be effectively within the purview of the government with the resulting relentless downwards pressure on prices. The same interference that, from the mid 1960s (along with the indulgence of trade union militancy) played such a part in destroying British manufacturing industry.

It is good politics to promise price cuts - The Eds know this. But, as an economic strategy - especially linked to running the printing presses a full whack - it is a recipe for collapse, for unemployment and a sclerotic, corrupt private sector that focuses on lobbying government rather than delighting customers. Labour's leaders, in a fit of depressing nostalgia, have donned their flares, attached the kipper ties and headed off down the disco. They'll be sporting mullets next!

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...And you don't believe inflation is a problem?

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After a month or two of complacency, I’m back to worrying about inflation. Not just because I’m a substantial net saver and inflation is very bad news for me but because the damage it will do to our fragile economy is enormous. Unless, of course, you’re a bank with big, unrevealed debts on your balance sheet or a government with the biggest ever national overspend.

At the moment the Bank of England – by sticking to the received wisdom of neo-Keynesian economics (by which I mean the kind of Keynesian economics that Keynes never proposed) – is playing fast and loose with its reputation. Here’s the Wall Street Journal:

Rising core inflation may indicate firms feel confident enough to be rebuilding margins, which would be at odds with the BOE's insistence on a substantial U.K. output gap. Or it could reflect the continued impact of the 25% devaluation in the trade-weighted value of sterling. Either way, it raises questions about the accuracy of the BOE's inflation model; as Fathom Consulting points out, U.K. GDP is now 12% lower than the BOE forecast in November 2007, while inflation is 2.5 percentage points higher.

Each month the Bank’s excuse is that “temporary factors” are to blame – this time it’s the rise in duty on beer and fags that’s identified as the culprit for a sharp spike in the rate. But most forecasters – presumably using the same factors – were at or around 3.5% rather than the 3.7% of the headline rate. But the Bank still argues that:

“…higher oil prices, a rise in value-added tax to 17.5 percent from 15 percent at the start of the year, and past falls in sterling were driving prices higher, but were only short-term factors that would abate over the coming months. The temporary effects of these factors are masking the downward pressure on inflation from the substantial margin of spare capacity in the economy,”

In other words, we’re still facing deflation rather than inflation. But the Retail Price Index (RPI) has jumped to 5.3% - despite the continuing downward pressure on mortgage rates! The reality – month after month – is that we have never been in a situation of deflation and now we are lurching dangerously towards a possible further acceleration in rates. Maybe this is temporary – I hope it is for sure – but when the Bank doesn’t understand how service industries don’t carry capacity gaps like manufacturers and that the real economy is not sustained by unearned money but by the creation of real added value.

Sadly UK based economists (with notable exceptions) continue to peddle the Bank’s line that inflation will quickly fall back. Fortunately we have the Yanks to keep us straight on these matters!

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Sound money, lower taxes...you're getting there George!

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I am feeling quite reassured – partly by Cameron’s speech today (although I didn’t watch it so am just seeing what most of the public will see) and partly by the reaction to Osborne’s Mais Lecture from economists who share my rather bleak view of our current economic condition:

“Mr Osborne is the only senior serving British politician…who has grasped the gravity of our situation. As such his Mais Lecture pledged an “early start” to budget deficit reduction, in order to “establish the credibility with the financial markets that buys you time.” That’s exactly right.” (Liam Halligan)

“Tyler is somewhat reassured by this speech. It is a weightier offering than the kind of politicking stuff George has sometimes served up in the past. It may not have quantified targets for spending cuts, and we still need to see him adopt clear fiscal rules - including that all-important third rule to govern spending - but this speech does have the makings of a serious plan for government (and see the TPA view here).” (Wat Tyler, Burning Our Money)

“I've only just got round to reading George Osborne's Mais lecture of a couple of days ago and it is rather good, one of the clearest expositions of the economic challenges facing Britain you'll come across.” (David Smith, Sunday Times)

Still a way to go – and not much time – but the Conservative economic agenda gets clearer. And coupled with some tax cuts presents the core message to the electorate – we’re on your side:

“The Prime Minister unleashes the forces of hell, I want us to unleash the forces of enterprise…

Our first budget will contain funded measures to boost enterprise and create jobs. We will abolish the tax on new jobs created in new businesses. We will cut the corporation tax rate paid for by removing complex relefis and attract international headquarters to Britain.

We will reduce the small companies tax rate by simplifying the tax code and make it far easier to get a business started.

For I am absolutely passionate about supporting small businesses. Together these will help power an enterprise revolution. A growing private sector, freed from the burdens of red tape and complex taxation, able to offer those without work hope.

A private sector in which our entrepreneurs are given every help they need to build our economic future and create the jobs Britons desperately need.” (George Osborne)

On economic policy we’re there – not everything in place but a clear strategy that faces up to reality. Certainly better than the Viv Nicholson economics of Gordon Brown