Last month I penned a scenario (“The hand of history is on Cameron’s Shoulder”) on our economy that that I hoped was going to be wrong. Since that time, the economic outlook continues to worsen, and that’s worrying me tremendously.
Stock markets around the world have continued falling sharply, bond markets (which are about 5 times the size of all stock markets in the world combined) have virtually ceased trading, banks around the world have stopped lending, the US government has canned its dodgy asset repurchase program (the so called TARP) because its already spent the cash on nationalising its banks (and its all but decided to nationalise its car companies too).
Here at home, we have seen the largest quarterly rise in unemployment benefit claims and the largest quarterly rise in redundancies since records began; the first fall in average producer prices in history; a further collapse in sterling (to $1.48!), the largest fall in average house prices in a quarter....the list can go on and on...each economic fact being the largest, first, quickest.....all in the worst possible direction. But here’s the thing......we ain’t seen nothing yet. Unless we all take stock of what’s really happening and where we are potentially heading right now, and take proper unprecedented action, we are sleepwalking into worst economic depression in history. We need the right type of policy response from the government, and the and the right action and attitude from the Conservatives.
We are fighting for the very survival of our economy as we know it. This requires unprecedented action, but we need avoid, as much as possible, direct intervention by the government in banks and companies. Government needs to set the incentives and disincentives for business, not run it. The more government gets involved in the running of businesses, the deeper and longer the downturn will last. (Barclay’s would rather take cash from Arab governments than the UK government, knowing how the UK government would demand a say in the running of its business).
Here’s two policy actions that I think are key and to help get people risk-taking and spending again:
One: suspend the Bank of England’s independence and take the base rate to zero. That’s right....zero. This is are only realistic chance to get banks lending again, and to try encourage entrepreneurs to take risk by tipping the cost/benefit equation decisively.
Two: Send a tax refund cheque of modest amount to every taxpayer in the land, and double the tax free allowance on earned income (benefiting the less well off most). Get people (not the government) spending again by giving them back some of their hard earned cash.
Of course, sterling may fall further in the short-term and the budget deficit will balloon but, my fear is, if we don’t take the action prescribed above now our long-term situation will be a lot worse. The UK is unique among Europe’s largest economies: we rightly did not join the Euro. So now lets use that economic independence and get ourselves ahead of the global recession pack while we can.
In my previous blog I also stated that we Conservatives need to stop pretending that this is some kind of domestic crisis caused entirely by the government. The public are not dumb. When every major economy in the world is heading south like us, we Conservatives look totally disingenuous in blaming the government again and again. Don’t get me wrong....Labour has implemented many bad economic policies that have no doubt made our economic predicament worse...but Labour did not cause the largest global economic crisis in living memory.
What the electorate want to see right now is leadership and integrity. They want someone to tell them the hard truths, where we are heading and how we’re going to limit the damage and eventually recover.
David Cameron, the country needs you, where are you? This is your chance to lead the country from opposition...please use it.