Steve Baker MP: These disappointing GDP figures give us three choices - denial, despair or deregulation

By Steve Baker MP

Back in July, I argued that because most contemporary economists lack an adequate theory of capital - that is, of the structure of relative prices and how they change through time - their policy advice is bound to cause worse problems later. 

Quantitative Easing and further credit expansion through artificially low interest rates were our policy choices but, as Hayek explained in his Nobel lecture, injecting new money creates patterns of economic activity which last only as long as the supply of new money. Prosperity created through that mechanism is an illusion and we should not be surprised by these GDP figures.

Policy makers now have three choices - denial, despair and deregulation.

I don't doubt that Labour will continue to deny that massive deficit spending and a giant state are a problem. To resume the growth of state spending on borrowed money from this position would be catastrophic.

As Disraeli said, "Despair is the conclusion of fools." Doubtless some will choose it.

Which leaves us with the practical way forward: deregulation. Ideally, we would cut taxes to liberate the wealth-creating sector of the economy. It can be argued that lower taxes would raise more revenue but, if we lack confidence in that argument, then we need what John Redwood has called "the tax cut for business that does not cost the Treasury revenue": less and better regulation.

The Government should be quick to bring forward a wide-ranging plan to get bureaucracy out of the way of our entrepreneurs: they cannot sprint through treacle.

Meanwhile, for further insights into our present economic and fiscal mess, keep an ear out for Radio 4's Analysis programme on the Austrian School of economics, to be transmitted on Monday at 20:30. I gave quite a racy interview, depending how they cut it...

News of an exciting opportunity in EU participatory democracy

By the time you read this, I will have voted (if the House divides) to "take note" of European Union Document No. 8399/10 and Addendum relating to the draft European Citizen's Initiative Regulation.

Still with me? It's thrilling stuff.

If you find yourself able to garner a million "statements of support" from a minimum number of EU citizens (eligible to vote in elections to the European Parliament) in each of at least a third of EU member states, then you may "invite the Commission to bring forward certain legislative proposals". Proposals will not be acceptable if they are abusive, frivolous or "manifestly against the values" of the EU.

In order to ensure the acceptability of proposals, you'll need to register the initiative with the Commission before collecting statements of support. Once you have 300,000 statements of support, you should apply to the Commission for a decision on the admissibility of the initiative.

Within two months of that request, the Commission should notify you of its decision. The Commission will allow the proposal if it concerns a matter about which the EU could adopt a legal act for the purpose of implementing the Treaties and about which the Treaties give the Comission power to make a proposal.

Once you have a million statements of support, you should submit them to a Member State for verification and certification. Verification and Certification should be completed within three months.

Within four months of your sending the certificates to the Commission, it will publish the initiative and set out its conclusions on the initiative and the action (if any) it intends to take.

Member States will be required to ensure that organisers of initiatives are liable under criminal and civil law for infringements of the Regulation.

Frankly, I can't wait. Surely there must be a million people in at least a third of Member States who would like to make certain invitations to the European Commission? To burn the records, smash the computers, sell the buildings and fire every last one of them, just to pluck an example from the air.

But wait: that would be manifestly against the values of the EU. And probably frivolous. I hope the mere suggestion isn't criminal...

Why do we put up with this nonsense? We are being taxed to pay people to write this drivel - 108 pages of it in the pack before me - to assess it, report on it, advise the Minister on it and so on and so forth. Certainly the measure gives European Citizens a voice in theory, but it's hardly likely to bend the Commission to the people's will is it? Have we forgotten the Irish pantomime so soon? (No, not the most recent one where the EU forced them to take a bailout, arguably to recapitalise the ECB; the one over the Lisbon Treaty.)

I am reminded again of Reagan's '64 speech, A Time for Choosing (PDF, video):

[T]his idea that government is beholden to the people, that it has no other source of power except the sovereign people, is still the newest and the most unique idea in all the long history of man's relation to man.

This is the issue of this election: whether we believe in our capacity for self-government or whether we abandon the American revolution and confess that a little intellectual elite in a far distant capitol can plan our lives for us better than we can plan them ourselves.

Pertinently, Reagan said of his opponents:

For example, they have voices that say, "The cold war will end through our acceptance of a not undemocratic socialism." 

And so it seems as, increasingly, the EU develops its powers of economic governance and becomes a transfer union.

What we need in our relations with the people of Europe, and the world, is peace and unhampered trade. We don't require the opportunity to grovel in humble supplication before the philosopher kings of the Commission.

Meanwhile, as I conclude, the House has adjourned without dividing over this garbage. I wonder if a fellow traveller objected...

Steve Baker MP: The greatest threat to civilisation is not climate change but bad economics

By Steve Baker MP

At one hustings, I was asked for my personal opinion about climate change and anthropogenic global warming. That is, explicitly my opinion, not the Party line. And then in the comments on Paul's recent piece, The dog that didn't bark on Thursday during Energy questions, someone justified the present response to climate change by pointing to resource depletion...

Here's more or less what I said at the hustings:

• Of course the climate is changing - it's bound to and it would be a mistake to deny it.
• If we are driving climate change and if runaway warming is a real risk, then something had better be done about it.
• Climate science does appear to be subject to uncertainties and climate change appears to be a problem we face in the medium to long term. But I remember the fuel protests. I lived in a remote Cotswold hamlet and I came close to running out of food as well as fuel. I remember the queues and the anxiety and how quickly the situation developed. I remember thinking that we were only ever a couple of meals from barbarism. Perhaps resource depletion is a greater threat than climate change.
• Driving both resource depletion and CO2 emissions is population. While population growth has slowed or reversed in the wealthy world, it has not in the developing nations. As a driving factor, population growth seems to be, paradoxically, an even greater threat to humanity than either resource depletion or climate change. Moreover, the only moral way to reduce population growth appears to be to increase prosperity so that people choose to have fewer children. And that, of course, creates other demographic problems such as the "pensions time bomb".

So, the greatest problem humanity faces is how to use increasingly scarce natural resources to create greater prosperity for a growing number of people in the context of a changing environment. The study of that problem is surely economics.

Steve Baker MP: The British bailout will not necessarily help Ireland in the medium to long term

By Steve Baker MP

Yesterday, the Commons passed the Loans to Ireland Bill using an emergency procedure which saw all stages taken in the House in an afternoon. I supported the allocation of time, on the basis that if it needs doing at all, it is an emergency. I abstained on second reading - for I didn't have the heart to rebel - and then supported Douglas Carswell's amendment to decide the rate of interest democratically.

Now of course I support setting interest rates using the ultimate economic democracy which is the unhampered market, but since that wasn't on the table, Douglas's amendment would have been a step forward. It was defeated.

I would have spoken in the committee stage, had the timing been different. I would have expressed four concerns:

• I'm not convinced of the moral case for forcing my constituents to shoulder Irish credit risk, particularly in the present UK economic and fiscal situation. The present structure of the Irish economy is built on credit expansion, and that structure must now change. Those changes will affect British businesses, bailout or not.
• While the Chancellor was crystal clear that the clauses allowing an extension of the amount are there to cover exchange risk only before finally agreeing the loan, these things tend to move on in response to events.
• This represents a precedent for the British people bearing other European nations' credit risks in like manner. That is not a happy prospect.
• I'm not certain we will be helping Ireland in the medium to long term. Given the cause of their crisis - excess credit expansion - it seems unlikely that further credit will solve the underlying problems. Furthermore, the necessary restructuring is likely to be supervised and directed badly by Irish, EU and IMF authorities. If planned economies worked, they would not have collapsed historically.

On that last point, David Howden has written at The Cobden Centre in his article, Contagious Defaults:

The disease afflicting Europe today has been brought on by years of money mismanagement. An inflationary policy directed by the ECB in Frankfurt spread throughout the countries using the euro. As the ECB pursued a loose monetary policy, high inflation countries – the PIIGS of today – saw real interest rates drop to the lowest levels in a generation. It is no surprise that the housing boom was most pronounced in exactly those countries with the highest inflation rates during the boom years – Spain and Ireland.

As Mises and Hayek showed, a boom produced by credit expansion must one day come to an end and come to an end it has, right across the Eurozone's periphery and in the UK. The solution is not an expansion of economic governance by institutions which are institutionally incapable of doing the job: it is a return to good money and balanced budgets, lighter regulation and lower taxes.

As David Howden concluded at The Cobden Centre:

El-Erian, among other commentators, would do well to research the recession’s causes before claiming an EU bailout is necessary to stave off contagion. The current bout of “contagion” is nothing of the sort. A centralized monetary policy bred an unsustainable situation. After persisting for several years it is only now being corrected. Policy makers are well-advised to focus on the government-controlled and fractional reserve monetary system that caused the bust, instead of trying to absolve themselves of responsibility through a misused word.

We await proper monetary reform but, in the meantime, you may also enjoy Cobden Centre Radio: The Irish Situation from an Austrian Perspective.

Steve Baker: If one is a child of Thatcher, "this is what one believes".

This week, I was glad to hear David Cameron say "I'd rather be a child of Thatcher than a son of Brown" but what does that mean for policy and society?

Famously, Lady Thatcher settled a discussion by taking a book from her handbag and banging it on the table, declaring,

"This is what we believe."

The book was F A Hayek's The Constitution of Liberty. What is less well known is that the book's postscript is titled "Why I am Not a Conservative". The whole essay repays close reading but this section speaks volumes:

"Conservatism proper is a legitimate, probably necessary, and certainly widespread attitude of opposition to drastic change. It has, since the French Revolution, for a century and a half played an important role in European politics. Until the rise of socialism its opposite was liberalism. There is nothing corresponding to this conflict in the history of the United States, because what in Europe was called "liberalism" was here the common tradition on which the American polity had been built: thus the defender of the American tradition was a liberal in the European sense. This already existing confusion was made worse by the recent attempt to transplant to America the European type of conservatism, which, being alien to the American tradition, has acquired a somewhat odd character. And some time before this, American radicals and socialists began calling themselves "liberals." I will nevertheless continue for the moment to describe as liberal the position which I hold and which I believe differs as much from true conservatism as from socialism. Let me say at once, however, that I do so with increasing misgivings, and I shall later have to consider what would be the appropriate name for the party of liberty. The reason for this is not only that the term "liberal" in the United States is the cause of constant misunderstandings today, but also that in Europe the predominant type of rationalistic liberalism has long been one of the pacemakers of socialism."

Rather surprising is what Hayek wrote in his foreword to Ludwig von Mises' Socialism: An Economic and Sociological Analysis. Hayek confessed he was one of the young idealists returning to university after World War I, looking to build a better world, who believed socialism would fulfil their hopes for a more rational and just society. Mises dashed those hopes. Hayek wrote of Mises' book: 

"Socialism told us that we had been looking for improvement in the wrong direction."

So the young socialist became a classical liberal and later set out the agenda that became a radical Conservatism.

Society, human life -- a dynamic process of social cooperation and discovery -- can only go forward and our choice is as simple as it is ancient. State power or the power of responsible, cooperating individuals. To live under the authority of other people or to live in liberty, adjusting your behaviour voluntarily to others. Social responsibility, not state control. A Big Society, not Big Government.

Beyond the events of the day, I believe this Parliament will be about something of longer-term interest: the evolution of ideas amongst members of the two parties which have long been in retreat under the onslaught of those who would use state power to construct a more rational and just world. Will the Liberal Democrats rediscover their historic faith in freedom, in individuals cooperating to mutual advantage? Will Conservatives merely oppose change, or will we fulfil our commitment to liberty, responsibility, property and enterprise? Together, will we muddle through a series of moderate inconveniences or will events of historic proportion drive us towards principle? 

There must always be pragmatism and compromise, and I hope you would expect an engineer to say so, but, as an engineer, I am convinced that action without ideas and definite ends in mind can be quite dangerous. As I said in the Commons:

"If the hon. Gentleman uses the word "ideological" to accuse me of having thought about how society works and what the law ought to be, of course I plead guilty."

The Constitution of Liberty is a fairly weighty read and to extract its argument is a challenge. Enter Eugene F, Miller's book Hayek's The Constitution of Liberty - An Account of Its Argument from the IEA.  I thoroughly recommend it, much as I prefer the work of his mentor. Ludwig von Mises emphasised the nature of the individual in society and the mechanisms of social cooperation. I very much regret that his work is not more widely read: some truths are waiting to be rediscovered.

To that end, the IEA published Dr Eamonn Butler's Ludwig von Mises - A Primer.

Mises is exceptionally quotable, but my favourite is this:

"Society is cooperation; it is community in action."

That is what I believe. If only Lady Thatcher had said it, instead of that much misquoted section of her interview for Woman's Own...