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…