Thursday, 17 January 2019

Good Cop, Bad Cop Economics: Good Cop

In the last Blog post, entitled Good Cop, Bad Cop Economics: Bad Cop, I had a few choice words to say about the left's culpability in the social/political/economic problems that preoccupy so much of their attention. I ended by promising a follow-up in which I offer a solution to how all this can be put right with a pretty radical but effective overhaul of our current framework.

The way to reform the system is simple in explanation but more complex in execution (and very timely perhaps, given the current Brexit debacle over an exit strategy). It is this: enshrine in law any policy that proves to be demonstrably beneficial in net terms to the economic well-being of the country. Now obviously this must come with caution, because it is not always easy to empirically verify whether the economic well-being of the country improved as a direct result of a policy, or whether there were other important factors not related to a particular policy.

But thankfully most economic logic carries enough weight to show why a policy is either a good one or a bad one - and if such positive policies became legally binding they would be safe from party political interference and protected from the dangers of being reversed for political gain. Provided the people making the laws understand the indubitable economic benefits that the nation will enjoy from these acts of legislation, and are able to convey them in a way that laypeople can understand, there are plenty that could be instituted right away.

For example, it could be made law that the UK may not impose any import tariffs on foreigners - a policy that unquestionably harms both the nations involved in the trade exchange. Even if foreigners don't reciprocate and still wish to impose tariffs on us, we would still be better off not imposing tariffs on them.

Another example, it could be made law that no politician is allowed to interfere with the price system generated in a supply and demand market. From now on, the price of everything must be governed by market signals, not woefully inadequate politicians. No longer can politicians make it illegal to sell your labour below a set price, or tell you how much or how little you have to charge for a good or service. Leaving prices to the market signals of supply and demand will make the nation better off by eradicating the numerous deadweight costs associated with price fixing.

A third example, it could be made law that no domestic government can interfere in the competition process by subsidising new businesses or bailing out failing businesses. A fourth example, it could be made law that all income tax is flat, not progressive, and that top rates do not exceed a certain high-end threshold (probably somewhere in the region of 30%, but lower ideally). It can also be enshrined in law that governments won't tax corporations (which only ends up falling on employers and consumers anyway). Both of those would ensure politicians get the incentives the right way round - that they are incentivised to manage their public spending properly, not treat taxation as a money tree.

The public needs laws like these to protect them from their own economic misunderstandings. Once it started to be more widely known that these laws would make the nation better off - in terms of GDP, levels of outside investment, job creation, lower levels of unemployment, or any other assessment you care to make - the nation will be a lot easier to govern if the electorate better understands the link between market freedom and economic well-being. More or less every nation in the world that does well in terms of sustainably higher GDP also does well in terms of prosperity, freedom and well-being too.

With the introduction of such laws there will be less of a need for party political rivalry in playing fast and loose with the public's knowledge deficiencies and the extent to which they can be seduced by short-sighted policies. Laws like the above would also counteract the short-termism of political parties' interests whereby they rarely get to feel the long term effects of bad policies or get held accountable for their mistakes.

There is one obvious caveat to the above. Well, two if you allow for the fact that occasionally even sensible legislation may need to be temporarily reassessed on a case by case basis if it's in the public interests to do so (but we'll allow for the fact that this is hardly an insurmountable issue). No, the main caveat I have in mind is that such a radical change to the political framework would have to evolve over a (hopefully) short period of time - it would be too drastic to introduce as a fait accompli shake-up of the system right away. The reason being; there would need to be a transition period during which the public spending bill could come down while at the same time the private sector revenue goes up. Like children learning to walk, it would be foolish to demand that they run.

The upshot is, if done proficiently, these are the radical measures that are needed to properly transform our political landscape from the grass-seed of failure and incompetence to the fresh wheat of success and prosperity. Cutting the grass may keep it neat and tidy - but it'll never give you a field of wheat. If we want to get political wheat, we need to put away the shears and go down into the soil, where the economic foolishness of the present day political landscape can be ploughed up and re-sown.