Both Ambrose and Burning Our Money have bad news for us: it isn’t going to be easy to get out from underneath this debt burden. Thus endeth the period of spending like drunken sailors perhaps and here’s to the new world where our taxes are subject to the purser’s ever rising demands. Either one of those two, or we try to inflate the debt away and hope no one notices (for if they do we can’t).
Not exactly the most appealing set of alternatives that anyone’s ever been faced with. So are those the only three available? Well, actually, there’s a fourth, the one that no one is talking about yet. That’s to grow our way out of this mess: if we can grow the size of the economy then clearly the debt to GDP ratio becomes lower.
So what do we know about how to make an economy grow faster? No, not the Keynesian idea of simply throwing money at it, something much more sensible: it’s time for the revival of the supply side approach. This isn’t, as some caricatures would have it, just a matter of lowering marginal tax rates. It’s all about the reform of the supply side of the economy. Our problem today isn’t that too much of industry is owned and run (badly) by the State: it’s that all industry, all productive activity is groaning under the weight of regulations imposed by that State. Strip some or all (according to ambition) of those away and we’ll increase the growth rate.
Just as an example, the EU Commissioner responsible has told us that EU regulations cost business around €600 billion a year. The UK is around and about 10% of the EU economy (assuming £ to € parity, just for ease) so our share of that is some £60 billion, or again roughly, about 5% of our entire economy. Rip that burden away, take off the further nonsenses that we impose ourselves (11 million people are going to have to be checked so that they can take the neighbour’s kids to footy practice? Seriously?) and we could pull at least 10% out of the unproductive cost base of our society and use the time, effort and resources to do something productive. And from that added value (which is, by definition, the same as a rise in GDP) we’ll have a huge great chunk of tax money with which to pay off debt: without having to raise tax rates or slash those few valuable services that government does in fact offer us.
As an individual when you’re up to your eyeballs in debt you can at least try to earn more money to pay it off. As an economy we can do the same and the best way to do that is to get the pencil pushers and the jobsworth’s out of our way as we do so. Time to carry on with Maggie’s Revolution: we need to burn more of those regulations.