Is Keynesianism finally dead?

Jamie Parker explains why Keynesianism has lost in the UK, and where macroeconomic policy may go from now. Little over a year ago now, and after yet another quarter of GDP flat-lining, the Coalition’s mandate for fiscal austerity looked increasingly fraught. As George Osborne sat in Whitehall reflecting on 2012, there was little to console him from the gloom and despair. In April, his ‘Pasty Tax’ Budget had been awash with disastrous U-turns and was overshadowed by a downgrading of Britain’s AAA rating. Not even the country’s gold medal haul in the Olympic Games could create the ‘feel good’ needed to dispel the dark clouds hanging over Britain.

When the Chancellor actually went on to blame the poor weather for dismal growth figures, one could not help but feel the argument for spending cuts was becoming a rather desperate one. For the duration of this period, at least, it seemed that the combined forces of economic stagnation and a public wary of further cuts had handed the initiative to Keynesian expansionists on the Labour front benches. Indeed, Ed Balls’ warnings against cutting “too fast and too far” and kicking the economy while it was flat on its back seemed to be gaining currency.

The picture we are presented with today is, for ministers in the Treasury anyway, undoubtedly a rosier one. And it is amazing just how quickly the initiative can change hands. For now it would appear, it is for those on the political left, the advocates of ‘Plan B’, to explain why, in spite of their predictions, the government is running down the deficit and at the same time the economy is achieving growth figures of 2.7%. Of course this is made little easier given how the alternative is playing out across the Channel. Hollande’s crippling ‘Robin Hood’ tax policy and fiscal expansionism, far from promoting growth and prosperity, has sent unemployment soaring and the country’s finest talent packing for London. The mantra of ‘tax and spend’ appears as unattractive an alternative as ever. Indeed, everywhere it is the advocates of fiscal expansion who are in retreat and ministers in the Treasury muttering ‘I told you so’.

For them, the events of the past 12 months have played out as well as they could have hoped. Recent data suggests that all sectors of the economy have been expanding rapidly and the Confederation of Business and Industry argue that growth has become “entrenched” here in Britain. This is supported by news that record numbers of people are in work, of which full time work is showing the greatest increases. Such overwhelmingly positive data, quick in succession, gives reason for optimism and is likely to put a smile back onto the Chancellor’s face. I suppose then the question going forward now is whether austerity has won out, is this recovery balanced and sustainable as the treasury would claim? And, what’s more, can we believe Ed Balls when he argues that the “three wasted years” of ‘damaging flat-lining’ were, as he would claim, suffered needlessly?

I think the first thing to concede, before supporters of the government get too excited, is that the economy is far from fixed. Of course, there are now clearly ‘green shoots’. The labour market, which has remained fairly robust throughout, seems to be showing signs of further strength – any week now the unemployment rate is likely to fall below that elusive 7% target the Bank of England is so interested in. This is supported by strong, slightly above trend growth figures, stable inflation and increased consumer confidence. However, it is also worth pausing and considering the risks that still threaten a sustainable recovery – I share Vince Cable’s “cautious optimism” about what we are seeing happening in the economy at the moment. There are the devil’s advocates who, rightly or wrongly, remain unsettled by the kind of recovery the country is experiencing.

The first concern relates to the notion of a ‘balanced’ recovery, something which arouses particular attention from economists. A return to growth in the long-neglected manufacturing sector is of course a welcome diversification away from the country’s decades-long reliance on financial services. However, the strong performance we are seeing in these industries is coming from a very low base and exports are still far from sufficient to eradicate, lesser still exceed, the nation’s hunger for imported goods. What this seems to suggest then, is that Britain’s economic success continues to rest precariously on an uneasy compromise between consumer spending, cheap credit and the City of London. These are, of course, vital elements of the economy. It is important that they continue to flourish. However, it is important mistakes of the past are not repeated. It would be wrong and foolish to lay all eggs in one basket only to see them all then break if something goes horribly wrong again, as it did in 2008. The easy solution now would be to let financial services and credit cards do all the hard work, and not accept that sustainable, long-term growth lies in business investment, productivity gains and competitiveness in our exporting industries.

Now that the demand-side of the economy is recovering, it is important to remain focused on the more intractable weaknesses in Britain’s ‘supply-side’. Successive governments have cowered from making firm commitments to invest in long-term capital spending projects. These are needed if the UK is serious about modernising and revitalising its infrastructure. If London is to remain a destination for business and investment, aviation capacity must be able to meet demand from China and the Middle East. If the North East and the Midlands are to share in the country’s wider prosperity, then they must be well-connected and receive investment to grow. Furthermore, schools and colleges must provide young people adequately with the skills and competencies they require to succeed in competitive, globalised labour markets. This may require a more rigorous reassessment of the subjects students take – orientating back towards more traditional disciplines, such as maths and science. With a competitive tax regime, a pool of skilled labour and modern infrastructure, Britain will be far better placed to address the gap in productivity which has emerged with her European competitors.

What’s more, these issues have become compounded within a wider criticism of the government over the ‘cost of living’, which is Labour’s new strapline now that the economy has returned to growth. Putting aside political point-scoring, hard-working people have been squeezed by rising utility bills, rail fares and commodity price fluctuations. All this in the context of stagnant, or even declining, real wages. The 2008 recession did enormous damage to the country. It would of course be wrong not to expect a pinch in the pocket as a result. However, what people seem to be asking, six years on, and at a time of public pay freezes and stagnating living standards, is why is it that bankers in Canary Wharf continue to enjoy such generous bonus packages while we, the innocent victims, pay the price? Prolific amongst alienated, working people is a sense that the taxpayer is carrying the burden of risk and private enterprises are enjoying the profit. The government may well stress the need for London to remain ‘competitive’ and ‘open to business.’  However, defending the questionable practices of the City is becoming more and more difficult. To many, we should be concerned more with issues of fairness and morality than merely with profit and greed.

This is not helped of course by alarmist fears that there is an asset bubble being reflated in the housing market. According to some commentators, the market is being fuelled artificially by the government’s ‘Help to buy’ scheme, accelerating foreign demand and severe supply constraints. While I think there is reason to be wary of the fragile nature of this recovery as it takes hold, media headlines warning of “double digit” rises in house prices do not tell the whole story. House prices have started to rise again, as we would expect. Indeed, in some places they have done so quite spectacularly. However, giving the impression of an ‘asset bubble’ or a ‘crisis of liquidity’ is unhelpful when we are talking about a phenomenon almost entirely exclusive to London. Furthermore, the construction sector has remained in the doll-drums for six years now. As private building firms return to more normal, pre-recession levels of investment, the supply of new housing will restore equilibrium in the market. It is comforting as well to see is that it is the Bank of England that is overseeing the ‘Help to buy’ scheme and not a defunct regulatory authority like the FSA. Perhaps, then, we are starting to learn some lessons from the past.

So how would the alternative to fiscal tightening have fared?

Counterfactuals are always dangerous because circumstances change and of course that impacts the decisions that would have been made anyway. That said, Ed Balls has admitted that a Labour government would have had to have made cuts. I suspect as well we would have seen more interventionist initiatives, such as jobs programmes, aimed particularly at young people. Taxation would likely have been more progressive – both on income and also possibly in the form of an inheritance or a banker’s tax. What’s more, the public applause for Ed Miliband’s Conference pledge to freeze energy prices tells a story. Laissez faire policies, which allow unregulated markets to do as they please, generate a climate of discontent. Energy prices have been steadily increasing for years now. In the meantime the ‘Big Four’, mostly foreign owned, energy companies have been making record year-on-year profits. The public want a fair solution and the Labour Party have offered one.

This is not necessarily to say that what they have suggesting is right, or indeed, feasible. From the opposition benches it is easy to criticise and offer hypotheticals. In reality, breaking up the energy market would be hard. The high fixed and sunk costs of production and distribution necessitate large scale operations. Moreover, freezing prices for a year may provide respite for squeezed households in the short term. However, if investment seizes up, what are the medium and long-term prospects for our, and future generations?

The core issue here is that the energy industry has become cartelised, with a few large firms able to maintain profit margins by exploiting their share of the market. The solution must address the cause, that there is a private monopoly in operation, and not the symptom, which is that prices are rising. Opening up the energy market to greater accountability and transparency would help to ensure that prices fairly reflect wholesale costs. It would also offer a more sustainable solution than a price freeze. As too would exploring and investing in alternative sources of energy. It is important that the government follow up on the findings recently published in the Wood Report, which lay out the prospects for North Sea Oil. They must also remain negotiable to the potential nuclear power and renewables offer. The energy problem faced by the UK is intractable, and ultimately requires a more considered, long-term solution than that which regulation can provide. This is not merely a case of fat cat directors at EDF and British Gas exploiting helpless consumers.

In reality, these concerns run deep into the ideological differences which separate the two major political parties. The Labour Party argues the need for greater government intervention to address structural weaknesses in the economy, such as youth unemployment. Of course, no-body wants to see large numbers of young people without the fulfilment and prospects work can provide them with. However, subsidising labour markets, when the national debt stands at 86% of GDP and is set to grow further still, is difficult to reconcile. Last month, a Shadow Treasury Minister conceded that Labour’s Job scheme could only be supported for one year after a student leaves school or college. In reality then, the only way to sustainably improve work prospects for young people is to channel resources into education and training. Forcing firms to take on school-leavers, who lack sometimes even the most basic skills and competencies, passes the buck unfairly from government to business. This will have either the effect of eroding competitiveness in the UK or will simply drive employers away to Europe and America.

Again, the causes and not the symptoms must be addressed.

The causes of youth unemployment lie in the inadequacy of the education system to provide young people with relevant and useful skills. This is what creates occupational immobility and bottlenecks in the labour market. Given that the government spends roughly £4000 per year per pupil in England, there is something inherently concerning in the fact that some young people are leaving secondary school still unable to read and write. That is a damning indictment, not of businesses and labour markets, but of schooling here in the UK.

The public’s enthusiasm for government intervention is quite often matched by an enthusiasm for redistributive taxes, particularly targeted at wealthy bankers and property-owners. Nick Clegg’s proposed Mansion Tax on millionaires carries a strong political message. Indeed, it ties in well with the party’s more organic vision - for a society built on the foundations of equality and fairness. However, taxes such as these must be considered within a wider perspective.  As I said before, one need only look at what is happening in France to realise the impact ‘Robin Hood’ scare taxes are likely to have on national wealth. What, on the surface appears to be a well-intentioned levy on the assets of the very rich may, by the law of unintended consequences, adversely affect the interests of the nation as a whole. Driving away wealth and talent to safe havens overseas is no way to encourage investment, employment and opportunities at home. Last year, Senior Liberal Democrat officials conceded that the party’s tax proposal would derive ‘in the grand scheme of things…relatively little revenue.’ Creating a political culture which is opposed to wealth creation and ambition is damaging for all. The key is to strike the balance between doing what is right, out of principle, and doing what is needed in practice, to make British people better off and more prosperous.

In many ways, presenting a false dichotomy between fiscal expansion and ‘austerity’ is unhelpful. An eclectic approach is needed here. On the one hand, this means rolling back the frontiers of the state where it has become bloated and bureaucratic. On the other, it means recognising that government has an immense capacity to restore the economy to more normal levels of output and demand.

More of Surrey is now under golf courses – about 2.65% – than has houses on it

We all know what's wrong with the British planning system: the British planning system. It won't allow anyone to build housing where people actually want to live and insists that housing can only be paced where no one does wish to be or, alternatively, in the middle of flood plains where they'll get swept away every few years. And this is why, as the man says, more of Surrey is under golf courses than is used for housing:

Cheshire lays into "supporters of urban containment policies who argue that Britain is a small island that we are in danger of concreting over", claiming it is a myth because green belts cover one and a half times as much land as all of England's towns and cities put together. "Moreover, there is little or no public access to green belt land except where there are viable rights of way," Cheshire says. "Green belts are a handsome subsidy to "horseyculture" and golf. Since our planning system prevents housing competing, land for golf courses stays very cheap. More of Surrey is now under golf courses – about 2.65% – than has houses on it."

He calculates that there is enough green belt land within Greater London – 32,500 hectares – to build 1.6m houses at average densities. "The only value of green belts is for those who own houses within them," Cheshire argues. "What green belts really seem to be is a very British form of discriminatory zoning, keeping the urban unwashed out of the home counties – and, of course, helping to turn houses into investment assets instead of places to live."

The answer is, of course, to blow up that planning system. We might, for example, simply say that all golf courses in Surrey now have planning permission for housing on them: that would mean doubling or more the land available for housing without losing even the slightest iota of farmland or wilderness. But a better idea would be to adopt our long written plan here at the ASI, Land Economy. In essence, simply state that low density housing may be plonked where people wish to live.

We're never, ever, going to solve the "housing crisis" without reforming the very thing that causes it, the planning system.

What really gripes my goat in the discussion of profits

Deborah Orr discusses why the breat cancer treatment she had was just fine but why a more expensive one that might save the lives of other women wouldn't be. And while my description of her argument might sound cruel and her argument itself might sound cruel she is in fact correct. Resources are limited and a cost benefit analysis has to be applied as to where and upon what they should be expended. However, there's one little point she makes that really gripes my goat:

But Roche seems pretty good at recouping them. It made a profit of 11.4bn Swiss francs (£7.7bn) last year. As its chairman, Franz B Humer, said in his 2013 letter to shareholders: "In a challenging, increasingly cost-sensitive environment, our focus on targeted medicines and diagnostic tests has allowed us to expand our strong market position and to significantly improve net income. In light of our strong performance, the board of directors is proposing – for the 27th consecutive year – an increase in dividend." It's worth bearing in mind, reading this, that a 2012 report called The Research and Development Cost of a New Medicine reckoned that, on average, only about 10% of the overall cost of developing a new drug is taken up by research and development. Much more is spent on attracting and servicing investors. Quite a bit is spent on PR.

It's that "attracting and servicing investors" part that so annoys. For this is exactly the same cost benefit analysis leading to the efficient deployment of resources that Ms. Orr is so praising. Hoffman La Roche employs some 80,000 people around the world and  has, if I've read their accounts correctly, some 40 billion Swiss francs in capital to back up their work. And we do need some system to try and decide how much of the accumulated wealth of the species is tied up in trying to create cancer drugs to save the lives of Ms. Orr and other unfortunates who lose that crap shoot with their health.

Please note that while we do have a mixed capitalist/market based system doing that allocation for us here the problem doesn't go away if we try to move to some other system. Perhaps worker based socialism where that 40 billion has to come from the pockets of the workers who work in the company, perhaps some planned system whereby taxes are raised to provide that capital. But however it's done we still need the cost benefit analysis to tell us that we're allocating that capital optimally. And we still need to pay the price too: by devoting 40 billion to the treatment of breast cancer we're not allowing it to be used to create vaccines, or for people to consume now, or on beer, or space rockets.

In fact, simply and purely the fact that capital is scarce means that we both have to calculate how best to use it and also pay the price for with holding it from other uses, whether we have a capitalist/free market economy or not.

Against the hypothecation of taxes

One of the sillier ideas floating around out there at present is that there should be a new hypothecated tax to pay for the NHS. The reason that this is a silly idea is that there's simply no connection whatsoever between what you can tax out of a particular activity and what we wish to spend upon some other particular activity. That is, hypothecation is itself a bad idea. Here's one demand for an NHS tax:

But a credible idea for preserving Labour's most enduring achievement in government is desperately needed. An earmarked health tax may be one whose time has come, and perhaps a model for financing other strained public services and modifying voters' resistance to taxation. Gordon Brown introduced a 1% national insurance health surcharge in his 2002 budget. The trickier question is how far the idea can be extended. Should all health spending come from specific revenue sources – the total proceeds of NI, say, or a general sales tax? Should something similar be done for education? Should older people's care bills be financed from an enhanced inheritance tax? Should corporation tax go to in-work benefits – which, in effect, subsidise inadequate wages?

Leave aside here that line about modifying voters' resistance to taxation. Concentrate just on this one point: that how we raise taxation, from what, is an entirely different question from how we wish to spend the money raised.

For example, we could posit a cigarette tax to cover the costs to the NHS and social security systems of smoking. Indeed people do. That smokers actually save the NHS and social security system money by dying earlier would mean that the correct tax would be a subsidy in this case. But leave that aside: we'll tax cigarettes their direct costs to the NHS and ignore the indirect savings. This would lead to a tax much lower than the one currently levied.

So, why do we tax fags so highly? Because demand for them is inelastic. We can load 200%, 300% taxes on smokers and people will still line up to buy the coffin nails. So, therefore, we tax cigarettes highly. And the same is true of booze, petrol and a host of other things. We tax them highly simply because we can. There are also any number of things that have very low elasticity of demand with respect to price and thus those things must be taxed lightly if we are to avoid too many distortions.

So what we can tax and how we can tax it depends on attributes of the thing that is being taxed.

Over on the spending side there is absolutely no connection whatsoever between what we can raise by taxing one specific thing according to its attributes and how much we want to spend on whatever other activity we're undertaking. What we can efficiently squeeze out of smokers has no connection whatsoever to the costsof the NHS, or the education system, nor even what we might want to spend on smoking cessation programs. For example, if the smoking rate either rises or falls, does this have any influence at all on how much we might want to spend on childhood vaccination?

No, it does not, there is no connection at all between these things, between how much we can raise from one specific tax and how much we want to spend on one particular activity. Therefore we shouldn't link one specific tax with one specific area of spending: that is, hypothecation is a bad idea.

Which leaves us back with Colbert's point. The art of taxation is to have the maximum plucking of the goose with the minimum hissing. The same statement as we should tax things with highly inelastic demand and not things with elastic such.

Another reason we really do want a carbon tax now

Have a look at this nonsense that is going on over Drax at the moment:

Drax is to legally challenge the Government's decision to exclude the power plant operator's plans to convert a coal-fired unit into one burning biomass from its latest round of funding. The decision to challenge the Government could set a precedent for other generators and overshadowed the approval of several new renewable energy projects on Wednesday. Drax had expected to receive the subsidy after the project to convert Unit 3 at its Drax station in North Yorkshire was shortlisted in December under the Government's new contracts-for-difference (CFD) scheme. However, the Government said on Wednesday that the scheme does not meet all its criteria for the enhanced CFD mechanism and urged Drax to continue with the project under the existing direct subsidy, sending shares in the company tumbling 11.7pc to 667p at midday.

The first point we should make is that it's actually fairly stupid to try to ship wood pellets 3,000 miles in order to avoid the burning of coal. There are reports out there insisting that this will lead to an increase in emissions, not a reduction. But leave that aside for a moment.

Assuming that we do sign on to the idea that climate change is a problem, one we need to do something about, it is exactly this sort of bureaucratic jockeying which makes the case for the carbon tax. Who is getting, or not getting, saubsidies, contracts for difference and all the rest is being determined by who is in favour politically. Whcih isn't what we want at all: we want simple and sustained economic pressure on people to reduce emissions. Which is exactly what a carbon tax does. It might put Drax out of business. It might encourage a move to biomass, or to continued coal burning with more efficient methods. But it becomes purely an efficiency argument as to which happens rather than a political one driven by whatever it is that is between Ed Davey's ears.

And what's actually worse is that we do now have a carbon tax. It's disguised as a minimum price for a carbon emissions permit but it has much the same effect as a carbon tax. Meaning that all of this bureaucratic nonsense has already been superceeded. Either burning coal at Drax, including that minimum price for a permit, makes sense or it doesn't: therefore it will happen or not.

All of which is intensely irritating of course. We now actually have that correct (if rather Heath Robinson) system to reduce emissions. Yet the politicians are still playing games as if they don't realise that they've already solved the problem.

How do we solve unemployment?

It appears that the correct method to reduce unemployment is to reduce unemployment benefits, increase in work benefits, abolish the minimum wage and insist that those unemployed take a job, any job, at any price.

After all, that's what Germany has done and the German unemployment rate fell dramatically as a result of doing just that. Scott Sumner has the detail:

So what's the real explanation for the German success? That's pretty obvious; the Hartz reforms of 2003 sharply reduced the incentive to not work, and sharply increased the incentive to take low wage jobs. As a result, today Germany has lots of very low wage jobs of the type that would be illegal in France or California. ....So the one major success story among developed countries has achieved its success by doing essentially the exact opposite of what progressives want. Germany has no minimum wage, reduced its incentives to live off welfare, and has a level of wage inequality that is increasing even faster than in the US. It's no wonder that progressives prefer to focus on things like "vocational training programs," which were just as common during the 30-year period of steadily rising German unemployment.

That's a fairly forthright explanation of what has been going on. And the real annoyance of that Progressive stand (what we over here might call Guardianista), that we must raise the wages of the lowly paid, not reduce them, that no one should be forced to work to gain benefits, is that you can derive the Hartz reforms from the work of Richard Layard. Indeed, even the timid attempts we do have to get people to work, any job at all at any price, even if the pay must be topped up with benefits, can be derived from Layard's work. For what he's actually saying is that long term unemployment puts people on the scrap heap. Thus there have to be sticks and carrots to drag them, screaming wildly if need be, back into the labour force.

Sumner is depressed at the way that the American left insists on counterproductive policies on unemployment. And we are here about the British left. If the market for low skill labour isn't clearing then that must mean that the price of low skilled labour is too high for the market to clear. If you're really worried about getting people into jobs you've therefore got to accept that wages will fall. If you then want to top them up with in work benefits then that's intellectually at least, just fine. But wibbling on about how the minimum wage must rise because inequality is just condemning ever more people to lives wasted on the dole.

Small firms, giant leaps, and the elephant in the room

IPPR has recently released a detailed and thought-provoking report. In Small Firms, Giant Leaps, Spencer Thompson considers the contribution small and medium-sized enterprises (SMEs) have made to Britain’s economic recovery since the financial crisis and the role they could play over the coming years – specifically in getting more people back into work. Small Firms, Giant Leaps suggests some sensible reforms that this Government should take seriously, but it falls short of dealing with the real problem; a problem so much discussed and so obvious that its mere mention is liable to induce a collective yawn: too much complex regulation. As the report makes clear, SMEs have contributed enormously to the labour market recovery since the financial crisis – 84% of jobs growth between the start of 2010 and the start of 2013 came from SMEs: “Overall employment rose by 1.5 million between the start of 2010 and the start of 2013. Of this, 1.2 million was in enterprises with 0–249 employees. Given that they only account for two-thirds of total employment, it is clear that SMEs are disproportionately driving the jobs recovery.”

The report suggests four policies for using SMEs to the end of creating “full employment” (defined as 80% of the workforce). I’ll first consider two through four.

The second recommendation is to retain and reform statutory sick pay recovery. Obviously, businesses are less likely to hire workers who have a higher risk of getting sick and not turning up to work, and this is more weighty burden for smaller businesses. Thompson suggests targeting current support towards individuals that face the greatest sickness-related hiring risks and only making this available to small firms (those with an annual NICs liability of less than £45,000). It is estimated that this reform would cost just over £20 million, which is good deal less than the £50 million currently spent on statutory sick pay recovery.

The third recommendation is to intermediate labour markets in welfare-to-work policy: “Providers under the next iteration of the Work Programme should be allowed and encouraged to act as a temporary employment agency for claimants in particular groups, securing short-term paid work placements with employers.” The fourth recommendation is for an occupational benefit insurance scheme for SMEs. Thompson calls on employer associations – such as the Federation of Small Businesses and the British Chambers of Commerce – to work with insurers to help SMEs club together to offer occupational sick, maternity and paternity pay to their employees.

The first recommendation is less convincing and gets us to the nub of the problem. Thompson calls for more business support for new employers and existing micro and small businesses. The problem is easily identified: “those not large enough to employ a dedicated HR professional and unable to afford the cost of external support have to navigate through an often complex system of employment law and labour market regulation.” The solution, according to Thompson, is to give up to £1,000 in support and services.

Rather than setting up yet another scheme to navigate the complex regulation, the Government should exempt small businesses from as much of the labyrinthine system of employment law and labour market regulations as is feasible. Since 2001, the Government has been committed to exempting microbusiness from upcoming “burdensome” new regulations. The logical conclusion is to exempt them from existing burdens too. For those who suggest that this can’t be done, just consider that in 2012 the Government exempted hundreds of thousands of low-risk workplaces from health and safety inspections.

Information is certainly important for SMEs – the chopping of Business Link and the various changes since then must have done significant harm – but by their own reckoning regulation is the key reason SMEs aren’t hiring more. As is shown in the Figure 2.1 (page 33) of the report (see below), when asked in an FSB poll about the barriers to taking on more staff, only 5% of SMEs said it was “not finding the appropriate information”, while 32% said it was a “fear of litigation/employment tribunals”, 30% “employment law/regulations”, 16% “other regulations”, and 14% “administrative burden”.

FSB chart

Some may suggest that SMEs fears are unfounded, but the 321,800 claims accepted by employment tribunals in 2011/12 suggest that the hesitancy is based on real and present dangers. One of the costs of regulations designed to protect the currently employed is that it restrict access to those on the margins of labour markets. If your goal is 80% employment, then, whether you like it or not, deregulation is the most powerful weapon in your armoury.

Philip Salter is Director of The Entreprenuers Network.

Explaining things to George Monbiot once again

Sadly it's necessary for us to describe the way of the world to George Monbiot once again. Here he is complaining about the fact that the government is putting a value on various parts of the environment:

Do you believe that people prepared to cheat to this extent would stop a scheme because one of the government's committees has attached a voodoo value to a piece of woodland? It's more likely that the accounting exercise would be used as a weapon by the developers. The woods are worth £x, but by pure chance the road turns out to be worth £x +1. Beauty, tranquillity, history, place, particularity? Sorry, they've already been costed and incorporated into x – end of discussion. The strongest arguments that opponents can deploy – arguments based on values – cannot be heard.

That the government might cheat should not surprise anyone at all. But it's in that last sentence that Monbiot exemplifies his ignorance on the point. For the very method that is used to determine that accounting exercise is based upon those very values that he wishes to deploy.

For the way we calculate the amentiy of some piece of nature is by adding up what we can tell about peoples' behaviour toward that piece of nature. It's not, admittedly, an exact science, more of an art. But what amount of something else would people be prepared to give up in order to preserve or have access to that piece of nature? The value of an oil rig free view of Cardigan Bay perhaps. Or an old, coppiced forest? We do use money in this process but that's only because we want to be able to do sums. Is that view of Cardigan Bay worth more than cutting that forest down to keep people warm in the absence of oil and or gas from the Bay?

And it is the views of everyone that count here. Our entire indifference to whatever happens in Wales as against the much greater interest that is going to be shown by Monbiot who actually uses the bay currently to go fishing from his kayak. But that is what we're doing when we try to work out the value of some piece of nature: how much value does it have to the lives of the human beings it affects? And It's very difficult indeed to see how we could make decisions in any other manner.

What Monbiot is really complaining about here is that the rest of us don't have the same values about nature that he does. To which the answer is, well, tough, for it's a democracy and all our views count, not just those of the Guardian writing class.

Three steps forward

In today's City AM I outline a fairly simple growth agenda that would, I think, deliver very strong growth without requiring tax cuts (which are very important, but seem to be politically dead in the water right now). My three items are reform of planning, immigration and money (the 'PIMs', as I call them), by rolling back the green belt outside London, allowing high-skilled immigration, and targeting NGDP instead of inflation:

Whisper it, but things finally seem to be looking up. Investment is rising, unemployment is falling, and the deficit seems to be coming under control. But it could be a lot better. Real wages will not recover to their pre-crisis peak until 2020. And expected growth of 2.7 per cent this year is well below what we might expect in a real recovery.

The question is, how can we get the strong growth we all want? Tax cuts are nice, but hard to sell as long as the deficit remains large. And calls for business deregulation are often too vague to be useful. But there are clear areas for reform in planning, immigration, and money, and none would threaten the deficit. Reform these areas – the PIMs, we might call them – and real, booming, sustainable growth will come.

Read the whole thing.

It's inheritance tax that stops inheritors losing their fortunes

As we all know there's been some form of inheritance tax in both hte UK and US for over a century now. And as we're all also being told there's been an increase in wealth inequality back to the levels we had before inheritance tax. This will sound a little counter-intuitive but one of the reasons is that we have that very inheritance tax. Consider this from the US:

Their name tags read like a catalog of the country’s wealthiest and most influential clans: Rockefeller, Pritzker, Marriott. They were there for a discreet, invitation-only summit hosted by the Obama administration to find common ground between the public sector and the so-called next-generation philanthropists, many of whom stand to inherit billions in private wealth.

It's not quite that they're going to inherit billions. It's that they're going to inherit control of billions, a rather different thing:

Policy experts and donors recognize that there’s no better time than now to empower young philanthropists. Professionals in the field, citing an Accenture report from 2012, estimate that more than $30 trillion in wealth will pass from baby boomers to younger generations by around 2050. At the same time, the Dorothy A. Johnson Center for Philanthropy (no relation to this reporter) and the nonprofit consulting group 21/64 have concluded in a recent study on philanthropic giving that heirs are becoming involved in family foundations at an earlier age — specifically in their 20s and 30s — and imprinting them with the social values of their generation.

Note "family foundation" there. Because of that inheritance tax rich peoplpe do tend to (and they have to be very rich for it to work) stick all of the money into a foundation. This wealth can then be maintained by professional money managers down the generations. Tax free, of course, as it's inside a foundation. The stipulation is that said foundation must give away 5% of its assets each year. But such "giving away" obviously includes employing family members to run it. At pretty much any salary desired.

This obviously wouldn't happen if the money could just be left directly to children without tax being due. And the effect of it going into such a foundation where the professional money managers can maintain it, rather than the heirs blow it, is that we've lost one of the major forces that disperses wealth through the society. The feckless heir.

So, we end up with the imposition of the tax leading to the continued concentration of old wealth, as the avoidance of the tax reduces the ability of the inheritors to waste it.

As an example, who thinks that any of the Kennedys would still be rich if they'd been able to get their hands on old Joe's money directly?

I rest my case.