No, it’s not Tony Barber all over again

Start with the real basics here. We’ve monetary policy, we’ve fiscal policy. These are the two levers that can be used at the top level to influence the economy.

Tax, said Barber, pre-empting Kwarteng by 50 years, “too often stultifies enterprise”. He boasted how he planned to produce economic growth of 10 per cent over two years, which was twice the long-run average at the time for the UK.

He cut income tax and purchase tax (the forerunner to VAT), while also drastically relaxing monetary policy

Loosening both at the same time might not be all that wise – depends upon the background situation perhaps.

But we’re not doing that at all. We have a loosening of fiscal policy, sure. But also, at the same time, a considerable tightening of monetary policy. Interest rates are going up, money printing is declining, QE becoming QT and so on.

This simply is not the same policy mix.

To illustrate. Back in the 1930s the world had that great depression and all that. Britain recovered in about 18 months. The US took a decade and more (depends on how you treat WWII and the fake GDP figures there). Britain tightened fiscal policy, increased taxes and cut spending. At the same time as it dramatically loosened monetary policy by coming off the gold standard, allowing sterling to drop by 25% and so on. Boom times – no, really, boom – arrived.

In one sense we could say this is anti-Keynesian policy. In another, say it’s entirely consistent – original, proper, Keynes says that only when monetary policy is exhausted is fiscal the only thing left.

That Barber loosened monetary policy is the very proof we need that we’re not doing the same thing right now.

Sure, we can still argue about whether this is the correct policy mix etc etc. But anyone trying to tell you that this is the same policy mix is lying. Or ignorant.

13 thoughts on “No, it’s not Tony Barber all over again”

  1. Yeah but…
    You are right, in strict economic terms, the GB policy worked spectacularly well and that in relative terms the Depression was not as deep or as long as elsewhere. Britain’s Gold Standard policy in the 1920s had suppressed growth and trade and so when the Big One came along, Britain had already had a poor time of it for some years.
    The “boom” though shifted the balance away from heavy industry and meant that the South and Midlands greatly benefitted at the expense of the North and Scotland and we still had huge unemployment blackspots until the War temporarily revived shipbuilding and coal mining.

    I guess the difference “this time” is that we are borrowing the money to finance the tax cuts. Which to my Bohm von Bawerkian sense of Sound Money really rings the alarm bell. This is Reaganomics not Barberism.

  2. I was looking at a copy of the Guardian’s front page from 1972 budget – ironically with a very prominent advert for private health insurance – and it listed purchase tax at 50% ! ! ! !

  3. Bloke in the Fourth Reich

    What I want to know is how we can halve or more western government spending and taxes. How quickly can it be done without demolishing everything along the way? And with clearing government debt down to household rainy day overdraft levels?

  4. “What I want to know is how we can halve or more western government spending and taxes. How quickly can it be done without demolishing everything along the way? And with clearing government debt down to household rainy day overdraft levels?”

    How much do you reckon we’d get if we sold off every primary school, secondary school, sixth form, college and university and completely deregulated education at the same time? How about we reduce the Department of Education down to two offices – one that issues every school age child with a voucher and another that sets the exam questions?

    Next, how do we apply that to the blessed NHS?

    It would go a long way towards clearing our debt.

  5. Presumably the government’s intent behind this is to stimulate rapid growth that will deal with some underlying issues, cover the cost of the new borrowing, and have something to campaign about at the next GE.

    Trouble is, we are, in many ways, in a state of war. I don’t think people and markets are going to respond normally to normal government fiddling. It’s going to get lost in a very poor signal to noise ratio; an ash tray on a motorbike in a hurricane.

  6. Sensible policies for a better Britain

    “What I want to know is how we can halve or more western government spending and taxes. How quickly can it be done without demolishing everything along the way? And with clearing government debt down to household rainy day overdraft levels?”

    Can’t tell for Germany but for the UK, this:

    1) Abolish overseas aid. About £15bn.

    [1a) If it’s different, abolish the British Council and related twattery. Let them find a different sugar daddy

    2) Scrap HS2. Yes there will costs to that – call those £20bn. Against a projected cost of £100bn which in reality with be £200bn. So one-off savings of £180bn.

    3) Scrap the armed forces. Not defending the borders, they serve no purpose. £41bn.

    [3a) Just scrap the government which is not requiring the armed forces to defend the borders: £1tn].

    4) Scrap the Border Force. They’re defending the boarders. £1bn?

    5) No benefits or support of any kind for any asylum seeker, unless seeking asylum (lol)from Eire/France/Belgium etc., in which case we should offset those costs from the cash we still pay the EU. £5bn?

    6) No benefits or healthcare for any other unnaturalised immigrant, and all of them must deposit in escrow enough to pay for an immediate return ticket to where they came from. £1bn?

    [stop paying for the world’s sturdy beggars].

    7) No taxpayer pounds for immigration lawyers. £50m?

    Obviously I have not started on the enviro-twats, make-workists, rent-seekers, stupid public libraries, community centres, the BBC, the academics, NHS, armies of regulators and somethingfornothingers, and all the rest of it.

    But does that start to answer answer your question? Just a bare minimum would be Truss aksing (geddit?) foreign aid. What’s that all about, we’re broke already?

  7. We might as well scrap the Armed Forces, we’ve given the Ukies all their weapons, so they’ve nothing to fight with anyway.

  8. . . . we’ve given the Ukies all their weapons . . .

    Amazed that anyone can believe this is remotely true enough to be even a joke.

  9. @ Addolff,

    That BBC article was one of the ones I checked to see that we hadn’t suddenly sent all our F35s, or something. It shows we’ve sent very little of our arsenal. 5000 NLAWs is a lot, but we had something like 15000.

    When you factor in shelf life and new versions coming along, giving arms away to be used against the very targets they were designed to destroy is almost the perfect solution. We don’t even have to bare the cost of decommission and disposal of weapons that would otherwise have sat in armouries.

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