Douglas Carswell's Blog

Watch Japan carefully

Japanese bond yields spiked this week.

"So what", you say. "Why should the return that investors get for lending the Japanese government money concern us?"

Because our own government has adopted the kind of monetary stimulus approach they've had in Japan for years.  Interest rates have been kept low, zombies kept alive - and no growth.  Sound familiar?

It's not just that monetary stimulus doesn't work.  It has been immensely harmful, clogging up the economy with malinvestment.

Even worse, no matter how many times the government pumps more candy floss credit into the system to keep things afloat, it is unsustainable. When that moment arrives, I fear it might start in Japan and look something like this:  

Japanese bond yields spike.  Yields rise elsewhere as investors grow reluctant to keep taking on government IOUs.   

The bond bubble bursts, and it becomes painfully clear that we've only been issuing bonds at record low rates by, in effect, rigging the market.  

We then wake up one morning and find that whoever is in office faces a choice: much less money for the state-sector, or printing money and high inflation.  Or both.

One day, I fear this might happen.  So when Japanese bond yields rise, pay attention.

The Australian Prime Minister does not do it again

For several years, a steady trickle of emails have arrived in my inbox about a no nonsense speech, apparently given by the Australian Prime Minister.

These emails used to tell me that former Aussie PM John Howard had said those wanting to live in Australia should adapt to Australian culture - or leave. I was even sent a transcript of what he is supposed to have said.

Then I got emails applauding Kevin Rudd, the next Prime Minister, for apparently making the exact same "integrate or leave" speech.  Today I got another email keen to tell me how Julia Gillard gave a speech only last Wednesday, which happened to use the precise same words.

Except she didn't say those words. Neither did Kevin Rudd. Nor John Howard before that. No Australian PM has ever uttered those word. The speech is a hoax. A case of someone deliberately attributing to successive Australian leaders words that they never said.

It is really important that folk understand that this "Australian Prime Minister speaks" email is a hoax. Why?

Precisely because Australia does have a good, no nonsense approach to immigration. And because Australia has a good record of assimilation from which we could learn.

Learning from the Australian immigration experience means recognising what Australia's experience has been. Not falling for a falsehood.

Beneath the radar of the mainstream media, I fear many thousands of people have now read this hoax email - and they believe it. I hope those inside the Westminster bubble confront this falsehood head on. In the meantime, let's use the wisdom of the crowd to explain the truth.

If you get an email telling you what the Aussie PM is supposed to have said, please send the folk who sent it this link: www.hoax-slayer.com/gillard-muslims-leave.shtml

Or link them to this blog post.

What next?

It might only be Tuesday, but already I get the feeling that we Conservatives have had better weeks.

Where do we go from here?  Up, actually. If we want to.

First of all, Ed Miliband. He can be beaten. He has been Labour leader for a couple of years, but has failed to inspire. His speeches read as a string of Westminster clichés. We could ensure that he becomes the new Neil Kinnock; much more appealing mid-term than on polling day.

To be sure, UKIP's success in the recent local elections ought to send a jolt through our party.  I hope it does.  But – without being at all complacent – doesn't UKIP's success at the same time illustrate that there happens to be quite a market for small state, free market, Euro sceptic politics?

Forget the row about who might have said what about Tory members in some Westminster restaurant.   The internet not only means it has never been easier to build mass membership organisations (ask Italy's Beppe Grillo).   It also means that increasingly, organisations that want to have a mass membership at all, will have to give them more control. Good news for grass roots. Game over for grandees. 

Opinion-forming in Westminster, which for generations was the preserve of a self-regarding, leftist elite, is being democratised. On many of the macro issues of our age – Europe, immigration, energy policy – the elite is slowly but surely having to shift its views. And they are only moving in one direction.

Cheer up. The outlook for small state, free market Conservatism is actually rather bright.

The case for benefit reform is overwhelming

54 percent of those aged 16 - 64 in Pier ward in Clacton in my constituency are on benefit, according to a report out by the Centre for Social Justice.

Having over half of those of working age living on benefit in an Essex seaside town cannot possibly be what Clem Attlee and co had in mind all those years ago when they set up the welfare state. We have got to change the benefit system.

I have held dozens of MP advice surgeries in Pier ward. Many of those that feature in this report as a statistic are people that I know by name.  I know all about many of the daft decisions officialdom sometimes makes. But the case for change is overwhelming.

We need to do much more to encourage those that are able to work back into work. There were over 270 job vacancies in the Job Centre last time I was in there.

The council has already taken action to prevent benefit migrants coming into the area to live on welfare. In April, a new residency test came into force, meaning that unless you have lived locally for several years, you won't qualify for certain benefits. Those wanting social housing are now moved higher up the list if they are in work.

This is leadership

Conservatism can become a narrow, pessimistic, inward looking creed.  And when it does, it loses. 

Our ideals and aspirations ought to be uplifting.  The things we say and do should resonate with the country at large. 

When we speak, voters should think "yes, they speak for me!".

And when we get the chance to act, we should do so - the way we promised.

Here is Ronald Reagan doing it in 1964.  Watch and listen. 

Look who is out of touch

A tiny, outspoken, vocal minority has been forcing MPs to accept its unrepresentative opinions.

I refer, of course, to the commentariat in Westminster.

Certain media pundits display a glorious lack of self-awareness when they dismiss  as unrepresentative those who refuse to tag along with Westminster group-think.  Pesky party members and insurgent backbenchers might hold views that aren't mainstream at editorial conference meetings.  But there are - still - hundreds of thousands more party members than there are newspaper columnists.  Most MPs - particularly those from marginal seats - have to engage with swing voters every week.  

Perhaps it is the pundits who are out of touch the the rest of the country?   

Here are several examples where Westminster's aristocracy of opinion-formers have turned out to be stonkingly, and embarrassingly, wrong:

• Britain must be in the EU, the pundits keep telling us, and only a few cranky Eurosceptic loons think otherwise. It turns out that almost half the country wants out. Are they all cranks? Perhaps it is the SW1 columnists at got it wrong?
• Cheap credit, they all agreed, would make us rich. Central bankers were lauded for cutting interest rates. It turns out that cheap credit caused a massive, unsustainable boom and bust – followed by chronic malinvestment. So why didn't any SW1 insiders listen to savers?
• Green energy, they all implied, will keep us warm. In reality, poor people in my constituency are being priced out of being able to keep their homes warm so that rich people in London can feel good about saving the planet. Why do the pundits not point this out?

In my book, the End of Politics and the Birth of iDemocracy, I suggest that the internet will democratise opinion forming. With blogs and twitter, we will no longer be so beholden to the prejudices and preconceptions of a few columnists.

We are starting to see elite opinion formers overthrown. The sooner, the better.

Why did the Eurosceptic Gisela Stuart buck the anti-Labour trend at the last election?

Weirdly, there's an article in today's Telegraph online attacking me – and other Eurosceptic MPs – for having large majorities and being Eurosceptic. I plead guilty, M'Lud.

The article suggests that being a Eurosceptic is a wild indulgence. Something that only MPs in "safe seats" can afford to do. Those in marginal seats, apparently, know better.

How odd. When I won my marginal seat from Labour in 2005, it was by a highly marginal 920 votes. In 2010, that figure increased to over 12,000.

During those five years, I fought – and sometimes won - all sorts of local and national campaigns as the local MP. But I can't help thinking that one of the reasons the 2010 result was so much better than 2005 owed something - not everything, but something - to the fact that I made it clear I want Britain to pull out of the European Union.

Or look at it from a Labour angle. What was it about the outspoken, Eurosceptic Gisela Stuart, MP for Edgbaston, that helped her buck the anti-Labour trend at the last general election?

It is always helpful to have advice from folk who have never won an election. It is not always sensible to take it.

Anyone wanting to impart advice on how to win votes should start by recognising that in an age of anti-politics, authenticity is everything. To suggest that one should decide what to say on Europe, and how loud to say it, merely to maximise votes is the very definition of inauthentic.

I bang on about Europe because I believe Britain would be better off out.

EU referendum Bill: here we go!

So there it is. Of those names selected in the Private Members ballot this morning, most of the top half dozen names out of the hat are sound Eurosceptics.

James Wharton MP, who came top, will now present a Bill for an In / Out referendum on Friday July 5th.

Perhaps God is a Eurosceptic, eh? (WARNING: for humorless lefty pundits, that was a joke).

The Conservatives will unite behind the Bill. So, too, will the country - 82 percent of whom want an In / Out vote. Will Ed Miliband?

Perhaps we will now see the Westminster churnalists focus on "Labour splits", as and when MPs from all sides make it clear they back this Bill?

I look forward to columnists writing about the kind of Euro obsessives who still refuse, point-blank to give the voters a say.

Will the Bill become law? I know all about the sort of guerrilla tactics that can be used to stop this sort of Bill. But crucially, if enough MPs turn up in support, a Private Bill can get the all important second reading vote.

Just imagine if our Parliament was to vote in favour of a referendum on our continued membership of the EU!

But will they vote that way? I reckon the numbers are looking surprisingly tight. There are decent, democratic MPs on all sides of the House.

There are an awful lot of Lib Lab MPs in whose seats a great multitude just voted UKIP. Fancy denying those folk a referendum?

Why patience matters

"Why not have a Europe referendum now?" a constituent asked. He has a point.

Every continent around the world is growing - apart from Europe. Our exports with the rest of the world are rising sharply - but falling with Europe.

Being run by Brussels has left us less happy, less democratic and less free.

So let's quit! I agree. I want out. And most of the folk who read this blog will too, I'd reckon.

So why not now?

You and I might have made up our minds, but it is what the whole country thinks that counts. And the reality is that one in five folk are still undecided.

The numbers are still close enough to see our lead whittled away during a ferocious, Brussels-funded scare campaign.

To be sure of leaving the EU, we must win over the undecideds - the kind of folk who say "why can't we stay as part of a looser, decentralised Europe?"

What will win the undecides over? If every effort was made to achieve that looser, decentralised arrangement. And it failed. When that happens the position of the Outers becomes unassailable.

Be clear, it will fail. It's not just that the Eurosystem won't give us meaningful concessions. The Europhile Whitehall mandarinate are not seriously trying.

With every set of trade figures, the case for withdrawal grows stronger.

As I replied to my constituent: "I've a four year old daughter. I believe her life chances - and the life chances of every four year old - will be much better if she grows up in an independent Britain, not a failed-state called Europe. I am willing to wait until she is six or seven if that's what it takes to guarantee we leave".

Be patient. We are winning.

Thank you, Prime Minister. That'll do

"What would David Cameron have to do in this Parliament" a journalist asked me "for you Eurosceptics to say "Yes, that'll do, thanks?"

For several years, I have been agitating for the Prime Minister to offer an In / Out referendum. He's now offering one. Cameron deserves much more credit for being the first Prime Minister in a generation to offer us the chance to vote to quit the EU. Not even Mrs Thatcher came anywhere close!

So, I can tick that off my list.

I have also been pressing for the legislation to be enacted in this Parliament. Yesterday the government published the EU referendum Bill. To be sure, the Bill cannot be brought in in government time without Mr Clegg's say so. But the chance to engineer a vote on it is now ours for the making.

Again, tick.

As a member of Better Off Out, who has been campaigning for an In / Out referendum, I feel I can now say "Yes. Thanks, Prime Minister. On matters Europe, that's what I wanted".  

Having woken up to the UKIP insurgency, many in SW1 want to respond by beefing up policy. I am happy to beef up all sorts of policy. I even wrote a book about it. But if we want to win back support outside Westminster, the thing that needs beefing up most of all is our plausibility – and not merely on matters European.   

I know that many colleagues in the Commons read this blog. Here's what we should do to beef up our plausibility on the Europe question:

• Put your name in the Private Members Ballot today.
• If you win, announce you will be taking up the government's own EU Referendum Bill. The whips will be helpful.
• Throw all your energy into securing a second reading division of the House on it. The whips and all your colleagues will be behind you - as will the country.

Will Ed Miliband? That is the question.

My least favourite thing about being an MP

"What don't you like about your job as an MP?" I was recently asked in front of a classroom full of cheerful children.

I think I waffled something about late night sittings. Or perhaps I made a quip about Prime Minister's Question Time.

Anything to avoid telling them about the one thing I really do not like; when the state forcefully takes a child away from their family – and desperate mum and dad, or granny, come to see me about it.

I never feel so hopeless or so out of my depth. I have no way of knowing all the facts. I am not a lawyer and I certainly cannot second guess a court.

On the one hand, failure to remove a child that was at risk of harm would be too awful to contemplate. And yet, how hideous it would be to forcefully take a child away from its mother, and put it up for adoption, on the basis of an error. Are we not, in some cases, removing children from their families simply because their life chances might be better in an adoptive family?

"But that does not happen!" I have for months been telling myself. "The experts consider all the facts, and make sensible, balanced decisions."  Really?  In which other area of public administration are mistakes never made?

Can we really have confidence in our family courts? I am starting to wonder. I've seen too many cases that raise disturbing questions.

Perhaps part of the problem is that family courts are shrouded in secrecy. I fear that we do not see when things go wrong. And because we cannot see if mistakes are made, what chance is there that they get put right?

In Denmark, children are only very rarely separated completely from their mother. Of course those that need to be, are taken into care. But rarely are they formally put up for adoption against the wishes of the mother. Perhaps we need to learn from that approach?

How to deal with UKIP?

1. Agree with them about Europe. Let's face it, Britain would be better off out. You almost have to be a career politician, or other kind of weirdo, not to see it.

We should not only push ahead for that elusive referendum. I'm making it clear that I want Britain to leave the EU – and I'd advise colleagues to vote accordingly at every opportunity in the Commons.

2. Quit trying to "deal with" .... and govern: UKIP did well not simply because of Europe. I sense it is part of a revolt against a bogus, inauthentic politics, which we've had in this country since Tony Blair and triangulation came along.

Instead of asking what they need to say to "deal with" things, we MPs need to set out, in clear, unequivocal terms, what we are going to do. Hey, party chiefs could even write a book in that vein called something like, The Plan?

3. Modernise: No, I am not suggesting we mess around with A lists or the open-neck look.

But the fact is that the centre right does need to do much more to widen its electoral appeal. The trouble is that we have had almost precisely the wrong kind of modernisation; inward looking, centralising, philosophy free, alien to our core supporters.

The centre right in this country could be an awesome electoral force. In the age of the internet, it has never been easier to build mass membership movements. We live in a country where unlimited choice and self-selection are becoming a cultural norm. So, in order to make our candidates representative of the country, quit imposing shortlists and hold open primaries instead.

People yearn for frankness and honesty in politics. So rather than mark the cards of those in SW1 with the character to speak up, give them a proper say.

Despite what all the clever clogs in Westminster told us, it turns out there is a market for small state, free market, Euroscepticism after all. Realise that, and we can gain a share of it.

Political apathy? Not in this part of Essex

There wasn't any apathy on the menu last night at our "Fish & Chip" supper in Holland Public Hall.

Over 120 local people listened to our discussion about the way that the internet is changing the world.

Traditional, stuffy Tories? Hardly. Questions ranged on everything from 3D printing to the impact of the internet on political parties.

Above all, it was great fun!

Oh. And the paper work has still to be finalised, but it looks like we had around 40 new members join up. If only the party would move forward with iMembership, it could be even more.

We need to Spotify politics. Urgently.

Common sense change for child care

For many local mums and dads in my part of Essex, affordable child care is a massive issue.

That's why minister Liz Truss' new ideas on child care are so important. Forget Europe or potholes for a moment. What if we could make good quality child care a lot more affordable to many more people?

"Easy!" cry the government-must-do-everything brigade. "Get government to pay for it".

The trouble is that government does not have any money. It only has other people's money. Raising taxes even higher in one part of Clacton to pay for child care in another part is not a credible answer.

Why not help those who provide child care instead?  Why not give the professionals more control over how they do what they do best?  

At the moment, those providing care for two year olds are required to make certain that there is one adult carer for every four children.

Fair enough, you might think. But in Holland and Ireland, there is one adult for every six. Are Dutch or Irish toddlers really less well cared for? Not if their subsequent performance in school is anything to go by.  Must a 4:1 ratio be set in stone, always and everywhere?  

The government is seeking to bring our child care into line with what the Dutch and the Irish do – although, you would hardly know that if you only listened to some of the silly attacks on what Liz Truss is proposing (see this particularly batty article by Polly Toynbee as an example).

Liz also wants to simplify the jumble of different qualifications that carers have. Again, I think this is sensible, and will help ensure higher standards.

What Liz is trying to do could really help families in my part of Essex. Stick to your guns, Liz! Don't let some of the hysterical attacks on your common sense ideas put you off.

If I wrote the Queen's Speech ....

.... these are some of the changes I believe Britain desperately needs.  

1. Real bank reform: Five years after the banks went bust, costing taxpayers billions, nothing has really changed. We need a clear legal distinction between money paid ino banks as a deposit, and money paid in as a loan.

As well as safeguarding customers' money, this Bill would prevent banks issuing unlimited credit in the good times - leading to bust and bad times.

2. A Great Repeal Bill: Despite the talk of deregulation, little has happened. Too many wealth creators need to seek permission from officialdom to produce wealth.

Crowd sourcing a Bill would allow a massive, game-changing repeal of intrusive laws, and winding down of agencies that generate the redtape.

3. Political reform: The reform agenda seemed to die with AV. So how about a simple Bill allowing local parties to involve every local resident when selecting their parliamentary candidate?

Local party associations would have to provide the returning officer with half a dozen names from the shortlist and a few hundred quid to cover the cost. The returning officer would then include an extra ballot paper on the day of the local poll. Simple, straight forward, zero extra cost to taxpayer.

4. Energy rethink:  What if energy companies were free to produce energy at a price that customers were willing to pay?  Instead we have a corporatist racket posturing as an energy market.  Producers produce in compliance with targets designed to control the amount of CO2 in the atmosphere.

It is a disgrace that poorer families in my constituency are priced out of heating their homes so that rich people in London can feel good about themselves because they believe they are saving the planet.  They aren't.  

5.  Tax transparency:  How about a law requiring the state to send each of us a breakdown of how it spends our money?  

6.  Legal rights for parents:  Every mum and dad should have a legal right to request and receive control of their child's share of local authority education funding.  If state officials are unable to provide parents with a school place that they are happy to accept, why not let folk take their money and give it to a school that can?

7.  An In / Out referendum Bill:  For too long, mandarins in Whitehall have defined our relationship with Europe.  Look at the mess they have made of it.  It is time for the people to decide.

Bring forward a Bill - and if MPs vote the Bill down, at least the electorate will get to see where sitting MPs stand on one of the defining issues of our time.

We need a Queen's Speech that demonstrates that ministers, not mandarins, are in charge.  For too long, this administration has given the impression that it has been captured by the civil service.  "The Lib Dems won't agree" has become a catch all excuse not to do things.  

It is the Sir Humphreys and the Sir Jeremys that are the real roadblock to reform.  We need a Queen's Speech that puts them in their place.  I fear instead that they might have written most of it. 

Europe: Are you for In or Out? That is the question

Whether or not Britain should remain a member of the European Union is one of the biggest public policy questions of the day.

It has enormous implications; do we remain part of a sclerotic block or trade openly with the world? Will we be free to elect our own government, to determine public policy for us – or are we to contract decision making out to Brussels?

How we answer the Europe question will not only help define us as a country. It will influence the ability of our children and grand children to live better, more prosperous lives.

So it's not just big. Or even BIG. It is bigger that the career of any single here-today-gone-tomorrow politician. Of greater long term consequence than this – or indeed any one - government.

Economic forces reshaping the world around us mean that the Europe question - as opposed to Europe's share of global GDP - is only going to get bigger.

There are some people in all three parties who honestly believe that we should remain members of the EU – with all that that entails. And then there are MPs, like me, who believe that Britain should quit the EU. Both are honourable positions to take.

But for too long, too many of those in SW1 have equivocated. On perhaps the greatest macro issue of our age, they have sought refuge in wordplay to avoid coming down one way or the other.

The SW1 gang have sought succour from pollsters and pundits, who provide them with every conceivable excuse not to draw the obvious conclusion. It will no longer do.

Europe matters electorally. And it boils down to In or Out.  I have spelt out where I stand on Europe - O-U-T.  

Soon everyone in SW1 will have to decide on which side of the question they stand.  

Fish & Chips - and Carswell

Well grilled, with lots of chips and a wiff of vinegar, perhaps?  And that'll be just the talking!

Every couple of months, I organise a Fish & Chips evening here in Essex open to local residents.

Our next one is happening this Thursday, May 9th at 7pm in Holland Public Hall, Holland-on-Sea. I will be talking about my book The End of Politics and the Birth of iDemocracy.

Tickets cost £10. Email me on douglas at douglascarswell dot com if you would like to come. We have almost sold out, but there are still a few spaces left.

We keep being told by London-based pundits that folk aren't interested. They're full of apathy, apparently.

I disagree. I believe people care deeply about things.  Many local folk find conventional political engagement a turn off. So in this corner of Essex, we don't do things conventionally.

Think of this as a meet up.  Lots of local people who have already come together via twitter and email getting together.  Online making the offline happen.... 

If UKIP are the insurgency, where is the counter insurgency?

We Conservatives need to be cool. I don't mean in a Notting Hill, get-down-with-the-kids kind of way. We need to be cool in the sense of level headed.

What happened in yesterday's election is big. It has all sorts of implications for the General Election in twenty four months time.

It is not fundamentally about personnel. Ignore malcontents who whisper that this is all about David Cameron. It isn't. Seeking to repeat the catastrophe of November 1990 will make us less, not more, electable.

"We must beef up policy X" Boodle tells us. "No. It's all about being tougher on Y" insists Doodle. No it isn't. Even if Better Off Outers like me managed to get the rest of the party to agree to campaign for EU exit this week, we would not solve the problem.

Why? Our problem is plausibility, not policy.

For too many people, both Labour and the Conservatives seem to be two sides of the same debased political currency. Both parties seem to be run as Westminster-based operations, with a handful of local franchises.

Both seem to select candidates who speak and think in the same way. On many of the big issues of the day – public service reform, the role of the state, EU membership – it is hard to spot the difference.

UKIP is a reaction to the lack of authenticity amongst the smug, politics-as-usual elite who rule Westminster.

If UKIP are the insurgency, we need a counter insurgency. Attacking UKIP as clowns, or sneering because their fiscal plans might not add up, will not do.

Digital technology ought to allow us to organise locally for campaigns, bringing together bands of activists that that purpose. So why is the party still run as a large, costly to run, standing army, with little to do between elections?

There are over a quarter of a million folk on Facebook and Twitter who say they are Conservatives. So does party membership mean having to pay £25 and meet in a golf club? Why not have £1 a year iMembership? And why not let iMembers vote to decide candidate shortlists and vote for the party board?

Why not, come to think of it, invite all those voters to have a say in choosing who gets to be the Tory candidate in the first place? How many more by election defeats must we Conservatives have before we use an open primary to ensure our candidate has a head start?

What if our candidates started to run as the anti-SW1, anti-politics as usual candidates?  We might start winning more that 40 percent of the vote again.

UKIP are, tweeted the Telegraph's Chris Deerin, "a rejection of a certain way of doing politics by a certain type of politics".  So let's change it - and campaigning to quit the EU should only be part of it.

Are we doomed to decline if Scotland separates?

I can think of lots of good reasons why Scotland might want to vote to remain part of the United Kingdom. But the Commons' Foreign Affairs select committee report today is not one of them.

According to the report, if Scotland votes for independence, it would mean the UK was "a world power in irreversible decline".

Set aside the question of whether we should expect folk to vote in the interests of geo political greatness, does being small mean you're doomed to be weak?

Not at all. The assumption that in geo politics strength comes from scale is simply not true.

How did that piddly little mud bank off the coast of Italy, called Venice, become a great power? By opting not to join the Holy Roman Empire, weren't they too doomed to decline?

Wee Venice became so strong, she eventually overwhelmed mighty Byzantium.

What about that tiny little Dutch republic? Shortly after opting out of the mighty Habsburg block, she became the world's leading naval and commercial power.

To be sure, with the industrial revolution, size did seem to matter more. Small states - Holland and England - were eclipsed by bigger states - the US, Prussia, Russia. In the age of mass production, strength seemed to come from having bigger everything - including larger markets, economies of scale and big trading blocks.

The European Union is built on many of these residual assumptions about the need for size and scale.

But the big-is-beautiful era in geo politics was an aberration. As the EU illustrates rather neatly, being big also means being cumbersome - unable to innovate or adapt (see Euro crisis).

In the age if the internet, we are moving towards niche production and distribution. Prosperity lies in the long tail, not big uniform trade blocks.

It is small states that once again seem to have the advantage. The Singapores and the Dubais and the Switzerlands.

Whether Venice in the  Middle Ages, or England or Scotland in 2013, there are three things small nations need to grow great.

First, independence. You won't be as well governed if you are ruled over by men and women who do not live amongst you.

Second, dispersed power. Those who do make the rules amongst you, need to be accountable to you.

Third, you need to be part of a global network. Venice benefited from its connections to Byzantium and a Greek speaking eastern Mediterranean world. England and Scotland today are each part of the Anglo sphere - that network of the most prosperous and innovative people on the planet.  And of course even the tiniest states today are on broadband .....

Small can be beautiful, rich, innovative and strong.

Learning from Obama online

Later today I'll be taking a break from pushing leaflets through letter boxes to meet with Harper Reed, Barack Obama's chief technology guy.

As each of us spends more time online, doing more things, the ability to aggregate opinion and votes online grows too. Reed understands this rather brilliantly - in a way almost no one in Westminster yet grasps.

Too many Tories seem to believe that digital campaigning is about doing online the stuff they are used to doing off line. It's isn't.

A digitally savvy party would look through Google word search data to assess where the threat from UKIP was likely to be strongest. Or where concerns about the "bedroom tax" were greatest.

Or they'd use it to assess which of their incumbent MPs had strong local profiles - and which did not.

Or they might aim to increase party membership by targeting some of the 250,000 plus self-proclaimed conservatives on Twitter and Facebook.

Sometimes when I hear the words "digital" and "campaign", I fear I'm listening to a snake oil salesman with a twitter account. But those who really get this interweb thingy are going to be transformative.

The web is not a substitute to off line campaigning. It can bring off line politics back to life.

But to do that, established parties need to redefine themselves, adopt a new concept of membership and change the notion of who has control.

What if ministers tried to put a tiger in the tank?

Tim Montgomerie, the Times' brilliant new comment editor, suggests that Downing Street needs a bit more of a "tiger in its tank".

But just imagine what would happen if ministers were to try to put a tiger in the tank?

First up, I suspect Sir Jeremy Heywood would try to quash the idea. "There's nothing in the Coalition Agreement about placing large feline objects in motor vehicles, Prime Minister".

If that did not work, perhaps, the vested interests would have a gentle word with that nice Mr Clegg?  "As Deputy Prime Minister, do you really agree with this? You might want to raise it at the next meeting of the quad"

But assume that Nick Clegg was, after all, prepared to back the idea because he was allowed to claim that he thought of it first. What then?

Perhaps polling experts in Downing Street would be called upon to find evidence that putting tigers into tanks did not play well in key swing seats.  Who can forget the way that polling experts could, for years, be relied upon to tell us that taking a more robust approach over immigration would actually cost the Conservative party votes?

Perhaps a memo from Cabinet Office lawyers would appear, pointing out that placing an endangered species in an internal combustion engine was against EU law?  "It is also contrary to the spirit of a number of international conventions to which we are signatories, minister"

Then there would be a note suggesting that placing a tiger inside a tank could be contrary to equality legislation, too. "And what if it went to judicial review, minister?"

I fear that we might end up looking to place a tiger in the tank at some point after 2015.

Lord Mandelson seems ridiculous

I respect Peter Mandelson in the sense that I believe he is a dangerous foe. He is able to frame debates in order to trip up his opponents. He understands communications in a way that many in the Tory fold do not.

So what to make of his piece in today's Independent on Sunday? Read it. Baron Mandelson of Foy is being ridiculous.

Lord M accepts that EU institutions are "too bureaucratic and unaccountable". The EU is "run with insufficient public consent". No kidding.

But what is his Lordship's answer? Not some "artificial argument" about whether Britain should quit the EU, he claims. Not returning powers to member states. A "non-starter", says Lord M.

No. We need instead to "sit down and talk" about "shared European concerns". Such as? "Competitiveness and structural reform".

Where do you suppose Mandelson was at the time of the Lisbon agenda, which over a decade ago promised to make the EU "the most competitive and dynamic knowledge-based economy in the world"?

For years, we Euro sceptics have pointed out that the EU is flawed. We have questioned not only its democratic legitimacy. We have pointed out that having a tiny technocracy impose one-size-fits-all policy is likely to lead to public policy sclerosis.

Yet, Mandelson can't seem to bring himself to admit that those beastly Euroscpetics were right all along. Instead he writes that "it is not only Britain's Eurosceptics who are raising questions about EU governance".

The folk who were sceptical about the EU project, seems to be the subtext, are still wrong because the people who said it was wonderful have now started to realise it isn't.

Is this the best those who believe in the EU project can do? Or is the EU project now only sustained by those with a vested interest in the Brussels system?

Spotted on my way into work

On my way into the House of Commons this morning I saw this notice.

No firearms allowed, it says.  Or other weapons.

Stimulus growth is an illusion

The economy grew by 0.3 percent in the first three months of this year. At that rate, by 2015 we might just about have returned to where output was in 2008.

Each year, the government is injecting over £100 billion more money into the economy through its fiscal policy.

It is keeping interest rates low to encourage us to spend and borrow and invest. It has handed banks a mind boggling £350 billion plus of QE money. It has run an £80 billion business lending scheme.

It would be extraordinary if, with all that stimulus, output was still falling.

My fear is that all this stimulus is unsustainable. All that overspending means government debt. All that cheap credit is discouraging businesses from paying off debts, and storing up trouble ahead. Like cholesterol in the economic arteries, one layer of malinvestment builds up upon another.

How much of the recovery is real growth, and how much is going to prove to be sustained by candy floss credit?

In fact, I am starting to think much of the post-2007 stimulus is simply making thing worse.

In the 1970s, fiscal activism failed to engineer real, lasting growth. So, too, monetary activism today.

The Euro system is vulnerable. We should seek its demise

I used to argue that the UK should leave the European Union.  I still do.  

But increasingly I am coming to the view that we Eurosceptics should be far bolder, and make the case for Europe withdrawing from the EU, too.

Speaking at a seminar organised by the European Council of Foreign Relations yesterday, it struck me how vulnerable the entire Eurosystem now is.

Advocates of the European project are intellectually bankrupt.  Their arguments simply do not stack up any longer - and they know it.  Defenders of the Euro project have as much credibility as a Greek government bond - and about as much chance of being redeemed.

For too long, Euroscepticism has been essentially defensive.  A holding operation.  An attempt to resist the encroachment of Eurocrats.

We have, for too long, framed the debate in terms of British exceptionalism - and the past.

No more.

A scam run by, and in the interests of, an inept elite, the EU is highly vulnerable with the advent of iDemocracy.  Its giantism is doomed in the age of the internet.  Opinion and ideas are starting to aggregate - and mobilise against it.  Not just in this country, but throughout the Continent.

We Euro sceptics should not only advocate UK withdrawal.  We should seek to free the whole of Europe from the malign influence of Brussels.

What is a post-EU Europe going to look like? 

The vested interests are winning

The other day a minister complained to me about the "scars on his back". He was talking figuratively, I ought to add.

But it got me thinking. ... Where did we hear someone use that phrase before?

Why, it was Tony Blair in 1999, at a speech to the IPPR. He had been in office for a couple of years and felt that his drive to improve public services had been frustrated. "We need change in our public services" he said "and this government, which is putting more money into the public services than ever before, is entitled to demand in return, real change".

Too often public services seem to be run for the convenience of those who manage them, not the customer whose taxes fund it. Despite spending billions of pounds on health care, many thousands of my constituents are not provided with a proper GP, but have to make do with a locum instead. I get letters from people who want the best for their child, but are told by officialdom that they live in the wrong catchment area.

And it is not only on public service reform. On everything from defence procurement to energy policy, Europe to industrial subsidies, public policy is being made not in the interests of the public, but a narrow corporatist clique.

The most powerful vested interest of all are not the unions or even public service management. It is the Whitehall machine – not those outside – who are quashing reform.  Initiatives are delayed.  Proposals watered down.

Anyone remember what happened to the bold reforms Steve Hilton's Open Public Service whitepaper promised? Remember the Prime Minister's Europe speech? Pity our civil service in Brussels have ignored it.

In the early 1970s, a Tory administration came to office promising the radical Selsdon agenda. It was defeated by the vested interests, and instead of reform, Ted Heath ended up defending the status quo. It was left to one Margaret Thatcher to give us the kind of changes Ted Heath had once toyed with.

By the late 1970s, we Tories realised that we would never achieve real change until we took on and defeated the National Union of Miners. Today's Tories need to be prepared to take on and defeat the National Union of Mandarins.

British business joins the debate over Europe

Perhaps the most pernicious Euro myth is the idea that business wants more EU integration. Today that falsehood is finally laid to rest with the launch of Business for Britain.

Over 500 leading wealth creators have signed up to this new campaign to change our relationship with Europe.

The fallacy that business wants more Europe has done immense harm down the years. It was such arguments that helped push us into the ERM, the precursor to monetary union.

The idea that business was behind it encouraged politicians to sign away powers to Brussels, a consequence of which is that UK companies are smothered in red tape.

To be sure, some businesses want more Brussels regulations. It can, after all, be a handy way of shutting out the competition. But the idea that most businesses and entrepreneurs support the Euro system is simply wrong.

No longer will a handful of corporate lobbyists with a snout in the Brussels trough be able to portray themselves as the authentic voice of British business.  The pro-integration Foreign Office cannot be allowed to keep getting away with claims that business backs their every deal.

On a recent trip to Brussels, I was surprised to discover that David Cameron's Europe speech has had zero impact on UK officials over there. None. Zilch.  Officials aren't merely carrying on as before, they cheerfully admit as much if challenged.  There's "no mandate" for trying to secure Dave's new deal, UKREP officials smirk, barely concealing their hope that there will be a more pliant administration in Westminster in a couple of years.

Second source of surprise was the discovery that these officials had invited the head of the Peter Mandelson-backed campaign in favour of more Europe, to arrange part of the itinery. The aim I suppose, from UKREP's point of view, was to reinforce the idea that business wants more integration.

The effect was the precise opposite of that intended. Every single one of the lobbyists wheeled out to speak for more EU was a corporate lobbyist speaking on behalf of a vested interest. Not one real wealth creator in the room.

From today, British business has an authentic voice in the debate about our future in Europe.  Whitehall officials take note.

Margaret Thatcher's funeral

I've just got back from Margaret Thatcher's funeral at St Paul's.  A rather stiff, solemn, ever-so-British occasion, I thought the Bishop of London, Richard Chartres, spoke extremely well.

The music was wonderful and the voices around me rose to the occasion.

But for me, the really moving moment came at the end.

As the great church doors were opened, the military pall-bearers carried the coffin down the steps.  There then wafted into the church, over the heads of the assembled grandees, this great roar of appreciation and applause from the crowd outside.  The authentic voice of England, expressing its gratitude to the great lady.  

It made me, standing there in a suit, want to join in and shout out my approval and say "thank you" to the greatest leader this country has had since Churchill.

Thank you, Mrs Thatcher for saving this country. 

Protesters: Big on noise, small on numbers

Over the next 24 hours, we'll be shown TV pictures of protesters in London at Margaret Thatcher's funeral. But don't be fooled.

The ranty, angry "protesters" are a small – if noisy – minority.

One of the things a television camera does is make a few dozen people filling the screen seem like a large crowd.

Despite what the TV cameras might have suggested about Westminster today, there is no large crowd.  Here is a photo I took of Parliament Square at the height of the "protest".

As you can see, there's lots of green grass.  A few dozen misfits in one corner standing where they hope the TV cameras can see them.  And hundreds of tourists wondering what the loons are on about.

Post-Maggie, Post-Monetarist

Margaret Thatcher was a monetarist. But the great Lady has been out of office for over twenty years - and monetarism seems out of fashion.

Central bankers might pay lip service to controlling the money supply. In reality, they seem to use monetary policy as a tool to engineer growth much the way Keynesians use fiscal policy.

Just as Keynesians always find it easier to overspend in the downturns than under spend in the up turns, controlling the money supply always seems to end up with low interest rates.

"But low interest rates mean economic success" you say. Not so. Cheap credit is a consequence of economic success, not a cause of it. Forcing down interest rates in order to engineer prosperity actually does more harm than good:

• Low interest rates discourage savings. And without someone else's savings, there is bound to be a future shortage of real credit.
• Low rates encourage overconsumption. Savings are someone's deferred consumption. If we save too little and borrow too much, we are living beyond our means.
• Easy money means lots of shopping malls are built - but fewer factories. Ever wondered why the UK economy needs "rebalancing" in the first place? It's the way we manage the money.
• Credit shortage. Fix the price of something artificially low, and after a brief glut, there won't be much more of it. Low interest rates explain why there's not much credit.
• Asset inflation. Defenders of easy money like to point out that despite all the QE and candy floss credit that central bankers conjure up, inflation is low. It's sort of low – but only if you ignore price increases in things like houses. But factor that in house prices etc and the £ has got a lot smaller.
• Have home V have not got a home. "But easy credit helps people buy houses" you respond. Really? So why is home ownership falling? Easy credit meant house prices have risen to the point that many ordinary folk cannot afford them.
• Worst of all, easy money means malinvestment. With the cost of borrowing so low, folk invest in things that normally they wouldn't invest in. Malinvestment is a little like cholesterol, clogging up the economic arteries. Malinvestment helps explain why despite a falling pound, UK exports have hardly risen. And why, despite an increase in private sector jobs, GDP has increased only marginally.

The time is ripe for free market Conservatives to develop a coherent post-monetarist economic policy.

Why Maggie still towers over the Tories

She has been out of office for almost a quarter of a century. And she held office for a little over ten years. Yet still Mrs Thatcher towers over the Conservative party and conservatism. Why?

Partly, it is because she was so electorally successful. Mrs T won three elections with comfortable majorities. Since ousting her, the Tory party managed one slender victory in 1992, three record defeats in 1997, 2001 and 2005, and a missed chance before an open goal in 2010.

Mostly, however, I think Mrs Thatcher looms large because she had ideas. She did things because she believed in abstractions.

So many of those in politics today wear ideas the way that a fashionista wears clothes. They put them on not so that they might act in accordance with them, but in order to catch the eye of those they seek to impress - before discarding them.

Remember Tony Blair's intellectual debt to an obscure Scottish philosopher called John MacMurray? Me neither. Or, what about the profound philosophical truths behind the idea of gauging GWB (General Wellbeing) rather than GDP? Somehow that didn't seem to survive first contact with economic reality.

Today's "big beasts" in Westminster are often contemptuous of what they call ideology. Instead, they see themselves as pragmatic men and women of action. Poised to do whatever works – or, more often, what senior mandarins tells them will work.

But what is more conceited? To hold that the abstract ideas of Hayek or Smith are true, or to presume that you know what works?

If those in government do not have a philosophy, they don't avoid making mistakes. Instead, as they drift along with all of Whitehall's tried and failed assumptions, they endlessly replicate them.

If the Conservative party wishes to hold sway in the future the way it did in Margaret Thatcher's day, it needs to recover an inner compass of conviction.

She's why I'm a Conservative

I turned eight the day she became Prime Minister. The mood of national decline at that time was so all pervasive, the adults around me talked as though this country was finished.

Margaret Thatcher not only thought differently. Her radical ideas meant she had a plan to get Britain off her knees. And she did.

I knew I was a free market Thatcherite long before it ever occurred to me that I might be a Tory.

She was attacked by vested interests, lefty comedians and Tory grandees. I loved her all the more for it.

On almost all the big issues of the day - the economy, Europe, the cold war - she was right, her critics wrong. None more so than those within her own party.

Oh. And she was never rejected by the British people.

Cheer up! Things are getting better

Britain is a vastly better place today than it was in 1971, the year I was born. We are richer, with more leisure time. We are more tolerant and free.

From clothing to plane tickets, costs have come down. Shops are packed with a once unimaginable range of choices.  Science allows us to cure many more diseases - and live longer.

Technology provides us with an array of entertainment and information that previously not even the richest could afford.

But I can't help noticing that the things about Britain that have got better are those things that aren't run by politicians.

Most of us might now live within reach of a 24 hour supermarket. But if you want to see a GP, you still have to call back between 9 – 5 on Monday.

As parents, we can select an endless variety of children's entertainment for the kids. But when it comes to picking the right school, we have to cross our fingers and hope we're in the right catchment area.

Air travel, once the preserve of jet setting plutocrats, is available to all. But somehow the airlines are much better at flying us between airports than state officials are at processing us and our passports when we get there.

"But the economy is in a mess!" I hear you say. Indeed it is - and that's because politicians have tried to run it like they've tried running all that other stuff that hasn't got any better.

If politicians had spent the past few decades running the supermarkets, do you imagine that they would sell you what you wanted, at a price you could afford? Instead, we'd have empty shelves and rationing.

Politicians have tried to manage the economy with the right level of credit.  Unsurprisingly, today we now have a shortage of the stuff - and credit rationing.

We Conservatives are often supposed to be the grumpy party. We are meant to believe that the country is going to the dogs. I'm not. And Britain isn't.

Our economy will bounce back – provided we make sure politicians don't try and run it.

School standards in Clacton

Every mum and dad has a right to want the best for their child.  Not surprisingly, many parents in my Clacton constituency are keen to know how local schools are performing.

Up until now, however, it's been surprisingly difficult to get a sense of how each local school is doing.  Local parents have had to rely on what officials, county councillors or teachers tell them. Or they have had to reach a view on the basis of what other parents say.

Now – thanks to the digital revolution – there is a different way:  Click through to this website, and then enter the name of your local school to see how it is performing.

Some schools are doing really well - and others less well.  But don't take my word for it, have a look for yourself.

Any discussion about local education standards is bound to be emotive.  But it ought to be possible to talk about standards in local schools – and what we can do to improve the things that need improving – honestly, sensibly and respectfully.

Having the facts at our finger tips is a good place to start.

Who owns the money in your bank account? You or the bank?

When Northern Rock went bust, those with shares in the business lost out, but those with deposits didn't. What shocked many about more recent bank failures in Cyprus is that it wasn't only those who owned equity that took a hit. Depositors did so, too.

As Liam Halligan puts it, "depositors are not bondholders ... depositors put their money in a bank, at a lower rate of return, precisely to keep it safe".

Do they?  And what precisely is the legal status of money that you pay into a bank for safe keeping?

Is it a deposit or a loan? Do you own the money sitting in your current account, or does the bank?

Legally, you do not own the money that you pay into your bank. You merely have a legal claim to it.  Despite you – and every other customer – thinking that what you pay in is a deposit, the bank treats it like a loan.

Which is how the bank is able to lend "your money" several times over, creating credit from nothing. Which is, in turn, why when everyone stands outside the bank and asks for their money back – a la Cyprus – it isn't there.

Unchecked, this system of fractional reserve banking spells trouble.  Not only does it mean depositors stand to lose all their savings. In the boom years, it means a glut of candy floss credit.  The lesson of the banking crisis is that this credit-out-of-thin-air system of banking is not compatible with free market capitalism.  If we want to preserve the later, we must reform the former.  

To try to do precisely this, various schemes have been tried - Basel rules, deposit insurance schemes, more compliance and red tape etc.  The trouble is that none of them really work.

Now is the time to consider a much simpler way of reining in the worst excesses of fractional reserve banking.  The solution?  A simple legal distinction between money paid into a bank as a deposit and money paid in as a loan.

As I explained when presenting my bank reform Bill to the House of Commons, creating such a legal distinction would not only safeguard bank deposits. It would organically determine each banks capital reserve ratios.

You almost have to be a government expert on banking not to see straight forward logic of it.

Politician-speak falls on deaf ears

Why are indictments always damning? Families described as hard working? Communities ever vibrant? And one's opponents constantly having to come clean?

Politicians – rather like senior Church of England clergy – seem to acquire a distinctive way of speaking. But while soft Anglican tones might make you sound thoughtful and churchy, politician-speak simply makes the person talking come across as implausible.

So why do many in SW1 speak in cliché? Often it is because they think in cliché - "Nick Clegg". Or because they are sticking to a deliberately scripted line to take – "aspiration".

Others seem to assume a slightly pompous tone because they are under the impression that that is how a politician ought to sound – "....and I say to you". Or they have a speech writer who does.

Many in SW1 recycle phrases - "fit for purpose" – they hear other people use because they last had an original thought in mid 1990 something.

Frank Luntz – an American pollster, who I had the immense good fortune to once bump into – famously declared that "it's not what you say, it's what people hear" that matters. Listen to yourself the way others might hear you.

Surprisingly, given that they are in the business of politics, many MPs are not so great at communicating.  Perhaps this has something to do with the fact that seven out of ten Parliamentary constituencies are safe seats?

Paywall for TalkCarswell.com

TalkCarswell.com this morning announces that it is to go behind a paywall. This news comes after the recent decision by the Telegraph blog site to follow the Financial Times, and others, and adopt a pay-to-read approach.

The TalkCarswell paywall model will allow readers to read one post a day for free, after which they will need to subscribe. In a special April Fool's Day offer, regular readers will be able to enjoy a month's subscription for Euro 148.57 a month (offer not available to readers in Cyprus).

TalkCarswell.com's Douglas Carswell said "This is a great way of testing my readers' commitment to the blog."

He added "This is also a way of dealing with press regulation. Hopefully my paywall will mean that Hacked Off, Oliver Letwin and all those others behind the Royal Charter won't notice bloggers like me. They can go try and regulate twitter and stuff instead".

"Have a great April Fools' Day", he added.

My favourite government policy? Apprenticeships

Did you know that a record half a million new apprenticeships started last year?

To me, that's not just a statistic.  Many of those who began apprenticeships are people in Clacton I know by name.

An apprenticeship gives young folk real skills. In a town where too many young people are not in education or employment, more apprenticeships are exactly what we need. It is easily my favourite government achievement.

Second favourite? Taking hundreds of local people out of income tax altogether by raising the threshold to £10,000. All those local people who got stung when Gordon Brown doubled the 10p rate to 20p are now exempt from income tax altogether.

I might have strong views about an In / Out referendum, immigration and the macro economy. But – despite what pundits in SW1 presume – having clearly defined views on those subjects does not exclude focusing on far more specific, bread and butter subjects.  

Falling party membership? It doesn’t need to be that way

Yesterday evening my local Conservative Association held its AGM. Despite all the talk of mid-term gloom, it was a very upbeat occasion - and well attended.  We had both Geoffrey Van Orden and Vicky Ford speak as our local MEPs.  

Local party membership is up 40 percent over the past two years. Local councillors are fizzing with new ideas to improve the area. Our list of helpers has never been longer – or more active. We have a record number of young members.

We are often told that party membership is in decline - and that there is something inevitable about this in an age when voters are apparently full of "apathy".

Nonsense. In my experience folk have never felt more animated about local and national issues than they do today. In the age of the internet it ought to be easier than ever before to create a mass membership organisation.

It is not the "apathetic" electorate we need to change, but the way that established political parties do politics. Here are a few of my top tips.

1. Be open: Every few weeks, we hold an open evening, with curry or fish and chips at £10 a person. We leaflet the neighbourhood, inviting every local resident to "come as you are", to hear a speaker on a particular theme.

Our last event had over 120 people turn up – many of whom have since joined our local team. (If only the Conservative party would accept my idea of online-only membership for £3 a year!)

2. Be Online: That does not just mean having a party propaganda website. Look at Beppe Grillo's party website for inspiration (assuming you understand Italian!). I blog each day and tweet – and communicating with local residents that way is becoming the new normal.

If you want more young people to get involved, you need to be where young people are – on social media. 

3. Be normal: So often politicians just sound weird. Even when they are saying something sensible, they tend to fall into politician-speak. So don't.

Ditch the Tory Boy clichés. Talk like you would to friends, not as MPs do in the House of Commons.

Above all, say what you mean, and mean what you say. In an age of anti-politics, authenticity is not everything. But it is almost everything.

Timothy Garton Ash is always right

This morning, I enjoyed a piece in the Guardian by Timothy Garton Ash.

It was all about Europe and the Euro.  It explains that one currency between "17 national polities" won't work. Monetary union is, the author informs us, tearing the European project apart in a "downward spiral of mutual resentment".  Rather the kind of thing Eurosceptic Tories used to say a decade or so ago, eh?    

But then I started to think. Tim Garton Ash?.... Tim Garton Ash?.... Didn't I once read some other stuff he used to say about Europe?

After a quick google search, I discovered another Guardian article written almost exactly ten years ago. The tone is a little different.

It begins with a sneering attack on "anachronistic, backward-looking" MPs who fail to get with the whole Euro thing. They are all very "old Britain", he tell us.

He goes on to talk about how "Europeanisation" could mean the "modernisation of Britain." 

"Otherwise" warns the good professor "and this is no longer a joke - the Poles will have the euro before we do". The horror!  And perhaps even the Cypriots, too! 

I don't mean to be beastly to the good professor. Even Oxford academics are allowed to change their minds.  

But google is becoming our collective memory. This means that we can each be held to account for things we once said and wrote – and got wrong.  Perhaps that means that those who debate public policy need to be all the more frank, and when we do change our minds, we should say so very publicly.  MPs included.

I see the good professor is now of the view that Britain must remain a member of the EU.

Digital Bennism? No, it is called iDemocracy

Labour, suggests Rachel Sylvester in today's Times, is split. Apparently the hard left are starting to be beastly. These so-called "digital Bennites" have started to make all sorts of unreasonable demands of the leadership.

Perhaps. Or perhaps not. Maybe there's a slightly different way of looking at this new digital dynamic exerting itself within Labour?

For years politics in this country – and throughout much of the West – has been something done to the rest of the country by a remote priesthood of politicians, pundits and pollsters. In the hands of professional politicos, politics has lacked passion and principle. It is too often reduced to a technocratic process, administered by those with a managerialist mindset.

To those on the outside looking in, it all seems a bit reminiscent of the last page of Animal Farm. "The creatures outside looked from pig to man, and from man to pig ... but already it was impossible to say which was which."

Many in SW1, including Times columnists, share common assumptions about many of the big questions of the day. Which is why on subjects like bank reform, immigration, criminal justice or monetary policy we so often get the same tried-and-failed answers. Until now.

Those Rachel calls "digital Bennites" might indeed have some gloriously antediluvian attitudes towards politics and public services. But the ability of those who have not had their outlook filtered by years inside the Westminster bubble to interrupt politics-as-usual is only going to grown.  

I suppose the "digital Bennites", like "tea party Tories", must seem frightfully unreasonable if your definition of reasonableness is the SW1 comfort zone.  Didn't folk once say the same about Beppe Grillo? 

Cyprus should quit the Euro

Any Cyprus "rescue" is going to push her further into debt.  Whether ordinary Cypriots lose 1 percent of their savings - or 40 percent - they will be contributing to a deal that will mire them in debt for a generation.  And all to save bankers from the consequences of their own investment folly.

Cyprus should look not to Brussels, Berlin or Moscow for an answer, but to Reykjavík.  She should take the Iceland option;  Default, Decouple, Devalue.

I've an article in today's City AM explaining how this might happen.

If the only way that Cyprus can be "saved" is to impose capital controls to prevent people moving their money off the island, then ask yourself this;  does that not already mean that the value of a euro in Cyprus is below that of a euro in the rest of the Eurozone?  

Capital controls in a monetary union?  I suspect that the former dooms the later.     

Oops

We all know that the last government spent far too much money - and as a result had to borrow billions.

We also know that the Coalition came to office promising to sort this out.

So in June 2010, the Coalition announced how much they thought that they would need to borrow in future years.

As you can see from the blue bars, Public Sector Net Borrowing was supposed to fall swiftly. 

Yesterday, the government published its revised estimates - the red bars.  And we can see that unfortunately the fall in borrowing just has not happened that way.

In 2013-14, we were supposed to only borrow £60 billion.  It turns out that we will need to borrow £108 billion - almost twice the initial estimate.  For every £7 that the government spends this year, it will be borrowing £1.  Would you feel comfortable running your family finances that way? 

What I find shocking as I trawl through the detail is the realisation that after almost three years, borrowing is only slightly below the £120 billion or so it was at the outset.

Look at the righthand bar.  In 2015-16, there will be a £67 billion gap between where we thought we would be, and were we now think we will be.  That is more than the entire defence, housing and environment annual spend combined.

Officialdom is still living way beyond the means of the rest of us to pay for it.  

After the Euro

Today is budget day, and all eyes will be on what the Chancellor has in his box. Or on his twitter account.  But perhaps we should be watching what is happening on a small island in the eastern Mediterranean instead?

Back in 1931 no doubt everyone in Westminster was discussing what the then Chancellor Philip Snowden would or would not tax. They should have paid attention to an Austrian bank called Creditanstal instead.

We know that the banks in Cyprus are shut – and that if they were to open without a bailout of some kind, they would be bust. I can think of only four possible outcomes.

1. Firstly, there is an EU bailout of some kind, and the banks reopen.

2. Secondly, there is a bailout by a third party – Russia perhaps, or the IMF, or perhaps some other country – and the banks reopen.

3. Thirdly, the banks reopen, but after stamping each note with a mark to convert the Euro notes into Cyprus Euros. In other words, Cyprus leaves the Euro with its own currency.

4. Or fourthly, that the banks do not reopen.

Each one of these options has big implications – and I do not just mean the possibility of the end of the Euro.

If Cyprus were to become – in effect – a fiscal satellite of Russia, it has massive geo political implications. What would Turkey think of it? What would it mean for the West? It is a very big deal in global terms. Anything apart from option 1 means that the Euro system is falling apart.

Up to now, the European project has been seen as a process of consolidation. A way of strengthening Europe's position in the world. Only a few cranky Eurosceptics pointed out that integration was an act of weakness – and would only further weaken Europe.

But perhaps we now need to see the European Union as a twenty first century version of the Austro-Hungarian Empire. Sclerotic. Feeble. Incapable of change. In other words, doomed.

What, I wonder, is a post-EU Europe going to look like?

Now, about that tax exemption for widgets ....

Press regulation car crash

You'd think MPs might know better by now.

First they set up something called the Financial Service Authority, to regulate the banks. 6,000 pages of compliance later, the banks went bust.

Then they set up another FSA – the Food Standards Agency.  Horse meat systematically entered the food chain as beef.

Today MPs are deciding if they should set up a quango to oversee the press. What could possibly go wrong?

Some people have been treated abominably by the media. They deserve recompense. If and when others are unfairly treated in the future, they too need redress.

But the way to achieve that is through the courts. Rather than invent an entire new apparatus of officialdom to oversee newspapers, Brian Leveson ought perhaps to have suggested ways that ordinary folk might be allowed to seek redress through the courts. Imagine if you did not have to be a millionaire to sue a newspaper?  Perhaps you have to be a judge not to see it.

The new regulation will cover "websites containing news-related material" apparently. That means not only ones such as this, but the one run by your local parish council too.  And the one written by just about anyone with a blog.

We now live in a world in which millions of people publish things each day. Yet the system of regulation being proposed seems a throwback to a time when only a few newspaper editors wrote "news-related material". What is your twitter feed, if not a stream of "news-related material"?

I grew up in a central African country run by various dictators who controlled the newspapers. Perhaps that is why I find the idea of state regulation of the press in Britain so shocking.

A big part of me thinks that this is a disaster in the making. A small part of me hopes these proposals go through so we can see the utter balls up that follows.

Hail Mr Speaker!

I am looking forward to the launch of Matthew Laban's Mr Speaker on Monday in the House of Commons. It is the first detailed study of the office of Speaker for a generation apparently, and I am keen to see what the book has to say.

All very SW1, you might think - and you're right.

But in the drive to make Westminster more accountable to the wider country, the Speaker's role is proving crucial.

Before Bercow, Commons standing orders allowed the Speaker to, in effect, be installed via the "usual channels". Of course voting happened, but it was done in such a way that the whips could favour whoever they wanted.

The result? The executive branch of government had the legislature stitched up.

Now, of course, the Speaker owes their position to a private ballot of the whole House.  And I can't help noticing that amendments that ministers might find awkward get called. Urgent questions are allowed. The tempo of debate makes it harder for those at the despatch box to waffle.

Under Bercow, the Commons is becoming less supine and spineless. Parliament is rediscovering its purpose.

Of course, the "usual channels" hate it, complaining about the Speaker's supposed biase. Poppycock. The rest of us should take it all as evidence that the Speaker is on the right side, and that things are beginning to get better.

Labour are kooky. They can be beaten

Get this. One of the guys who helped ruin our country's finances by spending money we did not have is back arguing we should borrow more. Gordon Brown's chief sidekick, Ed Balls, helped preside over the greatest credit boom and bust in history. He's now trying to convince us he can fix the economy.

Or what about this? One in every five pounds you pay in tax is spent on welfare. Far from alleviating hardship, it has created a byzantine system that punishes folk who do the right thing.

Yet the party that set up the welfare state in the first place is opposing every effort to make it do what William Beveridge wanted it to do.

Or this? Across Europe, the interests of millions of ordinary people are being sacrificed to save bankers from the folly of their own investment decisions - and to preserve the elites Euro project.

Yet the party of Keir Hardie, set up to champion the interests of working people, is siding with the unelected Commissioners and technocrats.

Labour produced leaders like Clem Attlee, Harold Wilson and Tony Blair - who, for better or worse, towered over the political landscape. Today? Labour seems to be run by a gaggle of former special advisers who'd struggle to make up their minds what they want for lunch. They don't just talk in cliches - they think that way too.

The current Labour leadership is the repository for every failed orthodoxy, every tried-and-failed idea over the past fifteen years. The idea that Ed Miliband might be Prime Minister ought to be seen as a Kinnock-esque joke.

Labour can be beat - but you can't beat something with nothing.

On welfare and EU membership, we need to highlight that Labour is against change. On the economy, we need to make it clear that we want change. Starting in the budget with a new, coherent, free market alternative to Balls economics.

Internet makes MPs more accountable

Digital technology is closing the gap between the governed and the governing.

It's not just that we have access to the same information.  Politicians have become more accessible.

As an Essex MP, I've seen this first hand. This graph shows the number of individual constituency cases I dealt with in February this year, compared to February 2009 and February 2006. Click here to see full detail.

The number of individual cases roughly doubled, and then doubled again. (Bear in mind that the amount of work each case generates varies widely, and has probably not risen as fast. Trying to get a pothole filled is generally straight forward. An adoption case can be vastly complex and drawn out.)

I point this out not to complain – it is a very good thing that more voters are asking more from their MPs.  Rather, I mention this to illustrate how blogs and email mean more people are coming into contact with their representatives. Social media means that that contact can be on-going. 

Professional politicos like to use opinion polls and focus groups. Why? They, perhaps rightly, feel that they need solid, empirical evidence as to what voters think.

But pollsters trying to measure what people think will usually quiz a sample of around a thousand people. Which is not far off the number of folk that many constituency MPs now help every six weeks or so.

Perhaps this will ensure more of those in SW1 are more in tune with what people want - and less deferential to those polling gurus who claim to be able to read the tea leaves.....

I will be giving a talk about all this to some MA Broadcast Journalism students at City University later today.

Alternative budget; How to curb public spending

Public spending is too high. It's not a matter of opinion, but a mathematical fact.

For every £5 the UK government takes in tax, it spends £6. After thirteen years of Gordon Brown, British officialdom is living beyond the means of the rest of us to pay for it.

The Coalition had a strategy to deal with this. The idea was to rein back spending – without necessarily cutting it - so that the economy grew faster than public spending increased. This would, it was hoped, gradually - and relatively painlessly - get some sanity back to public finances.

The trouble is there's been no growth. The state continues to live far beyond our means - so much so that public finances have continued to deteriorate. It's time for something different; real cuts in the cost of officialdom.

First, the budget needs to see an end to the "ring fencing" of various departmental budgets. Ring fencing not only makes no sense in macro spending terms – it prevents the kind of more-for-less reforms that are needed throughout Whitehall. If there's no pressure to do things better, things don't get done better.

Next, I can think of entire government departments that we could do without; Department for Business, Innovation and Skills; International Development; Energy and Climate Change; Culture, Media and Sport; Communities and Local Government.

Not all the £60 Billion that those five departments cost each year would be saved – but up to a third could be. Some of these departments' functions would be merged into other departments. Communities and Local Government's functions could be passed to town halls. Much that departmental officials do would quite simply no longer be done.

These changes alone could reduce spending by over £20 billion each year. End ring fencing, too, and it is possible to envisage spending reductions of over £25 billion.

Britain has a structural spending deficit because we have a structural political deficit; government just isn't very good at curbing the spending habits of government.  As even Margaret Thatcher discovered, ministers who stand for election saying they believe in less government end up arguing for more money for "their" department once sitting round the Cabinet table.

If we want to sort out of our structural deficit, we need to give the legislature controls over public finances that the Commons surrendered in the 1930s. Instead of rubber stamping spending totals formulated in the Treasury, Commons select committees need to be given the power to annually approve their department's (and associated quangos) spending. Unable to increase spending, they should have the power to veto items of spending and entire programmes.

The pity is that this idea has been repeatedly suggested and found favour – but nothing has been done to make it happen.

So another year, another budget where we look to ministers to curb ministerial spending habits.  Yet again, we are left wondering why there is never enough money for unfunded tax cuts, but always more room for more unfunded spending increases.

Next in this Alternative Budget series, having identified £25 billion plus of public spending cuts, I will focus on the fun part: £25 billion plus of tax cuts.

Alternative budget: How to reform the banks?

Five years after the credit crunch, not a lot has changed.

For all the bank bailouts and talk about Basel rules, we have only really been dealing with the symptoms of the problem. The structure of banking itself has changed surprisingly little. Until now.

The Vickers proposals seek to create a division between retail and institutional banking. All that high risk, irresponsible casino banking is, apparently, going to be separated from that nice, cosy high street banking. Or so we are supposed to believe.

Perhaps. But is retail banking really risk free? How meaningful will the retail-institutional split really be? Would these changes have prevented the kind of problems we have seen?

Reform is really about trying to rein in the worst excesses of fractional reserve banking. I think there is a better way of doing that.

Rather than a horizontal division between retail and institutional banking, we need a vertical line drawn within banks. There needs to be a clear legal distinction between money given to a bank as a loan and money given as a deposit. Details of my Bill to do precisely this can be found here.

How would this help?

If, when paying money into a bank, you had to specify if you were making a deposit (safekeeping) or loan (to be lent on), you would allow the capital rule for each bank to be determined organically. Well run, trusted banks would be able to issue higher multiples of loans and credit. Badly run banks would not.

Secondly, you would make it easier to define the limits to state responsibility. Government would only be responsible for underwriting people's deposits.

Third, it would limit the ability of banks to conjure candy floss credit out of thin air. It is perhaps this, which leads to periodic credit booms - followed by bust - that has proved to be so damaging to the wider economy.

Talking digital

Five months after my book on iDemocracy and the digital revolution, I'm thrilled to see a surge of interest in the subject.  As well as taking part in a Radio 4 discussion (14 mins, 40 seconds in) this week, I'm due to give talks on the subject at several university and think tanky type events over the next few weeks.

What fascinates me is not just the implications of social media on politics, but on public service delivery, business models, communications and opinion forming.

A great "social media" stampede is underway, in everything from PR to advertising. I suspect that an awful lot of social media snake oil is being sold – which is a pity because so much of what is happening, understood correctly, has the ability to be transformative.

Talking at a PR event a few weeks ago, it seems that an awful lot of paid social media "experts" still think in analogue.

An alternative budget

It is not just our credit rating that got downgraded. Last week, in the Eastleigh by-election we Conservatives were politically downgraded, too.

Losing our AAA credit rating is a hint of where we are heading economically. Eastleigh
is an ominous sign of where our stewardship of the economy could take us politically.

Living standards are falling. The cost of living is rising. The economy is flat lining. Public debt is rocketing.  The banks are still bust.  Where is the compelling economic reason to vote Conservative?

At the heart of the Conservative party, where there ought to be a coherent free market economic policy, lies a vacuum. And it is a problem that stretches back more than two decades.

To put things right, we need to see where they went wrong.

Ever since we abandoned our belief in monetarism in the late 1980s, we have failed to replace it with anything coherent that works. So we have drifted.

Initially, we pegged our currency to the Deutschemark because we had no post-monetarist philosophy to inform us otherwise.  Then we were carried into the Exchange Rate Mechanism because that is where fashionable opinion flowed.  When we crashed out, we lost our reputation of economic competence – and have struggled to regain it ever since.

We carried on drifting. In the 1990s, we floated along with the fallacy that central bankers could engineer growth. With no alternative to recommend, we could only look on as Gordon Brown's credit fuelled bubble made folk feel rich.

When the Brownian bubble burst, we had nothing else to offer. Five years into this downturn, we are still bobbing along with the Brownian notion that monetary stimulus can produce prosperity.

Over the past two years, I've half wondered if Gordon Brown might still be locked away inside the Treasury basement, running the show. Of course he isn't, but with no overarching free market approach of our own, our technocratic tinkering ends up feeling much the same as his.

We print money and give it to banks - Quantitative Easing. Print-money-and-pray economics does not work economically, and is a disaster politically. Why? It confers credibility on those who would rather we printed money and gave it to people.

Gordon Brown's sidekick, Ed Balls, ought to be an utterly discredited figure. Yet our monetary activism has put his debauched Keynesianism back in the game.

By 2015, George Osborne will have presided over the largest fiscal stimulus in British history. There is no other way of explaining the £100 billion a year plus difference between what the government takes in tax and what it spends. It is Keynesian stimulus in all but name - and within the five year term of this Parliament, it will have added more to the national debt than thirteen years of Gordon Brown.

It is time for an alternative to this failed Osbrown economics.

Over the next two weeks, I will be setting out in five blog posts the alternatives on bank reform, on how and where to curb spending, on tax cuts and how to unleash the potential of wealth creators.  I will outline the post-monetarist approach that I believe we have long lacked.

For too long, even the slightest hint that we might do things differently has prompted team Treasury's pet pundits to write dismissively of those wanting "unfunded tax cuts". Or of the alleged hypocrisy of those wanting spending cuts in theory, but opposing them in practice.   This will not do. 

A change of policy is needed. Using this blog, I will set out some of my ideas on what the alternatives might be.

“This is bulls**t!”

Britain cannot win as part of the Eurosystem.

Yesterday, 27 EU finance ministers met to impose a pan-European banker bonus policy. Britain, where 90 percent of those businesses affected are based, was out voted 26 to 1.

Goodness knows our banks need reform. We need to unwind the bailouts and central bank subsidies.

Rather than the Vickers mishmash, there needs to be a clear legal distinction between money handed over to banks as a deposit and money handed over as a loan. In place of candy floss credit, we need a banking system built on sound money and restraint.

But an arbitrary cap on bonuses resolves nothing.   Bankers will simply take the pay in higher salaries - but their pay will no longer be linked to performance. Smart move, eh? 

But then this proposal was never about bank reform.  The bonus cap is a spiteful attempt by the Euro elites to hit the City of London, the success of which they have grown to resent ever more as the Euro crisis deepens.  This move will harm our wider economy, and thousands of small businesses, estate agencies, retailers, restaurants and others will eventually pay a price. 

I tried pointing this out this morning in a live interview on Bloomberg TV.  The response of one of the chief architects of this new policy, a M. Philippe Lamberts MEP, was to yell "bulls**t!" at the camera.  (Link here)

It is people like M. Lamberts who increasingly run this country.   

The case for quitting the EU just got stronger.  Anyone in financial services wanting to support the Out Campaign, get in touch.

The simple case for less tax

With the budget only a few weeks away, the Westminster guessing game has begun.

What conjuring tricks will the Chancellor pull out of the bag? What cunning schemes? What Baldrick-like wheezes from the Treasury? None, I hope.

Here instead is a very straight forward idea: Let people and businesses keep more of the money that they earn for themselves.

This new "let folk keep more of their own money" scheme would be very simple to administer. In fact, no overhead costs would be required.

Secondly, it is fair. The more that someone strives to earn, the more they are rewarded under the scheme.

Thirdly, it helps boost demand and increase savings. If folk don't have to hand over more of what they earn to the state, they have more to spend in shops or to make provision for rainy days.

Finally, the money will be more wisely spent.

Keynesian economics rests on an assumption that the government is better at spending people's money than the people themselves. In the boom times, so the theory goes, government will wisely build up a surplus as the people merrily over spend. In the downturn, when the pesky people ought to be spending more, government will step in to do it for them.

Nice theory, but unfortunately it never works out that way.  People are, it turns out, better at spending their own money on themselves and their families than politicians. 

"But that would mean unfunded tax cuts!" pipe up the Treasury's pet pundits.  Perhaps one would take such voices a little more seriously if they had a record of objecting to all those unfunded spending commitments.

Adapt or die

Nothing lasts forever - and past performance is no guarantee of future success.

A hundred years ago today, Liberal Party MPs could draw comfort from the fact that their party had held political office since, in many cases, those political offices had been invented.  A mere seven years before, they had won a great landslide in the 1906 election.

But they failed to adapt to fundamental change in the political landscape - the rise of organised labour.  So within a decade or so they were largely gone.

In City AM today I have an article about the fundamental change that the internet is starting to bring to politics.  We are seeing the rise not of organised labour, but of the citizen consumer online.  

Political parties, I write, exist to "aggregate votes and opinion".  But we are moving into a "world in which the internet allows people to aggregate ideas and opinion – and increasingly votes – without having to have a well- resourced party machine behind them".

Established parties need to start adapting if they want to retain market share. (See post below for details)

The Conservative party like Spotify! What does he mean!?

The Conservative party today is run a bit like HMV, I argue in the Mail on Sunday. It has falling market share and costly overheads. The thing that it retails – politics – can better be sold a different way.

No matter who the CEO, or what other changes they bring, unless the Tory party addresses this central, thudding fact, it will go the way of HMV.

Some pundits almost seem to blame the voters. The public, they argue, are simply not interested in politics and political parties any more.

Nonsense. In the age of the internet it has never been easier to build mass membership movements. Ask Beppe Grillo.

Claiming the public are no longer interested in politics would be as ridiculous as HMV suggesting that the public were no longer buying music. They are – but just not the way that we are selling it.  

The Conservative movement must, I suggest, become more like the online music service, Spotify. What do I mean by that?

Spotify is all about self-selection. I can select almost any song ever written, when I want. Unlike buying a CD, I don't have to pay for the songs I have no intention of listening to.

Spotify lets you dip in and out. The membership boundaries are, in a sense, blurred. If I want the full service, I have to pay. But if I don't pay for a while, I still get to be part of it.

Spotify caters to niche, distinctive and particular tastes. It offers us each a far greater range than the largest music shop in the world could provide – all on our own terms.

How might you Spotify the Tory party? Here are some initial ideas:

1. Let anyone register online as a supporter (name, email, postcode) – in return for which they get supporter status.

2. Let anyone join as an "online member" for two or three quid. If they are only joining you online, why should they be billed for the off line overheads?

3. Allow registered supporters and online members to vote online to help select candidates standing for election where they live (for shortlists, if holding open primaries, final round choice, if not).

4. Use open primaries - not caucuses or A lists.

5. Allow online members to vote online to determine aspects of party policy.

6. Have half the members of the Party Board, and the area boards, elected directly online by the online members.

7. Don't allow dissent - encourage it. "Don't get mad – get change" should be the ethos. If you want change in your community or country, or feel strongly about an issue, join us – and use the party as a platform for change.

8. Don't dismiss "single issue" politics. Invite those animated by some of the big issues of the day to deliberately use the party as a vehicle to change things. It's what parties ought to be for.

9. Hold a one day annual conference, priced to suit supporters and members – not lobbyists. Use it to spark ideas about campaigning, membership – and all of the above.

I am sure I have missed some other ideas. But in the spirit of Spotify, the comment thread is your's ....

Why I love Beppe Grillo

Over on the Spectator Coffee House, I have an article explaining why the success of Beppe Grillo in the Italian election should be seen as A Good Thing.

Incidentally, since blogger Beppe's Five Star Movement came from nowhere to gain over 25 percent of the vote, orders for my book on iDemocracy have gone up - and a second edition is now going to print.

We do not need a National Curriculum

What should be in the National Curriculum?

Proper history, say the historians.  Financial literacy, demand others. More science, insist the scientists.

Once you have a national curriculum, there will inevitably be a debate about what it should include.

I've nothing against the three Rs or foreign languages or all the myriad of things that other people will insist that other people's kids must learn. But perhaps there is a better way.

One of the wonderful things about digital technology is that it allows public services that were once provided on a one-size-fits-all basis to be personalised. Instead of a national curriculum, every child could have his or her own personalised curriculum.

Far fetched?  The idea that we would each be able to select our own software would have seemed off-the-wall a decade or so ago.  Just as your ipad contains all kinds of apps that you downloaded to suit your needs, why not allow mums and dads and teachers to put together a learning programme that suits each individual child?

"It would produce chaos", you say. No more than letting folk buy their own groceries produces anarchy in the supermarkets. If your alternative is food rationing, the scene at the checkout will seem a little chaotic.  Folk manage.

The main argument against self-selection is that people don't know what a good curriculum looks like. We need, apparently, the wisdom of a remote elite in Whitehall to decide what children should learn.

I disagree. A good curriculum requires collective wisdom to design. Is that knowledge best brought together by a team of experts in one place i.e. the minister's desk in London? Or is collective expertise best assembled by tens of thousands of teachers exercising their professional judgement, and parents pursuing the best interests of their child?

We Conservatives keep making the mistake of believing that we can achieve a "proper" curriculum by using the fiat of central government to shape it.  We create the architecture of Big Government, and are then surprised to find we don't like the results.  Tories once made the mistake of believing we could use the power of central government to run British Leyland.

When will we learn to let go?

The path to prosperity

The economy actually grew last year, the Office of National Statistics now tells us.  In its latest revision to the numbers, output expanded by 0.2 percent - as opposed to the 0 percent they thought earlier.

This could be it! This could be the answer to our economic troubles. Keep on getting the statistics agency to upwardly revise the data, and we'll be rich. 

All it needs is another dozen or so upward revisions, and the economy will be booming.  

Okay, so maybe it is ridiculous to believe that retrospectively revising the official data upward is the way to make us rich.

But is it any less daft than the idea that printing more money produces prosperity (quantitative easing)? Or the notion that cheap credit delivers growth?

Italy and iDemocracy

Politics, I speculated in my book on iDemocracy, is about to be reborn. It will "be shaped by groups of like-minded people, mobilising online".

Today, four months after publication, Italian blogger Beppe Grillo's Five Star Movement has come from no where to win over a quarter of the popular vote.

Some pundits will tells us what this says about the Euro. Or what it tells us about austerity. Or what it says about fish cakes blah blah. But it is what it bodes for the future of democracy that fascinates me.

Parties will, I suggested, "have to allow citizen consumers to select party candidates". Sure enough, Five Star did precisely this online.

"What politicans say will no longer be assessed through pundits ... but gauged by the crowds online", I ventured. Beppe Grillo does not give main stream media interviews, talking instead directly to his audience.

"But this is just a protest movement" I hear you say. I am sure Liberal MPs in the Welsh valleys once said much the same about Keir Hardie's organised labour movement.

Votes cast in protest against an established order do not count for any less than any other.

"Twenty first century politics will be shaped by the citizen consumer interest much the way twentieth century politics was shaped by the organised labour interest".

Beppe Grillo might not be around in Italian politics in a decade. This internet thingy, and the changes it is bringing will be.

I was wrong about the Climate Change Act

My biggest regret as an MP is that I failed to oppose the 2008 Climate Change Act. It was a mistake. I am sorry.

On the very day the Labour government passed this fatuous attempt to "stop global warming", it was, if I remember rightly, snowing. Had I opposed the Bill, it wouldn't have made much difference, but I feel I should have known better.

Unlike much of the gesture legislation that goes through Parliament, this law has turned out to have real consequences.  The Climate Change Act has pushed up energy prices, squeezing households and making economic recovery ever more elusive.

The aim of the Climate Change Act was to create a low carbon economy. I fear the Act will do that, but perhaps not the way intended. The Climate Change Act is giving us a low carbon economy the way that pre-industrial Britain had a low carbon economy.

Cutting carbon emissions by 26 percent by 2020 – as the Act requires – means, in effect, making energy costs so high that some will have to go without. How is that progress?

The Act's carbon price floors push up prices. Instead of energy producers competing to supply households and businesses with a product at a price they are willing to pay, the legislation introduces a system of price fixing. Suppliers switch to so called "renewable" energy sources, and the end user pays.

An unaccountable quango – the Committee on Climate Change – gets to determine energy policy much the way that central bankers now run monetary policy. The precedent is not a good one. Adair Turner, head honcho at the Financial Service Authority, was its chairman.

The tragedy is that it does not have to be this way. Technological innovation is discovering new ways of obtaining vast reserves of fossil fuel. As our understanding grows, the idea that human activity alone causes climate change seems less certain than it once did. Wind turbines, it turns out, are renewable in the sense that they need replacing every 25 years – or perhaps even every 15.

Too often, public policy in Whitehall is shaped by residual ideas and assumptions – which turn out to be wrong. Nowhere is this more so than when it comes to energy policy. It is time for a fundamental rethink about energy policy – starting with an acknowledgment that 2008 Act has got it wrong.

Italy's Five Star Movement - a sign of things to come?

Italy goes to the polls, and the centre left Democratic Party is expected by many to win.

For me the Italian poll is intriguing because of the Five Star Movement - last recorded on 18 percent in the polls.

What is Five Star?  I'm not really sure.  It is part protest movement against the established parties, and part online campaign for more direct democracy.  Its manifesto seems not so much left or right wing, but radical.

Perhaps the best way to think of Five Star is to imagine what might happen if Guido Fawkes started to run candidates.  

Five Star selected parliamentary candidates through open primaries, something some of us have been calling for in this country.  It is fiercely against unaccountable elites, making it Eurosceptic and localist.

Will it do well?  I have no idea.  But however it fares, it is, I sense, a straw in the wind.  

Political parties are in the business of retail.  They exist to get the rest of us to buy into their politics and politicians.  

But the internet is transforming retail.  Established retailers, with declining market share and costly overheads, are going under (think HMV).  Nimble upstarts that offer niche choices to everyone are springing up (think Spotify).

Might the same happen in politics?  Thanks to the internet, the barriers to entry are falling.  The digital revolution makes it possible to aggregate opinion and create a political brand without having a large corporate party structure. 

Established political parties will either have to become the political equivalent of spotify - keen on self-selection, easy to dip in and out of, able to cater to niche, distinctive and particular tastes - or they will go the way of HMV. 

Time to take child poverty seriously

More than one in four children in my part of Essex are living in poverty, says the Campaign to End Child Poverty.

"But that's the sort of thing a Campaign to End Child Poverty would say", some might think. Others might be quick to point out that the poorest in Britain today are better off than they would have been a generation ago. I understand all that, but still think that this report needs to be taken seriously.

If anything, I would suggest this report understates the problem. By defining poverty in terms of income (less than £10,400 a year) it does not properly factor in the hardship caused by rising prices.

So what to do about it?  Doubling welfare spending since 1998 does not seem to have solved the problem.  Perhaps we need a different approach.

1. Jobs: The best cure for poverty is a job.

Given the way the report defines poverty, I suspect that many households it categorises as living in poverty are benefit recipients of one kind of another. Of course not everyone is able to work. Some have very good reason not to.  But for others, there is work available. On my last trip to the Job Centre I was told there were over 170 vacancies available then and there.

"Ah! But many of these jobs are hardly worth it" you might respond. And you'd have a point. The tax and benefit system means some people would be only very marginally better off after working long hours.

We need to do far more to encourage people back into work by dealing with some of the disincentives that discourage some people from taking a job.

2. Affordable child care: Many of those this report is referring to are not just statistics to me. They are people I know by name.

Many women, in particular, have told me that a lack of affordable child care prevents some mums who might otherwise choose to work from taking a job.

Liz Truss, the minister, is currently fizzing with new ideas to ensure that there is far more affordable child care in places like Clacton.

3. Social housing: Until recently, local Tendring council required that new housing developments include 40 percent social housing. As you might imagine, this approach helped concentrate socio-economic problems in pockets of deprivation. This is perhaps reflected in the reports figures.

The council has now ditched that approach, and has a sensible target of around 10 percent. Planning liberalisation in Brooklands and Jaywick will, I am confident, mean big improvements in the local housing stock.

4. Energy costs: Everyone in Westminster seems to think that we need to produce more "green" energy. Everyone in places like Clacton seems to be paying the price for all the extra wind turbines though higher bills.

Nothing is producing more financial hardship than rising energy costs. Yet higher energy costs are a direct result of our obsession with renewable energy targets.

If we are serious about reducing child poverty, we need to tackle fuel poverty. And that means allowing energy companies to produce cheap energy from shale gas, coal and other fossil fuel sources.

What to make of an EU-US trade deal?

An EU-US free trade agreement is to be welcomed.  Trade is good, and anything that makes it easier for people to trade with one another will help make the world an even better place.

But I do hope that any EU-US free trade agreement does – to use the cliché of the day – what it says on the tin. That is, that it removes tariffs and protectionist barriers to trade.

I fear the language of trade liberalisation could be used to advance an agenda of regulatory standardisation. Rather as happened with the EU Single Market.

We are already starting to see talk about the need to ensure that EU and US regulators regulate up to common standards.  What next?  

Talk of "level playing fields"?   Big corporations lobbying to ensure that the regulations become a barrier to entry against more nimble competitors, as happens on an industrial scale in Bussels?  Not really free trade, is it?

To make certain this does not happen, we need to ensure those officials and technocrats in charge of any deal making are properly accountable. Right now, they're anything but.

One further reason to welcome an EU-US trade deal; if the EU can do a free trade deal with the US, then why not the UK once outside the EU?

Cheer up! Cheap energy is on the way. Hopefully

It's not just the "peak oil" eco loons.  Even analysts I respect, such as Tullett Prebon, are pessimistic about energy.  

According to Tullett Prebon's latest report, global economic growth is going to be lower because of diminishing energy-returns.  Back in the 1930s, it would apparently take one unit of energy to obtain one hundred units of energy.  By 1990, it took one unit to produce forty units.  Today, the ratio is one unit to seventeen. 

Tullett Prebon says that once that ratio falls to less than one unit to fifteen, we are in trouble.  Perhaps.

It might not feel like it right now, but I wonder if in fact we are heading towards a new era of cheap, plentiful energy?  Tullett Prebon might be right, but like nay sayers so often do, they fail to take into account technological change.

Brian Viner's brilliant piece in today's Telegraph shows that the world's known - and accessible - oil reserves have never been higher.  Why?  Because of technology.

Perhaps the reason why energy-returns are the way they are is precisely because of all that extra investment there has been in getting the stuff out the ground?  The new technology might be costly, but the one thing we know about new technology is that the price goes down rapidly (See everything from DVDs to ipads).

The same phenomenon is at work with solar cell technology, the costs of which have plumetted.  It is only a matter of time before millions of homes in Africa and Asia - not to mention Essex - are covered in the stuff.  No need for subsidies either - in fact the key is to get government out the way, starting with those ruinous renewable targets. 

Technology will, I suspect, also solve that other problem Tullett Prebon highlights; debt.  Tullett Prebon are absolutely right about the way that government has grown.  So we will just have to manage with less of it.  

Thanks to digital technology, it is going to be a lot easier than we imagine.

The way back to wealthy

According to official data, we Brits sold £27 billion of exports last year to Brazil, India, China, Russia and South Africa.  That is more than double the £12 billion that we sold those countries in 2007, when the credit crunch began.

These so-called BRICS now account for more than 5 percent of total UK exports.

Impressive? Yes, but we probably could have done even better. If UK exports to the BRICS more than doubled over that five year period, the BRIC economies themselves expanded at about that rate, too.

Ever since the Brownian bubble burst, we have got used to bad economic news. Yet out there beyond the West, the economic news has been extraordinarily good.

Tens of millions of people have joined the global economy, rising out of poverty, in Asia and Africa.

The real economic news of our time is not Europe's great stagnation. It is the rise of a new consumer class in those nations we once called "under developed". If we in Britain are able to trade with this new consumer class, we will prosper.

Our economy can no longer be fuelled by buckets of cheap credit and unsustainable consumer demand. What we need is cheaper energy instead. And lower non-wage labour costs. We also need a new deal with Europe so that UK firms looking to export to the BRICS are not forced to comply with red tape introduced to facilitate trade with Belgium.

Some economists talk about endless years of stagnation and declining living standards.  This latest export data tells us that things don't have to be that way - provided we are prepared to adapt to the emerging world as it is, not as it used to be.   

Last stand on Frinton beach

A glorious end to the first sand castle of the year on Frinton beach. 

The first of many!

Feels like warmer weather is on the way....

The European case against the EU

Even John Major now welcomes an In / Out referendum. The debate, it seems, has come a long way since he took us into the ERM.

To help push it forward yet further, I last week took part in a debate at Queen Mary's with Sir Stephen Wall. Click on the picture to watch.

The Eurosystem, I argued, is profoundly anti-European. A good European should seek democratic self-government free from the sclerotic embrace of Brussels bureaucratic empire.

To me, the most striking thing to emerge from the evening were the views of my opponent, Sir Stephen Wall. Anyone concerned about the future of our relations with the EU really must listen to what he says.

Here is a man that has spent years as the head of UKREP, the UK's top deal maker in Brussels.  Yet quite clearly he subscribes to the whole integration-at-any-price, must-be-part-of-it agenda.  No wonder we always seem to get such a bum deal in Brussels.

Has any of it changed?   Are we still represented in Brussels by deal makers like this?  After David Hannay, John Kerr and Stephen Wall, is UKREP still run by people with a similar set of assumptions?

I am off to meet UKREP in Brussels in the next few days to try to find out.

Malinvestment. A word we will hear more often

A great piece by Jeremy Warner in today's Telegraph asking why there is so much apparently contradictory economic data out there.

On the one hand, a record number of new private sector jobs have been created. Yet, contrary to what you might therefore expect, the data shows little GDP growth. How come?  Is it really the case that productivity can have done as badly as that would imply? 

Then we've seen Sterling fall, yet exports perform badly. You'd expect the opposite. And despite the dark warnings about deflation, it is inflation that has proved stubbornly high.

How to explain all this?  Malinvestment, in a word.

According to that deeply unfashionable Austrian school of economics, the misallocation of credit causes malinvestment. Think of malinvestment as a kind of economic indigestion.

Some bits of the economy expand rapidly – albeit in a way that is unsustainable. Other bits – which need paying punters rather than cheap credit – do not.  Inflation targeting misses the mark because it is based on monetarist assumptions that don't hold. 

Those productivity and GDP numbers look bad, but only because the cheap credit made growth in financial services and property appear greater than it was.  Malinvestment also helps explain why Ed Balls' "more stimulus" approach to the economy would be hopeless.

Understand malinvestment and much of the contradictory economic signals start to make more sense. 

I've changed my mind about nuclear power

One of the daftest things in politics, as Daniel Hannan has pointed out, is to be against something simply because you don't approve of those in favour. Or conversely, to favour something because of those against.

An awful lot of politics is, alas, driven by precisely this sort of calculation.

How many Lib Dem MPs talking about Europe are Europhile because of any careful assessment of the Euro project? Often, I suspect they are enthusiasts for all things EU because of what they imagine to be the Eurosceptics opposed.

I must admit that I, too, have been guilty of this lazy way of thinking, particularly when it comes to nuclear power.

For years, I just sort of assumed that I must be pro-nuclear. Why? Well look at the right-on, lefty, Guardianista, peace-niks opposed? The more I heard whiny, eco loons telling us we should not have nuclear power, the more convinced I became that it must be the right thing to do.  And as for the safety thingy, coal mining kills more people, right?

The trouble is that I am starting to suspect that given current technology, nuclear power is simply not economic. We just do not seem capable of building them without massive subsidies.

If you oppose wind turbines, as I do, not because of the technology, but because of the subsidy, how can you favour nuclear? Opponents of wind subsidies often complain about the cosy collusion between the big suppliers and government – hidden subsidies, guaranteed margins. It is as nothing compared to what happens in the nuclear sector.

Nuclear power is not just a bad way of generating power.  The crony corporatism that it spawns is no great way of running a country either.

There have been two game changing developments in the energy sector in recent years; first the emergence of shale gas, and second the collapse in the unit cost of solar panelling. The former means that gas is back big time. The later, that we will see millions of roof tops around the world covered in solar panelling over the next decade or so.

Perhaps nuclear power will turn out to be like Concorde? Once apparently so modern and cutting edge, it ended up obsolete.

Another useless FSA?

Throughout the noughties, the Financial Services Authority imposed endless new rules on the City. As its handbook expanded to over 6,000 pages, banks and fund managers were forced to set up entire new compliance departments to cope with the extra regulations.

But focused on tick box compliance, the regulator hopelessly failed on the basics. No one seems to have asked Northern Rock, for example, if lending long by borrowing short off the international credit markets might cause a problem if, for any reason, those international credit markets froze for a while. We know what happened next.

Might that other FSA, the Food Standards Agency, have similarly failed?

For months, the Food Standards Agency has been trying to bully my local council into adopting its new food hygiene rating system for local food retailers. It won't accept that some local councils might quite legitimately prefer not to impose new burdens on small businesses.  Instead of getting officious with my council, perhaps the Food Standards quangocrats could have taken a closer look at those "beef" burgers on sale in local supermarkets instead?

For years, the Food Standards Agency has produced patronising posters telling us that we should not eat too much salt. Let's hope we've not been over doing it on equine drug products, too, eh?

On the stuff that really matters, where was the regulator?

It is starting to look as if horse meat has been systematically fed into the UK food processing market for months, if not years. Forget the pros and cons of horse meat, if the retailer does not even know what species the meat is from, what confidence can one have in its quality?

This is what happens when you put quangos in charge. They create lots of new regulations, but fail to properly regulate the things that might actually need regulating.

Osbrown economics isn’t working. What next?

Despite all the talk, the macro economic settings at the Treasury have hardly changed since Gordon Brown was at the helm.

As I argue in the Telegraph online today, there is the same reliance on cheap credit to engineer growth. The same print-money-and-pray assumptions behind QE.

Treasury group think continues to recoil from any suggestion of "unfunded tax cuts", while adding billions more to the national debt each month with unfunded spending commitments.

There is the same "too clever by half" tinkering with tax reform. And some decidedly Brownian dithering over airports and deregulation.

What we need, I suggest, are some dramatic tax cuts. Taking up Allister Heath's idea, I advocate slashing Corporation Tax to 11 percent and abolishing Capital Gains Tax entirely.

How to pay for it? Less government, of course. I identify five Whitehall departments that we could live without.

I was thrilled to read that the Telegraph's own leader writers have adopted precisely the same line.

The Continuity Brown approach has failed. Soon it will be seen to have failed. As in the late 1970s, there is an entirely new, free market economic script needing to be written. Perhaps this time it will be less monetarist, and more post-monetarist.

Ministers win, Parliament works

Back in October, I helped defeat the government in the House of Commons over the EU budget.

Why?

Because I felt that at a time when my constituents were facing rising living costs, they should not have to hand over more money to the Eurosystem.

Predictably, many pet pundits in SW1 sneered. "There they go again" they suggested. "Those beastly Eurosceptics stirring it up."

Except of course it increasingly looks as if David Cameron has now secured the cut in the EU budget we sought. If so, three hearty cheers to him.

Under pressure from the taxpayer, MPs instructed ministers not to hand over extra amounts of money. And ministers appear to have responded by securing a deal that does precisely that.

Democracy, eh. Perhaps Parliament is at last recovering its sense of purpose. Holding ministers to account for how they spend our taxes is, after all, why we invented the thing in the first place.

Mark Reckless MP, the author of the successful amendment, deserves perhaps the heartiest cheer of all.

And well done to all those MPs who did the right thing. Just please do not call us "rebels" for doing what Parliament is there to do.

Sharing the proceeds of growth

What's worse than an unfunded tax cut? An unfunded spending commitment.  At least if you borrow to reduce tax, you have a less sclerotic economy to show for it in the end.

For several years now the debate about tax cuts has been shut down. Whenever anyone so much as hints at the need for lower taxes, up pops a Treasury minister to remind us about the dangers of unfunded tax cuts. See here and here and here.

Unfunded tax cuts would mean higher borrowing, they tell us.  It would mean less spending on schools, hospitals, policing and pensioners, apparently.  It would mean fiscal imprudence, higher interest rates - and perhaps even the loss of our AAA credit rating.

Except today we learn that it is not unfunded tax cuts that have resulted in any of those things, but unfunded spending commitments.  According to the Institute of Fiscal Studies, the Chancellor is now going to have to borrow £64 Billion more than he was intending to before 2015. At the same time, spending on public services may have to be cut sharply.

Just imagine.  How might the economy be performing today if, instead of borrowing vast amounts to pay for unfunded spending commitments, we had lowered taxes instead?

Honesty about the NHS

Tomorrow a report into the Mid Staffordshire NHS Trust will be published. It is likely to be highly critical of the care that some patients received. Or rather didn't receive.

I've not read the report, but it seems that while patients might have had the clinical care they needed, they did not always get the other kinds of care. The report will, I am sure, contain all sorts of horror stories of neglect.

I hope that the report triggers some serious thinking, and a grown up debate about our NHS. For years, political discussion about health care has been trite.

Anyone remotely critical of NHS results has been accused of being "against the NHS". Those who point out that other countries sometimes have better health outcomes are often howled down.

As a result, we've rarely got on to discussing if some things could be done better. This needs to change.

As an MP, I've noticed a subtle shift in public attitudes. More and more constituents express their frustration with the "stand in line and wait" system. In a world of 24 hour super markets, many cannot understand why they have to ring back next week to get an appointment to see a GP.  Why are the quangocrats, rather than the customers using the service, king?  

It is perfectly possible to have a NHS that provides universal health care, free at the point of use - but one that gives the punter the kind of consumer power that they have over many other aspects of their lives. Public health care that puts the public in charge – every 60-something million one of them.

The seven laws of lazy political punditry

A great deal of what we know about politics comes to us via political pundits - those who earn a living analysing the goings on in Westminster.

Many pundits are brilliant, providing original, thoughtful insights.  But just as there's an awful lot of Mickey mouse PR sitting alongside those who know their stuff, so to with political punditry.

Here are the seven laws of lazy political punditry:

1. If Tory backbenchers are causing trouble over anything, it must be because they are right wing.  When filing copy, try to use the terms "right wing" and "trouble makers" interchangeably.

2. If a special adviser briefs against a backbencher, it must be true.  If, for example, a spad tells you that backbencher X is critical of Treasury policy do not try to appreciate why anyone might have doubts about monetary policy. Don't do the maths to see if their fiscal critique is justified.  Cut and paste what that nice spad tells you, instead.

3. Unelected pundits always know better how to win votes than MPs, including MPs elected by swing voters in marginal seats.  I know one pundit who tried and failed to get elected in a swing seat.  They have since become quite an authority on what voters really want.  

4. Don't explain why politicians are doing what they are doing. Tell us about your own prejudices and preconceptions instead.  It's not the pressures on those who got to Westminster by the ballot box that count. It's all about what you think.

5. Refer to those who believe things are best run by politicians as sensible, middle-of-the-road sorts. MPs who think that the free market might provide things better must be dismissed as dogmatic ideologues. 

This can best be achieved by writing comment pieces about how "some things are too important to leave to the markets". On your free market produced laptop. Before filing copy to your free market sustained newspaper. Before heading off for lunch at a free market restaurant. To eat food that the free market has provided, and without which you might starve.

6. Demand parties embrace diversity, and, in particular, select candidates from a wider range of backgrounds. Be sure, however, to jump on anyone who then expresses a view that does not conform with Westminster group think.

7. If every other pundit is saying the same thing, it must be so. See comment pieces on Gordon "the Iron Chancellor" Brown, or more recently, articles implying public debt is going down.

Thank goodness that the digital revolution has given us the blogs. Comment is slowly being democratised. We can at last begin to see the difference between good comment and lazy punditry.

Leadership plot? Don't be ridiculous

Goodness knows I've had my differences of opinion with David Cameron. I've voted against his government often enough. I've blogged about what I think ministers ought to do, and spoken out about the things they ought not to do.

But when I hear journalists writing about Tory leadership plots, I struggle to take it seriously. Keen never to sound obsequious, the fact is that David Cameron is way more popular than his party.  It would be daft to even contemplate a leadership contest.

David Cameron is secure as party leader. And I write that as someone who will, I am sure, vote against the government in the division lobbies in the future. Indeed, I will be doing so this coming week.

Voting against the government because of differences of policy is honourable. It is, some might say, what MPs are there to do.  But briefing journalists about some dim witted "plot" because you didn't get the ministerial job you wanted is not.

Some say David Cameron is aloof and detached from the Parliamentary party. This is simply not so. On every occasion I have ever wanted to talk to him about any subject, I have always been able to see him in person. I might not have always got the answer I wanted, but he's always been open to discussion.

Back in 1990, tea room talk - fuelled by the bitterness of under promotion - triggered a coup against the Tory party's legitimate leader. As a consequence, the Parliamentary party was riven by a decade of infighting and distrust.  To even contemplate the same again would be madness.

A few days ago, David Cameron made a speech about Europe that ought to be music to Conservative ears. An In / Out referendum is not only in Britain's interest, but it offers the chance to finally heal the centre-right split on Europe.

For anyone to start talking up the prospect of a leadership challenge a week later is ridiculous. Literally, they deserve ridicule.

Europe after the EU

It's not just us Brits that distrust the Eurosystem. Millions of Europeans have started to lose confidence in the ability of the Brussels elite to run their lives by design.

We Brits will get a vote in four years time to decide if we remain In or Out. But it won't just be us. Eventually the issue is going to come to a head in other member states, too.

Given that the French, the Dutch and the Swedes all overwhelmingly rejected more Europe the last time they had any say, is it too farfetched to begin to wonder what Europe would look like if Europe started to leave the EU?

What might a post-EU Europe look like? To get a sense of the future, first take look back.

Modernity used to mean scale. For the past two or three hundred years everything – buildings, factories, bridges, cities and markets - seemed to get bigger. So, too, did countries.

In the seventeenth century and eighteenth, the Dutch republic was eclipsed by larger England. In the nineteenth, England was in turn overshadowed by bigger America and Prussia. By the mid-to-late twentieth century, it seemed as if you needed to be part of a bigger block to survive. Production came to mean mass production. Prosperity meant selling to mass markets. The European Union is itself a product of these sort of assumptions about scale.

One of the extraordinary things about the digital revolution is that it overturns much of what we take for granted about size and scale. In a world of niche, on line retailing, economies of scale is no longer synonymous with profitability. 3D manufacturing will mean niche production, not mass manufacture. Tax bases will no longer seem so solid. Money will no longer be a state monopoly, as we see more currency competition. Prosperity will no longer depend on scale, but on being part of a network.

Big blocks will lose many of the advantages that come from being big, while at the same time small states will lose many of the disadvantages that come from being small.

The result? Not only an end to the Eurosystem, with its single currency and harmonised policy-making. In some cases, it could mean a reversal of that eighteenth and nineteenth century phenomenon that saw large nation states supersede smaller ones.

The EU won't merely come apart because it lacks democratic legitimacy. Technological change and the digital revolution mean that the giantism on which it is built is doomed.

In an interview with the Wall Street Journal, I set out some ideas about what Europe might look like after the EU.   

Higher defence spending or higher spending on defence contractors?

It is good news that the amount of money we spend on defence equipment is set to rise.

After years of cut backs, we have reached the point where we need to make a fundamental decision; Is Britain going to remain a military player, capable of projecting force beyond our shores? Or, like the Dutch or the Venetians before us, is a once great maritime power about to slip into military irrelevance?

News that the government intends to increase spending on ships, planes and drones suggests that there are still some in Whitehall prepared to fight back against the "decline management" mindset.

But spending more money on defence is not enough. We need to ensure that the money we do have to spend is spent in the interests of our armed forces – not in the interests of the contractors.

What financial muscle we still have needs to be converted efficiently into military punch.

Successive governments have for decades encouraged consolidation in the defence industry – first within the UK and now at a pan-European level. This was supposed to ensure better economies of scale, making the industry more viable.

Alas, consolidation has also constrained the supply base – and if you constrain the supply in any market, the seller ends up setting the terms of trade.

The result has been a dwindling range of approved defence contractors, each able to demand an ever greater slice of the defence budget pie.

This ultimately explains why we have often ended up paying vastly inflated prices for kit that arrives late. And why we spent more than £20 million apiece on helicopters when we could have bought ones that would do the job for almost half that amount. And it also helps account for why we are spending vast amounts on, for example, the loitering munitions Fire Shadow programme, when we ought to be putting the money into drones instead.

If we carry on spending the defence budget in the interests of defence contractors, any increase in spending will simply mean more money for the contractors.

New model banking?

Everybody knows that there's something wrong with the banks. Few seem to know what to do about it.

While Iain Duncan Smith has been gradually lifting millions of people out of welfare dependency, the banks have become recipients of massive state handouts.

Despite all the talk about Basel III and Vickers, for me the most remarkable thing about bank reform is how little has in fact changed.

A report by Berenberg bank – Mad, Bad and Dangerous to Know - looks at how the current tried-and-failed banking model has not just let down taxpayers and customers. It's not working for shareholders either.

After a decade of exceptional returns, returns on investments in European banks are likely to be poor. Why? It is not so much the economic cycle, suggests the report, but the way that banks are structured.

Many European banks are simply too big, and trying to do too much, to be run effectively. Beyond US$ 100 billion of assets, big ceases to be beautiful. According to the report, it makes many European banks complex conglomerates that simply aren't well managed. Worse, the interests of the senior management within the banks begin to take precedence ahead of those that actually own the bank.

What to do about it? Berenberg, not for the first time, makes a series of suggestions.

Many large industrial conglomerates failed, or were broken up, in the 1990s. So, too, large corporate banks. We need to see a larger number of smaller, more specialist banks.

Instead of being funded via public equity, more banks need to be funded by non-public equity, says the report. In other words, those that own the banks would no longer be quite so far removed from those running the bank. Berenberg ought to know – they are a partnership, and have been going since 1590.

There's more to trade than the Single Market

We must, ministers keep telling us, remain part of Europe's Single Market.

Really?

As recently as 2002, the EU was the most important export market for British goods and services. Back then, we sold £153 billion of goods to the EU, compared to a mere £127 billion to the rest of the world.

Within a mere decade, sales of goods and services to the rest of the world have leapfrogged sales to the EU.

In terms of services, the change has been even more dramatic. In 2002, exports of services to the rest of the world exceeded those to the EU by a mere £15 billion. Today it is by a stonking £45 billion. 

The difference between the value of our service exports to the EU and the rest of the world in 2011 was greater than the total value of the services we sold to the EU in 2002.

The Single Market remains a key market for British goods and services. But it is rapidly becoming just another market.

Why should a business in my constituency looking to sell to Russia, or India, or Manchester, have to comply with Single Market rules designed to facilitate trade with Belgium?

Of course a UK firm wanting to sell to the Eurozone should comply with local rules and standards - just like Chinese, American or Turkish firms have to do.

But they don't have to be part of the Single Market to do that. Their economies don't have to be 100 percent hidebound by every Single Market rule and regulation when not selling to the EU.

The Single Market does not give UK firms freedom to produce and sell throughout Europe. Instead it is an elaborate set of rules that mean a UK business can only produce and sell at all if it conforms with those rules. Far from free trade, the Single Market is a system of economic activity under license.

Throughout many of those countries we once called "under developed," there are emerging tens of millions of new global consumers. Our future prosperity will depend on our ability to sell to them.

Being part of Brussels' bureaucratic empire will hinder, rather than help, our ability to trade with the parts of the world that are growing.

Single Market? It's the global market that now counts.

How to control public spending

Public spending, writes City AM's Allister Heath, is not falling, but rising as a share of GDP.

According to the OECD, UK public spending increased from 48.6 percent of GDP in 2011 to 49 percent in 2012. "The state is getting relatively bigger, not smaller" under George Osborne.

How can this be? Surely everybody knows that we face austerity and cuts?

To be sure, there are some pretty tough cuts in some areas - local government, for example. Public sector pay for some nurses, police and others. But overall, as Allister puts it, the government has "horrendously failed to gain a grip" on spending.

Why? How can there be so little control over what the state-sector spends?

Because the state-sector has outgrown the ability of the rest of us to hold it to account. The democratic constraints have been subverted by a technocratic system of government that spends regardless of what the taxpayer thinks.

There was once a time when government departments and state organisations were given a budget by those answerable to the taxpayer. The House of Commons lost the ability to do anything other than rubber stamp budgets from the 1930s. The state has grown every decade since.

Treasury ministers, you might imagine, have the power to write budgets. In theory, yes. But in practice they are presented with various options to approve by a Whitehall machine that only ever let's those we elect have an influence in the margins.

Don't believe me? Then ask yourself why government spending and borrowing under this administration has followed almost precisely the same trajectory it would have done had Alistair Darling remained Chancellor?

Treasury officials draw up "control totals" for departments, as they dish out our money. The one thing "control totals" never seem to do is control the total amount of money government spends.

If we are serious about reining in state spending, those we elect need to wrestle back control of the purse strings. The Commons, not the technocratic machine, should have the final say.

Each minister and accounting officer, for each government department and quango should have to appear each year before the relevant Commons select committee.  There they must plead for their budget for the next year. MPs should be able to vote to strike out items of expenditure. No approval, no money.

Bold, radical?  Un-British?  It is the whole point of having a Parliament in the first place, for goodness sake.

Government grew as officialdom discovered how it could escape from democratic control. If we want to rein in government spending, we need to restore that control.

Referendum poll boost

So there it is. David Cameron's pledge to hold an In / Out EU referendum has translated into an immediate five point jump in the opinion polls.

Since last week's speech, I have noticed that a number of pundits in SW1 have been keen to have a pop at Cameron's promise to trust the people.

It'll backfire, they warn. Such populism won't mean people are any more inclined to vote Conservative, they imply. Such a "leap in the dark" could "prove fatal", Andrew Rawnsley informs us in today's Observer.

Oh really? Perhaps this tells us more about the prejudices and preconceptions of political pundits than it does about anything else.

A certain kind of pundit has spent years telling us that Europe does not matter as an issue for the voter. Many Westminster pundits – rather like many MPs - have never themselves won an election in a marginal seat. Yet they presume to know an awful lot about what voters really want. Perhaps they don't know quite as much as they think?

Cameron's offer of an In / Out vote has increased the Conservative's poll ratings. Just like after David Cameron wielded the veto a year or so ago, the empirical evidence is undeniable.

Many pundits have only ever analysed the Europe question as a "Tory splits" story. They are unable to see the wider significance of David Cameron's decision to trust the people.

Of course Europe will continue to animate those on the Conservative benches. Given the enormity of what is happening in the Eurozone, and the extent to which our future prosperity depends on getting our trade relations right, so it should.

But the poison has been drawn. It is no longer a question of what various Tory MPs think about Europe that matters, but what the country thinks in 2015 and then 2017.

According to ComRes, the Conservatives are now a mere 3 points behind where they were at the last election. Given the state of the economy, that is remarkable.

There will be good weeks and bad weeks ahead, but Ed Miliband's opinion poll lead no longer looks so great. Didn't Neil Kinnock enjoy similar poll leads?

Getting it right on Europe is not enough to ensure we win in 2015. But because we are now offering voters a chance to vote to quit the EU, we are in a much better position to do so.

Ignore the Guardianista commentariat.  The people who will decide the outcome of the next election have given a big thumbs up to an In / Out referendum.

Leveson can be beat

It has really cheered me up. I'm not referring to yesterday's announcement of an In / Out EU referendum, but to a letter I received from a constituent this morning.

They wrote to let me know that they've changed their mind about press regulation.

Yes, they're still seething about how some newspapers have behaved. Yes, those guilty of wrong doing must, they insist, be brought to account.

But, they explained, my letter to them explaining why I will not vote for statutory press regulation has changed their mind.

Leveson means that every newspaper - including our local Gazette - would be made accountable to a committee of grandees in London. Editors, who ought to answer outward to their readers, would answer inward to a remote panel of "experts".

Of course newspapers sometimes do wrong. But when that happens today, those wronged by what is written about them have little redress - unless they are fabulously rich.

Instead of proposing to put grandees in charge of the press, I think Leveson should have recommended how ordinary folk might gain affordable access to justice through the courts.

Perhaps if judges, like Leveson, were able to administer justice more cheaply and effectively, those wronged by the press might be able to do something about it, without having to be zillionaires?

Of course, affordable access to justice might mean their lordships doing more for less .....

The more I think about it, the more loopy Leveson's proposals seem to be. But if the case against statutory regulation is made, Leveson can be beat.

Why wait until 2017 for the In / Out referendum?

"But the In / Out referendum won't be until 2017" a fellow sceptic complained to me.

Sure. The In / Out vote that David Cameron announced today is not going to happen for four years. But is that such a bad thing?

If like me, you are serious about getting our country out of the European Union, then you ought to recognise that we are going to need the next two or three years to prepare. We need a campaign structure and organisation.  We need to bring together a national coalition of people and organisations able to command the respect of the whole electorate.

Opinion polls show that a large slice of the electorate might not like the status quo in Europe, but they prefer the idea of a new deal to coming out. What if we were to seek to secure that new deal in good faith, but discover that we can't? What if we were to find out that there is, after all, only one kind of European Union membership on offer?

David Cameron has made it clear that he is going to set out to keep Britain in the European Union by striking a new deal.  But Cameron has also made it implicit that he is not prepared to argue that we remain in at any price.  Besdies, after today it is not his view that will be decisive, but the views of those outside SW1.

The implications of today are massive.  Those who want to extricate Britain from the EU should take heart.

Votes for sixteen year olds?

When MPs want to appear modern and reformist - but have precious little clue about what needs to change - they start talking about giving votes to sixteen year olds.

So guess what? This week in Parliament, a group of MPs will be advocating giving votes to sixteen year olds.

There are many things we desperately need to change to revive our moribund democracy. Lowering the voting age to sixteen is not one of them.

The chief reason our democracy is in such bad shape is not that sixth formers can't vote. It is that those who do already have the vote are often ignored.

Unless you happen to live in a marginal seat, our political system means you can often get taken for granted.

Seven out of ten seats are "safe seats", with no realistic chance of changing hands in a General Election. Many MPs end up answering inward to party whips, rather than outward to the electorate.

Closed, "A list" type selections, mean that the vast majority of voters in many seats have little effective say over who gets to be their MP.

Perhaps worst of all, the Sir Humphreys in Whitehall often determine public policy without reference to - and sometimes in opposition to - those we elect. This means that even if you do elect a representative who shares your views, it turns out that they in turn have very little say deciding public policy. Again and again, it turns out that it is the alphabet soup of quangos that really decides.

Small wonder fewer people bother to vote.

The problem with our democracy is not that children are not treated as adults, but that adults are treated as children.

From global greatness to backwater

This weekend, I almost finished reading John Julian Norwich's masterful History of Venice.

It tells the story of how a small island nation, with a tradition of independence and dispersed political power, rises to greatness. Little more than a mud bank off the coast of Italy, she grows rich through trade and by making things.

Then gradually a self-serving oligarchy takes over. Power is centralised.

Commerce and trade are regulated and nationalised. Those who produce wealth must seek the permission of a parasitic elite. Attempts at reform are defeated by a lazy assumption that things were always done a certain way. A once mighty navy dwindles into nothingness.

Sound familiar? The need for political reform is urgent.

Icy freeze in SW1

I spied these frozen, ice-bound creatures on my way into Parliament this morning.  A metaphor for thinking inside the Treasury, perhaps?

So, where's the growth?

Whether this Friday's economic data shows the British economy is actually shrinking or not, the outlook is not great.

The government continues to add £100 Billion plus each year to the national debt, spending vastly more than the state takes in tax. At the same time, the Coalition has pressed ahead with a massive monetary stimulus programme (low rates, QE) to engineer recovery.

The result of this stimulus policy? No growth.

It is becoming urgent that we understand why.

This administration, like the last, made the mistake of believing that this was just another one of those cyclical downturns. Sure GDP might be down, they assumed, but soon all that spare capacity would facilitate new growth. Don't cut spending too fast, chuck in a little credit to catalyse the recovery, and all would be well. Except it isn't.

Treasury group-think about the economic downturn, and how to respond to it, has been proved wrong. This is not just another of those regular recessions, and it'll take more than the print-money-and-pray approach to get things growing again.

What we in Britain - like many Western states - are suffering from is a long term misallocation of credit. Years of having central bankers conjuring credit out of nothing produced a frothy increase in output – what some economists call "malinvestment". Before we can recover, that froth needs to unwind.

Yet pretty much everything the government has done since the financial crisis, has delayed the necessary readjustments from happening.

Zombie banks have been kept undead, but not fully alive. Cheap credit has been extended, when more costly credit might have helped reduce the level of debt. Consumption has been stimulated, when what we need to do is live within our means.

One person's savings today means someone else's credit tomorrow. In order to ensure that credit is available in future, the government ought to have been encouraging more savings. Yet with low rates, we've spent years doing the opposite. No surprise that the shortage of credit remains.

Before we return to prosperity, we need to confront a fundamental truth. For decades, like many Western economies, our's has grown less competitive. For years, the decline in our underlying competitiveness has been masked by central banks generating mountains of cheap credit. Hence the problem of all that malinvestment.

Outside the Western world, the global economy is booming. We could be growing, too, if only we were prepared to ditch the credit stimulus approach and confront some of the underlying problems of un-competitiveness.

EU-US trade deal - is it going to be used to try to scupper the sceptics?

Last week, David Cameron and Barack Obama discussed Britain's relations with the EU.

Could it be that they discussed the pending EU-US trade agreement, and how it could be used to strengthen the case for Britain staying in?

As I write in today's Sun, I suspect that when he finally delivers his Europe speech, "David Cameron will announce a pending US-EU trade agreement", and invoke it to strengthen the case for remaining part of the EU.

"Years in the pipeline, this US-EU trade deal is going to be used to try to scupper the sceptics.

"Look", the Washington and Whitehall establishment will say, "being in the EU now means that Britain has access to over half the world's market! Quitting the EU would put you on the outside".

Any progress on a US-EU trade deal would be great news. If we had been outside the EU, we could have concluded such a deal years ago.

But the announcement of a US-EU trade agreement does not undermine the case for a British exit. It strengthens it.

If the EU is able to agree a free trade deal with the United States, without America having to join the Single Market, then why not Britain, too? If tiny Switzerland, fast-growing Turkey and the world's superpower can all now have trade access to the EU, without being governed by Brussels, why not us?"

Is Labour planning to arrest the digital revolution?

"We need" tweets affable Labour spokesman, Chuka Umunna, "a proper industrial strategy to promote multichannel retailing, combining online trade with vibrant high streets".

Clear?

I think Chuka was responding to the sad news that HMV is to shut. With more and more folk buying music online, apparently there simply aren't enough of us buying music the old fashioned way.  When was the last time you bought a CD in a shop? When, indeed, was the last time you bought a CD?

But unless Chuka is proposing to restrict online shopping, how might he stop this change in retail patterns? Will there be a tax on itunes? A spotify tax? Will he require people to buy CDs? Of course not.

"It is not" Chuka tweets again "for us to think what we can't do but to ask what can we do to help resolve the situation".

Very Churchillian, but perhaps he might start by reading Chris Anderson's The Long Tail. Ostensibly about how online will transform retail, it might also give him an idea of the forces he is up against if he is going to try to arrest the digital revolution.

Perhaps Chuka and co have thought this all through carefully?  Maybe they have carefully costed plans to tax digital distribution to cross subsidise traditional retail?  Maybe they have plans to make sure that once 3D manufacturing gets going it does not distupt more generic production? Could be.

Or alternatively they've not thought seriously about the future of retail and are simply making noises to appear like they are on the right side?  

There are plenty of things that we can do to help the high street – cut taxes, ease planning rules and restrictions, make things easier for motorists needing somewhere to park. But they are all about politicians and officialdom doing less, and getting out the way.  The idea that an industrial strategy is going to stop the retail revolution taking place around us is fanciful.

Prime Ministers Question Time

I seem to be down for a question today.

Have a quick peek at this 30 second video clip to see what happened last time I asked a question.

Get a sense of humour?  If this article in today's Telegraph is much to go by, I don't imagine they are laughing about it in Downing Street.

But enough of that. What helpful question might I ask about today .... Europe? The economy? Falling living standards? Political reform? Rising food and energy prices? ....

After we're out

Britain's EU membership is no longer a settled question. The great and the good have finally woken up to what my constituents have longer known; the current terms of our membership are unacceptable. Unless they change pretty dramatically, we will quit.

But what would leaving the EU mean? What would things be like outside?

According to a coalition of ex-ministers, failed politicians and corporate lobbyists, life outside the EU would be bleak and lonely. For them, no longer able to suckle off the Euro system, perhaps.

But what about the rest of us? Life would be better outside the EU.

Higher living standards: It is not a coincidence that European countries outside the EU, like Switzerland and Norway, tend to have higher living standards than EU member states. If Britain was outside the EU, our living standards – which have fallen in recent years – would likely rise, too.

How come? Being part of the EU means that UK households are having to pay much higher food prices (to fund the Common Agricultural Policy) and higher energy bills (EU renewable targets). Without these EU imposed policies, food and energy costs could be lower.

A competitive economy: Being part of the single market means that all UK businesses have to comply with EU rules, even if they have no intention of selling to the EU.

How can it be right that a business looking to sell to India or Manchester should have to conform with rules that are supposed to help facilitate trade with Belgium? It makes no sense.

Being outside the EU would mean that UK businesses would only have to comply with all those EU rules if they were looking to sell to the EU. At a stroke, it would remove a massive regulatory burden, and help make UK firms more competitive.

Trade with the world, not just a declining part of it: Last week, Honda announced it was laying off 800 workers. Why? Because the Honda plant produces almost exclusively for the European market, and the European market in car sales declined by 7 percent last year.

This week, Jaguar Land Rover announced it was hiring 800 workers. It produces for markets in America, Asia and the Middle East.

Nothing could better illustrate how our future prosperity lies in trading with the wider world, not just the declining Eurozone. Outside the EU, we would be able to trade more freely with the emerging world beyond.

More democracy: Being part of the EU suits many politicians and officials because it helps insulate them from democratic accountability.

Don't like the way your local council is emptying the bins? That's the Landfill Directive, Sir. Environment Agency ignoring local people? Habitats Directive.

Being part of the EU means that the public has been denied a say over whole swathes of public policy. Indeed, most of our law now comes from Brussels – so much so that our democracy is increasingly moribund.

Once outside, those we elect would make the rules, not remote officials. And they would no longer have excuses.

A lighter state: Bringing power back from Brussels should be but the first step. Rather than leave power festering in Whitehall, we should pass it downwards and outwards – a localist revolution.

Government and officialdom are going to have to get lighter and more nimble. Being part of the EU, with its top down dirigisme, is preventing us from making the changes that we need.

I can't help noticing that many of the most successful countries in the global race seem to be those in which power is dispersed and decentralised. If we want to win the global race, we need to radically decentralise the British state.

Leaving the EU does not mean returning to some imaginary past. It means far reaching change for the better.

Stop this energy racket

Cold weather brings higher heating bills. But for many of my constituents, it is not the weather that's done the most to drive up their bills. It's government policy.

If we had a proper energy market, companies would produce energy in order to sell to customers. Electricity generators would each try a slightly different way of doing so. Some might do so using a bit more shale gas than others. Other firms might use a bit less coal and a bit more wind.

Because energy producers would be competing on price to keep the punters satisfied, we would soon see what was the most effective energy mix. We might even see the kind of technological innovation that has turned the US energy market on its head over the past five years, with cheap shale gas.

But we do not have a proper energy market. Companies produce energy in order to comply with official requirements – such as the decreed that 15 percent of our electricity must come from off shore wind by 2020. Officialdom stipulates how they should generate power. Regulators determine the price and profit margin.

It is a bit of racket. Profits do not seem to come by supplying punters with a product at a price they are willing to pay – but by doing cosy, corporatist deals with government.

Today, the House of Commons exposes a £17 Billion arrangement that will leave the corporate interests quids in. At your expense.

Energy corporatism is giving capitalism a bad name.

Print-money-and-pray orthodoxy is crumbling

Today's "must read" article is Liam Halligan's column in the Telegraph. 

Since the financial crisis first hit, two busted orthodoxies have taken hold amongst the elite who preside over us; the first is that printing money (QE) and monetary stimulus can engineer recovered.  They haven't.

The second is that bank reform means a little bit of "ring fencing" between retail and institutional banking here and there - the "settled" view, according to George Osborne.  Ring fencing won't fix our banks, many of which remain state-dependent zombies.

Regular readers of this blog will know that I have argued consistently that both approaches are flawed.  We need an end to print-money-and-pray economics, and return to sound money and banking (see details of my Banking Bill alternative to Vickers here).

The days of the Osbrown economic consensus are coming to an end.  We are going to need something a little different if we are going to lift ourselves out of this mess.

There's only one kind of EU on offer

"Stay and fight for a better Europe: that has to be the rational approach" writes the Telegraph's Jeremy Warner.

If only the EU, he suggests, became more liberal. If only, it would rein in its "sillier dirigiste forces". If only the Brussels elite did not "routinely ignore the referendum votes of its member states". If only, if only ...

For once I must disagree with my favourite business correspondent. 

Jeremy's "rational approach" ignores the fact that this is precisely what we have tried to do for the past forty years. And failed. How is it rational to keep trying the same thing over and over again and expecting different results?

Staying in and fighting for a more liberal, less rule-bound Europe is precisely what Britain has done for a generation. We have remarkably little to show for it.

Far from being the free market we were promised, the single market has come to resemble a system of economic-activity-under-license. Far from "coming our way", the EU has seen ever more centralised rule making. Back in 2000, Tony Blair assured us that the Lisbon Process meant the EU would be "the most competitive economy in the world" by 2010. Such claims are ridiculous.

Jeremy talks about curbing the EU's "wilder flights of fancy".  But isn't the EU project itself a flight of fancy, built as it is upon the idea that the social and economic affairs of millions of Europeans can best we arranged by grand design.  Look at some of the appalling consequences.

"Reform" writes Jeremy "is generally better achieved from within than by storming out in disgust." That might sound sensible, but where do we see evidence for it?

In recent years, many nation states outside the EU – Switzerland, Turkey, New Zealand, Canada - have implemented far reaching reforms, leaving them stronger and better able to compete in the world economy. Again and again, it has been EU member states who, having delegated decision-making to an inept elite in Brussels, have failed to adapt.

If after four decades we have been unable to reform-from-within, perhaps it is time to consider reform-from -without.

What the US warning about EU withdrawal really tells us

"I wouldn't underestimate the increasing weight of the EU in the world" - US Assistant Secretary Philip Gordon, London, January 2013

Does Assistant Secretary Gordon mean the EU's economic weight? The EU's share of global GDP is down from 36 percent in 1973 to an estimated 15 percent by 2025.

Perhaps he means the EU's military weight? As demonstrated in Afghanistan, Iraq, Kosovo and before that in the former Yugoslavia?

Or does Assistant Secretary Gordon mean the EU's weight of debt, which certainly shouldn't be underestimated?

Mr Gordon's rather clumsy intervention in Britain's EU debate really only tells us two things;

Firstly, the "unthinkable" idea of British withdrawal is now being thought about.

Secondly, the US State Department - like our own Foreign Office - is a repository for all kinds of out-dated ideas and assumptions about the world. Mr Gordon is upholding a long and honourable tradition within the State Department of failing to see which way the wind is blowing (see Collapse of Communism, Arab Spring etc).

We should not be offended. Diplomats who work with supranational institutions rather like the idea that the world should be run by diplomats working through supranational institutions. It does not make them truly representative of their country.

As the referendum draws nearer, all manner of supranational grandees will be wheeled out to tell us we are better off being governed by supranational grandees. Fortunately, they don't get a vote.

Lobbyists for Brussels

As I student, I once had a summer job helping organise a trip to Brussels for a group of businessmen and women.  Going from one meeting to the next, I learnt a lot. Perhaps the most striking lesson was what I discovered about many of the supposed businessmen and women I was with.

I had expected them to be entrepreneurs and wealth creators. In fact, I don't think I met what most people would regard as a real businessman or woman during the entire trip. Most were corporate lobbyist. Rather than send the head of marketing and sales, or the head of product design, the firms taking part had sent along their public affairs people.

I have nothing against corporate lobbyists. But as I watched them schmooze and network in Brussels, I did wonder in what sense they represented UK industry.

Lobbyists are paid to influence. With so many rules and regulations emanating from Brussels, businesses often find that there is much that needs influencing.  The Eurosystem creates a great deal of work for corporate lobbyists, and many of them – unsurprisingly - rather like it. The more single market rules to be drawn up, and the more regulations, permissions and exemptions required, the more their services are needed.

As an EU referendum draws closer, we will be invited to listen to "the voice of business". But will it be the voice of those who design, produce and sell products, and produce wealth as they do so? Or will it be the voice of those paid to lobby in Brussels?

The lobbying industry might not want a looser relationship with Brussels.  That does not mean that industry doesn't. 

Don't call folk scroungers

Those on benefits have seen their incomes increase almost twice as fast as those earning salaries since 2007.

How come?  Because benefits, unlike most salaries, are not automatically linked to inflation. So while benefits have risen in line with rising prices, many of my constituents have had to work longer, for less.  It doesn't seem fair.

That's why today I will be voting to limit benefit increases to 1 percent. But please, let's not talk about "clamping down on scroungers".

If politicians create a welfare system that produces all kinds of bizarre incentives, we should not blame individuals who then act, from their perspective, entirely rationally. If you are looking to blame anyone, blame those who preside over it in SW1. 

Eight years as a constituency MP has taught me that if some folk do keep the curtains drawn as others get up to go to work, its usually turns out that it is government encouraging things to be that way.          

Over the past ten years, the social security budget in Britain has doubled from £60 billion a year to £111 billion. We now hand out more in welfare cheques every year that the entire national income of Bangladesh, a country of 150 million people.

Yet far from alleviating dependency, or encouraging people to do the right thing, our welfare system often achieves the opposite.

We have a once in a generation opportunity to create a welfare system that works. Given the state of our public finances, I don't think we can afford not to.

But it is unfair to blame those the system was supposed to support, who instead end up as its supplicants.

Declining party membership? Not in Clacton

"So have many local party members resigned?" repeated the journalist, willing me to say "Yes".

"No" I repeated "As I said, our local party membership is actually going up".

According to the media narrative, parties are all haemorrhaging members. And without doubt, fewer people now belong to political parties than was the case a generation ago. But it does not have to be like this.

My own local Conservative Association has seen membership grow strongly over the past two years. In fact, we appear to have more members today than at perhaps any point since the 1990s. We also have more young members than for many years.

How come? For a start, we make a point of inviting lots of local residents to join us every couple of months. We host open meetings and informal fish and chip suppers. And we have a constant stream of interesting speakers – Jeremy Hunt, Chris Grayling, Peter Lilley, Nick Herbert and David Davis.

At the end of this month, we have the brilliant young MP, Dominic Raab, talking to us about the steps we need to take to revive Britain.  See here for details.

If you live in our part of Essex, why not come along? 

How not to deal with UKIP

Apparently the strategists who decide these things have come up with a cunning plan. With UKIP polling 10 – 15 percent in the polls, they have hit upon a clever wheeze.

What they propose to do, apparently, is to explain to any one inclined to vote UKIP that doing so will let Labour in. I can hear it now "Don't do it! A vote for UKIP will only let Miliband win".

This sounds like flawless logic if you spend most of your time in SW1. Or if, like most Westminster strategists, you have never actually fought and won an election in a swing seat.

But those of us who have will spot one fundamental flaw; voters so despise politicians, imploring someone not to vote for "X" in case it lets in "Y", is a pretty certain way of guaranteeing their support for "X".

What better way to annoy some politicians, eh?  "You mean it will make them very cross, eh?"

No. Having retaken for the Conservatives in 2005 a seat where one in ten people once voted for UKIP's precursor, the Referendum Party, I think the only effective way to deal with UKIP is to campaign for an In / Out referendum.

House returns

The House of Commons is back tomorrow. Usually feels a bit like first day back at school.

New haircut. (Mid) term report saying "must try harder".

Sir Humphrey rules. It is sad, not funny

David Cameron could not have been clearer. Back in February 2006, he made it clear that the House of Commons should have the ultimate power to decide if Britain should go to war.

"The time has come to look at those powers exercised by Ministers under the Royal Prerogative" he said. When government makes important decisions – like "going to war, or agreeing international treaties", there ought to be a "formal mechanism for consulting the nation's elected representatives".

This announcement didn't come out of the blue. It was part of a coherent approach to reform; Parliament was to be made more accountable to the people, and government was to be made more accountable to Parliament.

Cameron understood – like Tony Benn before him - that Crown Prerogative powers were not simply some sort of quaint historic hang up. They often serve to shield the Sir Humphreys from democratic scrutiny. Without change, the Whitehall machine could continue to run itself, making its own appointments, and carrying on regardless of what those we actually vote for think.

So guess what? The Sir Humphreys hate the prospect of change.

If we were to give the Commons the ultimate say over whether we go to war, what next? Those pesky MPs might challenge the appointment of mandarins?  That tight little circle of Permanent Secretaries that really runs Whitehall might have to start to explain themselves. 

Unsurprisingly, in today's Times, we learn how "officials have struggled to draw up a Bill" (how do they manage it in Holland or the United States, eh?). And various grandees have been lined up to tell us how irresponsible it would be to let those we elect decide such things.

The self-serving Whitehall machine is now moving to quash attempts by the elected government to implement a reform for which it has a democratic mandate. This is how our country is run.

Crony corporatism and the railways

Another year, another series of inflation busting rises in rail fares. The cost of a season ticket in our part of Essex is going up much faster than salaries – meaning a real squeeze in incomes.

For many of my constituents on the Essex coast, rail fares are, in effect, a tax on employment. In order to have a job, they have to fork out a sizeable chunk of their take-home pay just to be able to get to and from the office.

There is something profoundly wrong with the way we run our railways. It is not that we have privatised the railways.  Train services are run by a mixture of Big Government and Big Business, instead. Crony corporatism, not free market capitalism.

We have created a world in which the regulator, not the customer, is king. Instead of entrepreneurs competing to offer customers rail journeys at a price they are willing to pay, corporations set prices as licensed by the state. Rail bosses constantly justify price hikes on the grounds that the regulator allows it, rather than because the customer is willing to pay.

Back in the Middle Ages, monarchs granted privileges and monopolies to various crony interests. It seems bizarre that we seem to use the same model to run the railways in 2013. The whole rotten corporatist edifice, presided over by the (inept) state-planners at the Department for Transport, needs to be dissolved.

Common Market or quit - what does it actually mean?

Contrary to expectation, it seems that we Eurosceptics agree.  Far from fractious, the main body of Eurosceptic opinion has now come together behind a common position; either the UK should revert to a Common Market relationship with the EU – or we should quit.

Having a Common Market relationship with the rest of the EU would mean no more British MEPs or Commissioners or UKREP. We would no longer be subject to the jurisdiction of the Euro courts. Laws made by those we elect would take precedence over those churned out by Brussels.

But let us be clear what Common-Market-or-quit does not mean. It emphatically is not the same as Single-Market-or-quit.

If we were to withdraw from the Eurosystem, but remain part of the Single Market, we would have to conform to all manner of rules and regulations made by the Eurosystem. It is not just that we would have no say in making such rules (not that we have much say now). Nor is it just that many so-called Single Market rules – such as the 48-hour week – are actually social and employment law masquerading as Single Market measures.

The real problem with retaining a residual requirement to conform to Single Market rules, after withdrawing from all the rest, is that UK firms would still have to conform to Single Market rules even if they have no intention of exporting to the Single Market at all. It has become a pretext to introduce growth-sapping regulation.  It has given a license to corporatism, where big companies lobby to fix the rules to their advantage.

Approximately 80 percent of all economic activity in the UK is UK focused. About 20 percent is export focused. Of that 20 percent, less than half – about 8 percent - is focused on exporting to the Single Market.

It is bizarre that we should have to comply 100 percent with Single Market rules when only 8 percent of economic activity is EU orientated.  Why must an Essex-based firm have to comply with European Single Market rules even if it has no intention of exporting to Europe, but is looking to sell to India, China, or Norfolk instead? To be globally competitive, this has to change.

We Eurosceptics understand this. Let's hope those formulating government policy in Whithehall do so too.

How to modernise

They're right, of course, these modernisers.  We Conservatives must, as the excellent Matthew D'Ancona reminds us, be "broad in appeal and generous in outlook". A national coalition, not a narrow interest group.  In tune with how the country is, not nostalgic for a past that never was.

The trouble is that beyond a handful of generalities – "decontaminate" the brand, more votes in the north, support from minority groups – there never seems to be much specific about how to make it all happen. Maybe modernisation is more than just a PR problem?

Perhaps successive Tory leaders – Hague, Howard, Cameron – have failed to comprehensively modernise the Conservative party because while they knew what change was needed, they  have not always have a detailed sense of how to make it happen?

Here are a few helpful suggestions.

1.  A broader range of candidates drawn from wider backgrounds; Diversity does not mean having the party hierarchy impose shortlists of candidates with identikit views. Real diversity – of background, heritage, outlook, opinion – can best be achieved by giving every local person a direct say over who gets to be their Conservative candidate; proper open primary selection.

We've only ever used proper open primaries on three occasions – to select Boris as our mayoral candidate, then Sarah Wollaston and Caroline Dinenage.  In their different ways, these have proved to be three remarkably good choices. Imagine if we were to select every candidate that way? Too expensive? Nonsense. It could be done without costing the taxpayer a penny extra.

2.  Surf the wave of anti-politics; Like it or not, anti-politics is one of the defining characteristic of the electorate in contemporary Britain. A modern Tory party should specifically target those millions of voters who have lost faith in politics-as-usual. Offer them citizen lawmakers, rather than professional politicians as candidates.  Give them a real power of recall, popular initiative and more direct democracy.

3.  Embrace technology; Harold Wilson embraced the "white heat of the technological revolution", shortly before he reverted to the crudest form of economic collectivism imaginable.

Tory modernisers also like to see themselves as techno hipsters. Yet for all their talk about "Silicon roundabout", many seem not to grasp how the digital revolution will allow the public to control public services. 

A pro technology party would have a much more pro aviation policy and would have an energy policy based on innovation, not subsidy.

4.  Be more effective in office; In the 1980s, politics was a choice between socialism and capitalism. Today, it is a choice between steady-as-she-sinks Whitehall managerialism or public service reform that puts the public first. Even Tony "scars-on-my-back" Blair came to recognise this.

It is, therefore, very bad news that, as Iain Dale puts it, "the majority of cabinet ministers seem to have been taken prisoner by their civil servants". We need to urgently make ministers and mandarins outwardly accountable, with public confirmation hearings and annual select committee approval for Whitehall budgets.

5.  Lance the Europe boil; Europe has been a running sore that has divided the party for a generation. So offer the people an In / Out vote to settle the matter.

6.  Immigration – don't talk, act; For years modernisers said that we shouldn't keep on talking about immigration.  I agree – instead of talking about it, now that we hold office we should actually do something about it. See Australia for details - then do it, so we can talk about other things.

7.  A free market party; The government's approach to the economy has changed very little since Gordon Brown was running the Treasury. Osbrown economics means using monetary stimulus to try to engineer growth and endless rounds of QE.

Too much corporatism will make us a party of crony – rather than free market – capitalism. This will be a disaster politically, not just economically.  Nothing will be more toxic to the Tory brand than the idea that we are the party of corporatist fat cats and rent seekers. We need to give serious thought to the free market alternatives to avoid this.

I hope that this time next year we Tories are not still banging on about how to be modern – because we just are.  Happy 2013!

Glory be to dappled things ...

Stour wood on a winters day. 

It is, as Gerard Manley Hopkins might have put it, full of dappled things

Cheer up! The world is getting better

We Conservatives are sometimes full of doom and gloom. We talk as if the world is going to the dogs. It isn't.

Sure, the national debt is set to double over the course of this Parliament. And on many of the key issues of the age – climate change, energy policy, Europe – the politico-mandarinate class are simply wrong. But despite all that, things were still much better in 2012 than they were in 1971, the year I was born.

Here are half a dozen random things that I think show the world is getting better:

1.  Internet broadband allows us to watch and listen to whatever TV and music we want, when we want. I love being able to look anything up on Google in an instant. Back in the old days, it was Encyclopaedia Britannica, four TV channels and Radio 1 – or nothing ....

2.  Less deference – there is much less deference to politicians, media pundits, officials and other "experts". After all the dreadful public policy choices that "experts" have made on our behalf, I think this is a thoroughly good thing.

3.  Mobile cameras – Years ago, I'd be lucky to have a 24 picture film in my camera. As a consequence, my camera was locked away and only taken out on special occasions. Today, I have a phone camera with me all the time, and take zillions of photos of friends, family, the three year old and the puppy.

4.  24 hour supermarkets – being able to go to Tesco any time of day or night is one of the miracles of the modern age.  If only the things government ran were as customer focused .... 

5.  Good news from Africa – I grew up in one of the poorest countries in Africa. All the key socio-economic indicators were moving the wrong way. Of course, Africa still has enormous problems.  But the news is no longer consistently bad. In fact, in terms of infant mortality, education and security, things are vastly improved. Each year, millions of Africans join that vast global network of specialisation and exchange.

6.  Britain is less boozy – This has happened so recently, few seem to have noticed - particularly politicians, who are still thinking in terms of minimum pricing and other ways to nanny us. Yet the facts show clearly that alcohol consumption in Britain amongst young people has fallen dramatically over the past decade.  Why? Who knows. My own theory is that young people stopped drinking quite as much around about the time that internet broadband gave young people an alternative to going down the pub (see 1. above).

7.  Cheap travel – The price of air travel has come down. Despite the best efforts of politicians and officialdom to not build new airport capacity and to tax tickets, it remains possible to fly around the planet for a fraction of what it cost a couple of decades ago. Glorious.

8.  Cleaner environment – despite some of the loopy claims of the eco fundamentalists, the environment is actually cleaner than it was. Fewer nitrates in the water table. More otters and cormorants. Hopefully GM technology will allow us to produce more for less, to the point where we might even be able to set aside a lot of land for conservation, rather than farming.

What is it about the world in 2012 that you think is getting better?  Blogs?  Blog comments?  Over to you ....

Three cheers for Sir Richard!

He should, of course, have become Speaker of the House of Commons. That, at least, is what I thought when I voted for Richard Shepherd to be Speaker following the resignation of Michael Martin.

Sir Richard is everything that an MP should aspire to be. He has diligently served his Aldridge-Brownhills constituents since 1979. At a time when Parliament became supine and spineless, he has again and again shown principle and backbone.

That he lost the whip over Europe, because he could see where a single currency was going to end, is a compliment to him.

While many MPs spend their time in Westminster ingratiating themselves with ministers and the front bench, Sir Richard has done as an MP should; holding the executive to account. Perhaps more than anyone I have met in SW1, he understands what Parliament is for.

Knighthoods so often go to Westminster toadies and yes-men. Not in this case, I am delighted to see.

On Frinton beach

A wintery, watery sunset on Frinton beach this afternoon, with a cold wind blasting in across the North Sea. 

Glorious.

Bank reform? What bank reform ....

Remember how the banks went belly up - and we all had to rescue them? Remember how politicians promised real reform, as they handed over billion of pounds in bailouts?

Several years on and frankly not a lot has changed. Many banks remain zombies, dependent on vast state handouts. And as for reform, there's been a lot of talk ... and not much else.

The Vickers report recommended some kind of separation between retail banking (where ordinary folk put their money) and investment banking (the supposedly more high-risk kind of banking).

The idea behind a Vickers-style division is good - your money, put for safe-keeping in a bank, shouldn't be at risk from all that other stuff that bankers do.

Yet how complete a separation should this retail / investment split be?  Almost total, think most MPs, according to today's FT. A sort of separation, say the Treasury team.

I'm unconvinced either way. Why?

A retail / investment banking split is basically about trying to safe-guard small retail customers from the worst excesses of fractional reserve banking - that process that allows banks to lend endless multiples of credit against actual deposits.

Any effort to rein in the excesses of fractional reserve banking will fail unless it deals with the legal ambiguity that lies at the heart of our banking system; is the money you pay into your bank a loan or a deposit?

Instead of a distinction between retail and investment banking, we should look to draw a clear line between money that you place in a bank, expecting the bank to look after, and money that you give to a bank against which they might conjure up credit.

It is the fact that banks can conjure up credit multiple times, against the money that retail customers pay into the banks, that means that retail customers need protecting in the first place.

Two years ago, I presented a Bill designed to ensure not a vertical separation between retail and investment banks, but a horizontal separation between deposit accounts and loan accounts.  Two years on, I reckon it makes a lot more sense than anything proposed by Vickers or the Treasury.

Bank customers paying money  need to make it clear if the bank was able to conjure up credit against their money or not. Not only would this give punters security, but it would rein in the worst excesses of fractional reserve banking.

Banks that were badly run would find more and more customers declaring their accounts to be deposits, rather than loans, thereby forcing up the banks reserve ratio and preventing the bank from generating vast mountains of candy floss credit.

It is not a retail / investment banking split that we need, but a clear distinction between money paid to banks as a deposit, and money paid in as a loan.

The price of being in the EU

How much does it cost us to be part of the EU?

There are, of course, all manner of hidden costs - red tape, high external tariffs, bad governance.  But one of the direct costs is the UK's contribution to the EU budget.

The EU elite would like to increase our net budget contributions to over £9 billion each year (the red block). 

That is much more than the entire police pay budget (£8.2 billion), or the amount we pay our armed forces (£7.5 billion).  It is not far off twice the amount we spend on special needs education (£5.8 billion).

Of course, we have had to largely freeze - or even cut - the amount we spend on police pay, the armed forces and education.  Yet the greedy Eurosystem keeps on demanding even more of our money. 

Why don't we just quit the EU? 

Government will have to get smaller and more efficient

That, at least, is the conclusion of a paper by the Boston Consulting Group, Ending the Era of Ponzi Finance.

Highlighted by Kamal Ahmed in the Telegraph, the paper makes for some sober reading.  It is not just that the West is up to its neck in public and private debt. The West's entire Big Government model is bust.

We can't go on like this, you might say.

The trouble is that few politicians seem to know what to do about it – UK levels of public debt continue to soar. Few appreciate the link between unsustainable debt and our disastrous monetary policy.  Nor do they seem to have much of a clue as to what a slimmed down state might look like.

Many SW1 types still see the argument for a smaller state in terms of sentiment - something that we may or may not want.  Our politico-media class has yet to understand that that less officialdom will become a mathematical necessity. No one in Greece voted to reduce the size of the Greek state – yet it is happening anyway.

Here in the UK, government spent something like £30,000 commissioning public services for each family this year.  What if next year there was only £27,000 or £19,000 to spend?

In my book, the End of Politics, I argued that public administration could be made vastly more efficient if we allow a system of self commissioning for certain services.  The digital revolution could allow us to get more-for-less.

At some point, may be in 2014, perhaps not until 2018 or 2019, the bond bubble will burst.   The borrowing will have to stop. The money that government was expecting to be able to spend the following month won't be there.

They may not be big on small government in SW1. But how we manage with less government will be one of the big questions in the months and years ahead.

Anti-politics in Italy

Last week, Italy's Corriere della Serra ran a feature on my new book, The End of Politics and the Birth of iDemocracy. I've been taken aback with the response.

Amongst those getting in touch was something called Movimento 5 Stelle - or the Five Star Movement.

What is Five Star? I'm not sure, to be honest. 

Spear headed by popular blogger Beppe Grillo, Five Star seems to be part online popular protest movement and part experiment in direct democracy. Perhaps it is what would happen if Guido Fawkes were to start running candidates?

Like Germany's Pirate Party, Five Star might turn out to be another flash-in-the-pan manifestation of popular disenchantment with old school deferential democracy. Having selected via online primaries a hundred or so parliamentary candidates for Italy's pending elections, Five Star may get nowhere. It will be intriguing to see how their candidates perform.

Yet here is a thought; why do we have political parties?

First and foremost, to aggregate votes and opinion.

But what if the internet allows us to aggregate votes and opinions without the need for conventional political parties? 

Winter solstice

Only six months to go until mid summer! 

I can understand what made our ancestors in our pagan past want to party at this time of year.  Once the solstice has passed, we are through the worst.  

Sure, there may be snow and ice to come.  But at least the days are now starting to get longer.  Only a couple more months before the first hints of spring. 

Today's Energy Bill is a disaster in the making

Today the House of Commons will be debating the Energy Bill.   It is a disaster in the making – both economically and electorally.

Having signed up to renewable targets during the boom years, the governing classes realise that we will never meet those targets without massive subsidy. So rather than repeal those renewable targets, today's Bill puts in place a system of expensive subsidies. 

No longer will energy companies compete to produce energy at a cost that customers are willing to pay.  Instead, customers will have to stump up more money to allow big corporations to produce what the man in Whitehall thinks is renewable.  Credit bubbles, shale gas, Euro disaster - is there nothing the Whitehall elite don't accurately foresee?  

Forget the economic madness of further increasing energy costs at a time of declining Western competitiveness.  Set aside the system of crony corporatism that the Bill puts in place. In purely electoral term this Bill is daft.  

Far from helping strivers, today's Bill hits them with a massive hike in living costs.   

Adding a few hundred pounds a year to one's bill might not seem much to the SW1 elite.  But it is a lot of money to many of the folk I represent, who are struggling with fixed incomes and rising prices.

This might look like a smart move amongst the smart set in London. They won't see it that way in marginal seats in a couple of year's time.

Tax migration is coming to stay

As they lurch from one public policy disaster to the next, our political elite keep spending money that they do not have.  Rather than restrain themselves, they prefer to put the blame on irresponsible businesses for not paying enough tax.

If you listened to the SW1 people over the past few weeks admonishing Amazon or Starbucks, you could be forgiven for thinking that we are in an economic mess because businesses do not pay enough tax.  The economy is not in a mess because companies don't pay enough tax, but because officialdom spends too much.

Had we sensible public administrators, they would first work out how much revenue taxes brought in, then work out how much we could afford to spend.  Tragically, the governing class that our moribund democracy produces prefers to work out how much they would like to spend, then helps themselves.  

Because the Whitehall elite puts the spending cart before the taxation horse, they come to see any tax cuts as being "unfunded" - but somehow not the spending committments.  Treasury spin doctors are quick to dismiss talk of "unfunded tax cuts".  When did you ever hear them say the same about raising our overseas aid spending to 0.7 percent of GDP?

For thirty of the past thirty six years, the British state has lived beyond the tax base, running deficits by borrowing or manipulating the money supply to get by.

That's the bad news.  The good news is that perhaps this won't really matter anymore. 

The Western model of government is bust.  When the bond bubble bursts, not only will officialdom no longer be able to live beyond the tax base.  The tax "base" is itself becoming more fluid.

As I argue in today's City AM, we are moving to a world of tax migration.  However much the SW1 people might rail against it, wealth is increasingly created through the exploitation of intellectual property - and intellectual property is mobile.

How, in such a world, will governments manage to raise revenue to pay for all the things that governments currently do?  How indeed.  Perhaps they won't.  

A lucky escape?

"We would all rather have dinner with Ken Clarke than with Douglas Carswell" writes that grandest of grandees, Bruce Anderson.

He's right, of course. I'm just not terribly fashionable among well-dined Westminster sorts.

For a start, I hold a number of views that sit awkwardly with the Westminster chatteratti; that the Keynesian-Monetarist economic orthodoxy is bankrupt; that we need an In / Out vote of Europe; that those in SW1 should be made more accountable to those outside.

Like a character in a Bateman cartoon, I have this rum habit of .... well ... coming out and saying it.  If you tend to see politics as a common room lark, I suppose those who have earnestly held beliefs must seem a little gauche.  

And besides, is there nothing about swing voters that Pall Mall pundits don't know?

I glory in the thought of all those missed "dinners" with Bruce and Ken. Those hours not spent at the Beefsteak. The time saved not listening to Westminster commentators recycling one another's thoughts.

Central bankers can be dangerous to our wellbeing

They've failed to meet their inflation target for years. Yet instead of recognising quite how awful
the Bank of England has been, what do we do? Give them more power.

The idea that we should abolish "inflation targeting", and set the central bank free from any obligation to properly control the money supply is dangerous.

Even with that narrow remit, our central bank stoked up a massive credit fuelled boom in the years before 2007 – 08. Then came the crunch – and still the credit-crazed quangocrats kept pumping funny money around.

As they've conjured billion of pounds out of thin air, the value of the pound has fallen sharply against almost every other currency on the planet.

If that wasn't bad enough, without an inflation target remit, central bankers would become even more activist, using monetary policy as a tool to try to engineer prosperity.

Look at their record. What could possible go wrong?

It is not the central banks inflation target that we need to abolish, but the notion that a state agency should be rationing credit in the first place.

Wake up Westminster - and see what press regulation looks like

It is good to know that if we ever had a system of government press regulation, government officials would never use it to try to deal with pesky journalists. Of course not. Never.

That is the sort of thing that they do in tin pot dictatorships.  Not proper countries, you understand.

And, of course, any press regulator would be "independent", you see. Just like the Financial Services Authority – who oversaw the banks.

The panel of Grandees running it would be very wise. Rather like the wise men at the Bank of England who set interest rates. 

So, you see. Nothing to fear from press regulation at all, comrades.

Tax base? What tax base?

In order to raise enough revenue, governments need to tax wealth creation.

For much of the past hundred years or so, that basically meant taxing factories. Governments could either tax what industry made, or tax those who worked in the factories, or both.

It is relatively difficult to move a factory from one tax jurisdiction to another. So unless government tax demands were excessive, government tax collectors in an advanced industrial economy could count on there being a "tax base".

In the digital economy, however, wealth is created less in factories and more via the exploitation of intellectual property. How do you tax intellectual property?

Google and Amazon have recently been accused of failing to pay their fair share of tax. Such disputes tend to boil down to a set of arguments about which tax jurisdiction intellectual property is being exploited in.  (And which, incidentally, help explain why there do not appear to be any magic "loop holes" that the Treasury can shut off in order to solve the problem.)

Unlike factories, you see, intellectual property is hyper mobile. Tax it too much in one jurisdiction, and it will move to another.

Instead of a nice, solid, dependable tax base, therefore, perhaps we are moving to a world where the tax base becomes fluid? Draw to heavily from it, and it will flow away elsewhere.

At this point, folk often pipe up by asking "But if that turns out to be so, how will we manage to pay for all the things that government does?" How indeed.

Austerity?

Here is a graph that shows UK public spending each year since 2000 (in constant prices).  Click on it for full details.

It rather puts all that talk of austerity into perspective.

Clearly there have been some cut backs. But overall, the reduction in public spending is pretty small. The Coalition's great austerity drive does not even take us back to 2009, the year before the Coalition came to office.

In 2010, public spending was £660 Billion. In 2015, it will be £728 Billion – an increase of almost £70 Billion.

According to this week's Spectator, government spending in Ireland is a third down from its peak.  In Greece, 20 percent down.

Of course, no one in Ireland or Greece stood for election promising those things. The laws of maths made it happen.

So might the laws of maths mean that we, too, are one day forced to make a similar kind of retrenchment?

Outrageous? Unthinkable? The UK government continues to spend £100 billion more each year than the state takes in taxation.  And the laws of maths a universal ....

We need a post-Monetarist approach to economics

A significant piece by Jeremy Warner in today's Telegraph shows that the mood amongst the commentariat is starting to shift.

"Two and a half years into the new Government" he writes "we seem to be no nearer getting on top of Britain's debts, or even its deficit, than we were at the start."

Indeed.  If it wasn't for the G4 auction windfall and the QE funny money accounting, some reckon that the deficit this year would be higher than it was last.

Jeremy concludes that "What we seem to have is a kind of "New Labour-lite" approach to government in which the Treasury constantly shrinks away from what really needs to be done."

I prefer the term Continuity Brown to "New Labour-lite", personally.

What Conservatism - and the country - urgently needs is a new economic critique, based on a post-Monetarist analysis of the economy.  We ought to be looking for way of dealing with the chronic malinvestment that is holding back the economy, rather than keep adding to it with more cheap credit. 

Real Tory modernisers would be asking how we might tackle the underlying decline in competitiveness, rather than dismissing demands for tax cuts and deregulation as a "right wing" obsession.

Instead we have an approach to the economy that has barely changed from when Gordon Brown was in charge. 

Autumn statement? Tinkering will not work

Today's Autumn Statement is likely to see various wheezes unveiled. Money will be made available to boost capital projects, we're told. £5 billion that would have been spent on one part of the public sector will be spent on another, apparently.

All good stuff, I'm sure. But look at the bigger picture.

The national debt (two left hand columns) will double in just five years, getting ever closer to total annual economic output.

Against all that, the expected £5 Billion to boost output by building infrastructure (almost invisible right hand column) looks kind of piddly. (Speaking of infrastructure, how's airport policy coming along?)

Far too little has been done, thus far, to renew our economy.

Where is the bold supply side reform? Where is the radical overhaul of our Byzantine tax system? The Eurozone might be flatlining – so where is the shift in trade policy to enable us to better access the fast growing global economy beyond?

Whitehall's approach remains much as it was under Gordon Brown; a reliance on cheap credit and monetary stimulus, a misplaced obsession with demand and a mistaken belief that corporatism is free enterprise.

The Treasury prescription remains wrong because so much of their diagnosis remains flawed. Team Treasury still do not appreciate that it was cheap credit and malinvestment that landed us in this mess. And that it was cheap credit that explains why, for a generation or more, we've over consumed (lots of shopping malls) and under produced (not so many factories).

Years of cheap credit was used by successive governments to mask declining Western competitiveness. Until we face up to this, there is little chance that we can begin to address the underlying problems of uncompetitiveness.

Let's hope we hear about a bit more than a few tax tweaks or corporate handouts this afternoon ....

Are we sure Gordon is not still lurking inside the Treasury?

Remember what things were like when Gordon Brown was at the helm? Remember how he'd find new ways of spending money he didn't have?

One of his favourite wheezes was to put big ticket spending items on the government equivalent of a credit card – PFI, or the Public Finance Initiative.

This meant he could commission lots of super duper new schools and hospitals and ships – but not actually pay for them out of current tax revenue. 

Instead, the contractor would agree to supply them in return for a guaranteed slice of future tax revenue. No need to seek permission from today's taxpayers. Just send the bill to their kids.  How we Tories used to complain.

Tomorrow will see the current Chancellor unveil something called PF2 - the successor to PFI.

PF2 will, according to Treasury spinners, save us gazillions. Except it won't. This continuity PFI scheme is continuity Brown - it will continue to cost us billions that we don't have.

The Treasury's new "buy now, pay later" scheme shows that far from learning to live within the tax base, the government seems determined to carry on living beyond it. Through PF2, we will be signing over yet more unearned, future tax revenues to giant corporate interests.

The government hasn't merely left the PFI taps running. They seem to be doing so for the worst sort of reasons.

According to Robert Winnett in the Telegraph, the Treasury sees PF2 as a means to "kick-start the economy" by allowing "construction to be ordered now but paid for over several decades."

Got that? The Treasury is using Gordon Brown's "buy now, pay later" scheme not only to provide public services, but to provide a Brownian-type fiscal stimulus, too.

Are we absolutely certain Gordon is not beavering away, unnoticed, in some forgotten corner of the Treasury?  I've not seen him in the Commons for a while, and so much of what does come out of the Treasury seems to have his finger prints all over it ....

The week that Osbrown economics failed

On Wednesday the Chancellor will confirm what many of us long suspected; the Coalition will fail to meet its own deficit reduction targets.

By 2015, not only will UK public debt have approximately doubled within a single Parliament, but we will still be adding to it.

Who'd have guessed? Well, pretty much anyone who cared to count, rather than recycle Treasury spin, actually.

But it is not simply a case of Team Treasury maths not adding up. The problem has been their misplaced assumption that growth would ride to the rescue.

How come Team Treasury got it so wrong on growth?  Because they've retained an essentially Brownian view of what produces prosperity.

Gordon thought easy money was pretty much all that was needed to produce an endless expansion to the tax base, which he could then siphon off to fund more government.

So, too, the current Treasury team. Easy credit was supposed to conjure up growth - raising with it the additional tax revenue needed to make the maths add up.

There's only one small flaw in this Osbrown way of thinking; more cheap credit does not make us rich.  It does not produce prosperity or mean more tax revenue.  Thus has the Coalition - like Gordon - ended up spending money it does not have on a gargantuan scale.

We need an alternative to this disastrous reliance on monetary stimulus. The Treasury needs to recognise that years of excessive credit did not make the economy strong. It produced chronic malinvestment. Until that malinvestment has unwound, growth will be sluggish.

To prosper, Britain needs not more cheap credit, but to be made more competitive. For two and a half years, too few minds in the Treasury have been even thinking along these lines.

Nothing has been done to curb non-wage labour costs, which continue to rise faster here than in the Eurozone. Energy costs have been allowed to rise to levels that make it hard for anyone in Britain to make a living making things.

Even now, when Team Treasury does at last grasp what the shale gas revolution might achieve, what do they propose? Their response to shale gas has been quintessentially Brownian – its all about tax breaks and complex corporate handouts. Not enough emphasis on just getting government out the way.

It is not the constraints of Coalition that are holding us back, but a lack of ambitious, radical thinking inside the Treasury.

Another day. Another quango? I hope not

Just look at the evidence ....

Thousands of foreign students have remained in Britain illegally because the UK Border Agency failed to act.

For years, the Bank of England's Monetary Policy Committee, has dismally failed to control inflation.

For a decade, the Financial Services Authority smothered City institutions with all kinds of compliance rules - but somehow forgot to ask the really basic questions that might have saved Northern Rock et al.

Everywhere you look we are governed by quangos - so much so that the public now has little say in deciding public policy.

Yet it is precisely because all these wretched quangos are "independent" that they are unaccountable. And because they do not have to answer meaningfully to anyone, they turn out to be inept and useless.

There's no one demanding to know why the UK Border Agency is apparently so administratively incompetent. No one is challenging all the lazy dogma about monetary stimulus at the Bank of England.

Government by quango does not work. It is a recipe for public policy disaster - and for Britain's slow, pathetic, terminal decline into mediocrity.

The idea that we should now create a press quango is not simply wrong because of the implications for press freedom. It is desperately sad because of what it tells us about our body politic. Is this the best that they can do?

I've not yet read the Leveson report, but I fear that it will call for yet another quango. Yet another state agency to do to the press what the FSA did to the banks. Or what the UK Border Agency has done for immigration control. Or what the Bank of England did to end boom and bust.

Surely we deserve to be governed by something bigger and better, and more animated, than this sort of washed up thinking?

Do we need IPSA, the Independent Press Standards Agency?

On Thursday, Lord Leveson delivers his verdict on the press; to regulate or not to regulate?

Being a democracy, it will be for those we elect, not for His Lordship, to then decide what we actually do.

So, should we MPs go for it? Tempting, eh?

A tougher code. Statutory rules. Policed by an Independent Press Standards Agency, or IPSA, for short. After all, if IPSA is good enough for MPs, surely it'd be good enough for the press, eh?

However much MPs might privately think like that, we should resist the temptation at all costs. It would be wrong to impose any further top down accountability over the press.

However pesky, unfair - and at times infuriating – we politicians might find journalists, a free society needs a free press. We need the press to poke politicians. Challenge assumptions. Prick egos.

My beef with the press is not that they do these things, but that they don't do enough of it. Too many hacks are too accepting of conventional wisdoms – which turn out to be hollow. I don't see how more top down regulation will make the press any better at holding the political elite to account.

Already the politico-media elite are too cozy, too chummy. More regulation, with all the attendant barriers to entry it would inevitably spawn, would make pet pundits more tame. There would be fewer outsiders and upstarts, asking awkward questions.

Top down regulation would fly in the face of technological change, too.

Would this humble blog, for example, be covered by any new statutory rules? If not, then why not? Imagine the comparative advantage an unregulated blog site might have against big newspaper websites?

And if this blog - and the gazillions like it - were all to be covered by a new regulator, would it not be grotesquely illiberal?

We live in a world in which we all now publish things. In such a world, we need not more upward accountability, but actual accountability to one another.

When those who publish things do wrong, they should face not a remote quango, but those they have wronged. And face them with a view to trying to put things right.

Germany, Europe and the digital revolution

I started the week on Andrew Marr's Start the Week. The only chap on the panel, I think I was the only non-German, too.

Listening to the wonderful Gisela Stuart, the Oxford don Karen Leeder and EU commentator Katinka Barysch talking about changing German attitudes towards Europe was fascinating.  And encouraging.

Asked about my new book, I suggested that the digital revolution dooms the gigantism on which the European Union has been built.

The EU is only rational if you hold a set of "Big is Beautiful" assumptions about geopolitics, economics and government. The digital revolution is turning such assumptions on their head.

Until now, I suggested, we have tended to defer to various elites to decide things. Only they – based in national capitals or, increasingly in Brussels - had access to the information and expertise to make the right decisions.  Or so we were told.

The trouble is that the elite, being for the most part intelligent and rational people, tend to overestimate their ability to arrange human social and economic affairs rationally. The designers tend to have too much confidence in their ability to do things by design.

For Europe, the consequences of trying to arrange the social and economic affairs of millions of Europeans by grand design have been catastrophic.  It is not just the Euro.  Europe's economy is stagnating, public policy sclerotic.

My suggestion that the elite – who I defined as "politicians, broadcasters, academics and experts" – were pretty hopeless at arranging human affairs was met with a pinch of scepticism by the panel. Which consisted of a politician, broadcaster, academic and expert.

The Coalition could have been so different

It could have been so different.  A Conservative-Liberal Democrat coalition not only ought to have worked—it could have been transformative. By fusing together Conservative ideas about the free market with the Lib Dem tradition of political radicalism, the government could have become a watershed administration. 

Alas, we've ended up with Continuity Brown economics, a lack of real political reform and government by Sir Humphrey. 

The possibility of radical reform walked out of Whitehall with Steve Hilton. 

Read the full essay in December's edition of Prospect magazine.

How should we deal with knife crime?

This coming Tuesday, I've managed to secure a Parliamentary debate about knife crime in Westminster Hall.

Local people in my constituency are concerned about knife crime after a spate of nasty incidents. There's a strong feeling that enough is enough. 

Something needs to be done.  But what?

Raising awareness is great, but some might say local people are only too well aware of the problem.   I fully support the noble efforts of campaigners and local schools to spread the anti-knife message. Yet we also need to see something substantial from the criminal justice system.

First, the police need to use the considerable powers they already have to stop and search more people.  Difficult.  Time consuming.  A lot of hassle.  Yes, it is all of those things.  But it needs to happen. 

Secondly, those found to be carrying a knife need to be prosecuted. Not cautioned, but charged.  The current fashion for cautioning, rather than charging, wrong doers must be brought to an end whenever an offensive weapon is involved. 

A generation ago, many people thought it was okay to have a few beers before driving. Then the police started to stop and breathalyse drivers.  Those found to be over the limit were charged.

Attitudes soon changed.  Today drink driving is seen as a complete no no. We need the same sort of response in Clacton to change attitudes to carrying a knife.  Carrying a knife must carry a risk. 

Most important of all, the response has to be local.  This is all about a specific set of priorities to deal with specific concerns about knife crime in Clacton.

If the Clacton solution works, then others should feel free to emulate it. What we must not have is a bland, generic, it's-all-about-PR, non-response.

Bank reforms change very little

It's now four years since the banks started to go belly up. There have been no shortage of politicos telling us we need "reform".

But what reform?

Apart from handing over billions of pounds in bailouts to the banks, what has actually changed? Remarkably little, it seems.

To be fair, the international Basel banking rules were tightened up. This means that banks that lend out massive multiples of any money that they actually have on deposit have had to lend out a little less.

What about the Vickers report? This report by the great and the good calls for a (yet to be implemented) separation within banks between retail and institutional operations. I am not sure that that will mean. Nor, I suspect, do the "experts". Would it have prevented the systemic failures that we saw in 2007-09?

Once again, our political elite seem to be drawing up policy in the belief that they can arrange human affairs by grand design.

A much wiser approach might be to recognise that they do not know what shape banking we need, but allow organic change.

At the heart of our broken model of banking sits an ambiguity; is the money people pay into their bank a loan or a deposit?   Until folk opening a bank account are required to clarify if what they are paying in is a loan to the bank, to be lent on by the bank multiple times, or else a deposit, kept safely, we will not solve the problem.

All that Vickers does is create a horizontal division between retail and investment banking within institutions.  What we need rather is a vertical separation within banks between money lent to them and money deposited with them.  I introduced a Bill in Parliament to do precisely this a couple of years ago. 

Properly run, trusted banks would thereby see more customers prepared to pay money into the bank as a loan, not just a deposit. This way they would automatically have a lower capital ratio.  Well run fractional reserve banks could be more fractional, so to speak.

Badly run banks that we did not trust would find fewer punters willing to pay in loans, and thus automatically have higher capital ratios. 

In other words, it would be far less likely that fractional reserve banking would run out of control and bring down the banks. Now that would be real reform.

BBC's Book Talk

Did I mention that I have a book out?  

BBC's Book Talk interviewed me about The End of Politics and the Birth of iDemocracy ....

... and why it would make such a great stocking filler to get someone for Christmas. Apparently.   

The web means people power

As an MP, my advice surgeries are an opportunity for any constituent to come to see me about pretty much anything.  They've given me a number of insights, not least a sense of how the internet is giving people power.

Take just two examples from last week.

An elderly man came to see me because he has, for months, been lobbying a state agency to release information as to the whereabouts of someone he wanted to get in touch with.

Set aside whether the data protection rules that prevented this from happening were right or wrong. Overlook the question of whether this is something an MP should get involved in.

What I thought striking was that, opening up my lap top, my constituent and I were able to search online and get a name and address within a matter of minutes. Instead of begging a government organisation to provide the data, my constituent (after a crash course in Google) was able to get it himself.

A few moments later another constituent told me how a child had been taken ill in their family. In the time it took the child to be seen by a specialist, the family had been able to make a correct diagnosis. How? The internet, again.

Of course many will recoil at the idea of self diagnosis online. There's a lot of alarmist, inaccurate nonsense on the web, particularly when it comes to matters medical. But the fact is that obtaining information and asking questions online allowed this family to get their loved one the right treatment faster than if they had stood in line and waited for the analogue experts to deliver their verdict.

When we seek answers online, we are not asking a giant super computer that stores the sum of all human knowledge. Instead we are harvesting the knowledge of millions, skimming a vast reservoir of insight and wisdom.

"Wisdom?" you bridle. "A lot of what is online is anything but wise".

Absolutely. But in aggregate the web is surprisingly wise – not least when compared to the wisdom of experts.

Before the internet, we lived in a world where the great repositories of wisdom were those with a monopoly of knowledge.  Government departments, officials and experts knew - so they decided.

What is so revolutionary about the web is not merely that raw data is aggregated, but sentiment, too.  Everybody will be able to draw on this vast, collective brain to make decisions and live their lives.

It will change more than just MP advice surgeries.

Twitter and the law

Back in June I proposed a Bill to "provide bloggers and tweeters with some protection against being sued".

Why? I reasoned that the law on libel and slander had developed in an age when very few people ever published anything. Today, millions of people blog and tweet.  I feel that the law needs to reflect this.

To be clear, people absolutely do need protection from libel and slander.  But under my proposal, those who blogged and tweeted could have – in certain circumstances - a 48 hour period of grace before legal action could be taken.

Not many folk agreed with me back in June. I wonder if more do so today?

Taxpayers lose on bank bail outs - SHOCK

Remember all the assurances we were given at the time?

The bank bail outs were an "investment", they said. We weren't just saving the world, we lucky taxpayers stood to make a profit. Apparently.

It turns out to be nonsense.

A report out today by the Common's Public Accounts Committee talks of "monumental failures". Billions of pounds that were extended to the banks won't be seen again.

The officials put in charge of Northern Rock, RBS and Lloyds seem to have compounded many of the problems. Poor management seems to have been replaced by chronic mismanagement.

Nationalised industries, poorly run? Who'd have guessed?

The bank bail outs turned out not to be such a wise investment after all. As some of us pointed out at the time, if you can't get private citizens to put their own money into something, it's not very likely that putting public money into it will pay big dividends.

The key question is not did the bail outs make a profit, but did they actually save the banks? The financial crisis is far from over. I'm not sure the bail outs even fixed the banks.

Digital means less deference. Good

Trust is in retreat, writes City AM's Allister Heath.

In 2003, 81 percent of us trusted BBC news journalists.  Today, a mere 44 percent.   It is a similar picture for senior police officers (down from 72 per cent to 49 per cent), senior civil servant, bankers and politicians.

This is, argues Allister, a Bad Thing, since trust is the glue that holds together a "complex network of voluntary associations ... conducive to commercial cooperation".

I agree with Allister – but, for once, only sort of.

Yes, we need lots of connectedness to thrive and prosper – the wider and more intricate that network the better. It is this connectedness that allows humans to not only specialise and exchange. It gives us a collective intelligence, allowing us to do (and be) things we could never manage on our own.

Far from breaking down, we are witnessing an exponential increase in human connectedness. Our collective brain is getting rapidly bigger – just do a quick Google search, and imagine how long it might have taken you to gather up all that information twenty years ago, to see what I mean.

Rather than becoming atomised individuals, living in lonely isolation, the digital revolution will bring us closer together in all sorts of weird and wonderful ways.  We will be able to organise ourselves together not merely on the basis of geography, but on the basis of shared outlook, common interest and collective ambition. 

The internet is a sprawling network of organic and spontaneous design, without a central, directing authority. It will make us much less deferential to authority figures trying to centrally direct us.

Instead of looking to BBC journalists to interpret current affairs for us, and direct us towards a particular point of view, for example, we have begun to realise that the man on the telly might be full of subjective biases and preconceptions - just like anyone else. So we no longer take as gospel truth his analysis of the banking crisis or climate change. Good. Nor should we.

We have begun to recognise more vividly, too, that some MPs don't always put the interests of their constituents first. Nor are all bankers paid their bonus by grateful customers seeking to reward them. Nor does everyone working in the criminal justice system put the victims of crime first.

We cease to trust blindly because we can at last see.  We can see things as they really are, not how those at the top would like us to percieve them to be.   

So we begin to demand greater accountability.  This is a good thing. Or rather, it is bad for elites who would rather remain unaccountable. It is great news for everyone else.

Surprise! Central bankers miss inflation target

The Consumer Price Index rose from 2.2 percent in September to 2.7 percent in October.  Another one of those one-off blips, we will no doubt be told.

The trouble is that we seem to get an awful lot of these one-off inflationary blips. They happen so consistently, you need to go back years for a time when the Bank of England managed to achieve its 2 percent inflation target.

Instead of sagely informing us that this latest inflation increase is "above expectations", isn't it about time that the churnalists started to ask "whose expectations?"   Or challenging the folk doing all that misplaced expecting?

"But" I hear you think. "this increase in inflation is due to food price rises. You can hardly blame the Bank of England for that, can you?"

But why on earth do you think food prices in UK shops have risen? Might it perhaps have something to do with the fact that the Pound Sterling has lost value such that you now need more of them to buy stuff from overseas?

Five years ago, £1 would have got you almost Aussie $ 2.2. Today? Aussie $ 1.52. Back when print-money-and-pray economics began, £1 could be exchanged for more than US$ 2. This morning? US$ 1.59.

Ever since the Bank of England started conjuring QE money out of nothing, our currency has been falling in value against everything from the Euro and the Yen to the Bulgarian Lev and the Latvian Lat.

The Pound Sterling has fallen in value over the past five years against almost every other currency on the planet, with a handful of exceptions.

If you persist with print-and-pray economics, perhaps you should expect both internal and external devaluation?

Cheer up! Things are getting better

It can seem a little depressing, can't it?

We are in the midst of a historic shift of power and capital from West to East, yet our politico-media elite lurch from one bout of self-absorption to the next.

Instead of contemplating a post-Euro future, they spent months obsessing about phone hacking.

Tens of millions of people are joining a global network of specialisation and exchange - surely one of the greatest stories of our time?  Yet today SW1 folk seem obsessed about the inner workings of the BBC.

Western wealth creators are becoming an endangered species, yet the political-media elite lie prostrate before the cult of Climate Change.

If they weren't quite so self-absorbed, these are some of the real news items they'd be focused on:

• China's latest verified reserves of natural gas have risen by 30 percent - in a single year.  China is not only experiencing industrial take off.  Technological innovation means it looks increasingly likely that she will have access to the energy required to fuel it into the future. Sound familiar to any student of the industrial revolution in this country?

• In the US, the shale gas revolution means a stable, abundant supply of energy, making the US relatively more competitive. US dependence on foreign energy imports has gone into dramatic reverse. Big implications, no?
• Aqua culture take off. Within my life time, we have moved from a world in which most of the fish we ate was hunted, to one in which it will be mostly farmed. This could mean far more protein-rich food for million – indeed, billions – of people around the planet. Even bigger implications?

Driverless cars .... genetic engineering.... the list of improvements happening around the world is awesome. It is set to make the world a much, much better place.

Global GDP is growing faster now than at almost any time in human history. And – despite the bumps along the way – it is set to grow even faster. We are moving to a world of – in historic terms – unprecedented abundance.

So why not in Britain?  Why are so many game-changing advances passing us by? Why, at a time of rising living standards across the globe, are UK living standards falling? Why, when billions of cubic feet of gas lie trapped in the rock beneath us, are energy prices rising?

Rather than real business stories, in a parody of self-absorption, I see the BBC Business editor is today focused on what one senior BBC manager apparently said to another.

But cheer up. We might have a self-regarding political-media class presiding over us. Things will get better despite, rather than because, of their myopia ....

Don't blame democracy for Big Government

"Pure democracy is dangerous" warns Ron Paul. It means the "majority dictating to the minority", and leads to the inexorable growth of Big Government.

For once I disagree with the sage of Texas. I fear the great man is repeating the mistake many small state conservatives make when he sees democracy as a danger, rather than an ally against the overbearing state.

Firstly, the history doesn't fit the democracy-made-government-grow theory. The United States had mass - albeit imperfect - democracy from the 1830s. Not only did the masses not vote for redistributive government, they specifically rejected it.

If, as everybody seems to think, democracy made government grow, how come the most anti-democratic state in Europe - Prussia - pioneered Big Government interventionism? Why, as England grew more democratic in the nineteenth century, did the state become less redistributive?

It was not the extension of the franchise that made government grow, but the invention of unequal taxation, and the elite concealing the cost of more government from the rest of us.

Between 1908 and 1913, successive Western states adopted so-called progressive income tax. Government has grown in every decade since.

Once not everyone thinks they have to pay the bill, they feel free to start ordering up more expensive government.

To be sure, governments have also grown by spending without taxing, living beyond the tax base by borrowing and manipulating the money.

The growth of Big Government is less a story of people voting for a redistributive state, and more one of officialdom siphoning off more resources to officialdom through cost concealment.

Come to think of it, wasn't it precisely to prevent monarchs and ministers doing that that we invented Parliament and Congress in the first place?

The answer to Big Government lies not in rejecting democracy, but modernising it to rein it elites who have learnt how to subvert it.

What do the US election results tell us?

Historians sometimes tell us more about their prejudices and preconceptions than they do about the past.

So, too, political pundits.

Take the recent US election as an example. Over the past 24 hours various expert opinion formers have been quick to project on to events what they want to see. They seek vindication for their views in events that are largely unrelated.

Obama's narrow win was a water shed defeat for small government conservatism - according to those opposed to small state conservatism.

Another pundit seems to have suggested that Romney's defeat was a rout for "the Eurosceptics". I had no idea that Romney was proposing to pull out of the EU.

We keep being told that with a Democrat in the Whitehouse and Republican Congress, there'll be "grid lock". Perhaps what that really reveals is that UK pundits tend to presume that government must do more.

Nor have I yet heard why, if the American election was indeed such a "water shed", those pesky small state Republicans are left controlling the House of Representatives at all.

Until a few years ago, we had to listen to an aristocracy of pundits recycling the same views, based on the same presumptions. One of the glorious things about the internet is that it has freed us to think for ourselves. And not just about the implications of American election results.

We admire you, Mrs Merkel

"What should David Cameron say first to Mrs Merkel?" asked the journalist.

"How did you manage all that growth?" was my reply. "Talk me though your mini jobs revolution".

Although Angela Merkel's visit to Downing Street has been overshadowed by discussions about an increase in the EU budget, our PM should also find time to ask Frau Merkel about Germany's labour market reform and supply side liberalisation.

Germany, despite having to comply with EU law, has liberalised the labour market through a "mini jobs" revolution. Folk can now take on part time work without having to pay the tax man much of what they earn, and without having to comply with endless labour law.

So guess what? Not taxing and regulating work means that there is an awful lot more work in Germany than before.

Even more importantly, while non-wage labour costs in the UK are rising, in Germany they are not. In other words, Germany is becoming relatively more competitive globally than we are.

Having our own currency is a good thing. Being able to devalue has been essential. But it should never become a substitute for making the kinds of reforms that we will need to prosper in future.

Our chancellor could learn much from the German Chancellor.

The case for out

Oi! Quango. Leave the Brethren alone!

Britain is, we like to think, a free and tolerant society. We're each able to do our own thing - provided it doesn't impinge on someone else's freedom to do theirs.

So why are state officials threatening to strip Brethren church groups of their charitable status?

The Brethren have been going since at least the 1820s. They've fewer than 20,000 members and one or two distinct beliefs.  

Yet the Charity Commission has taken umbrage because the Brethren fail to provide "public benefit", apparently.  They are to be stripped of their status.  Such bureaucratic bullying is not, as the excellent Charlie Elphicke, MP for Dover suggests, compatible with religious freedom.   

To be sure, the Brethren do tend to keep themselves to themselves. But so do many other faith groups I can think of. Will they, too, be told that they fail to provide a "public benefit" too? Must a faith proclaim its message is universal in order to satisfy Whitehall officialdom that it qualifies for charitable status?

Religious freedom means – amongst other things – allowing practitioners of a faith to decide for themselves who is, and who is not, part of their denomination. In other words, they can be as exclusive as they like.

The Charity Commission is imposing a state dogma of uber inclusivity on to a religious group that chooses to be moderately exclusive. Not very Big Society, is it?

Once again, when state officials make a decision on what constitutes public interest or benefit, actual members of the public – such as those Brethren who live in my part of Essex - have no say.  If the Brethren fail to tick all the Charity Commission's boxes, change the Commission and their boxes.  

Instead of replacing one quango chief with another, we need to overturn the dogma that says it is any business of state officials to be sitting in judgement of faith groups in this way in the first place.

I thought we had sorted this all out in the seventeenth century .....

Bank reform: what a Conservative government ought to do

It's five years since the credit crunch struck, and almost as long since we started bailing out banks. Some would argue that we've never really stopped. Many UK banks remain as dependent on state handouts as any welfare junkie.

To be sure, banks have been asked to tighten up reserve ratios. And the Vickers report has reported.

But, as of this precise moment, what has changed? Not a great deal. Even once the Vickers recommendations on "ring fencing" are a reality, I am a little sceptical that it will make a positive difference. Why?

The implications of a vertical separation between retail and investment banking have not been thought through. The old banking architecture, with all the self-evident design flaws we now know about, will be replaced by a new architecture, with future evident flaws.

Much wiser than an arbitary vertical separation between types of banks would be a horizontal divide within banks. Draw a line to distinguish between loans and deposits within each bank.

Under such a scheme, state liabilities would be clearly defined. Different banks would have reserve ratios decided for them by the customer - who'd do a much better job than those "experts" at the FSA or the central bank.

I first presented this proposal to an incredulous House of Commons here.  See how they headed for the exits. Literally.

Reflections on a turbulent week in Westminster

Last week, the House of Commons instructed ministers to seek a real terms reduction in Britain's EU budget contribution.

Predictably, BBC-types have tended to analyze what happened in terms of either "Tory splits" or "Labour opportunism". In doing, they miss a bigger point.

It's not merely that there was a Eurosceptic majority in the Commons for the first time in a generation.

The Commons itself has got off its knees. Those we elect as Members of Parliament are behaving as Parliamentarians, not front bench toadies.

For forty years, almost regardless of which party had a majority, the Commons left the deal-making to the mandarins. Last week, those we elect said "enough". The legislature made it clear they will not merely rubber-stamp deals made in its name. Not only is there to be a bottom line, the Commons has made it clear, it will decide where that line is.

In doing so, the Commons demonstrated that it has little faith in UKREP, and those diplomatic deal makers who we have too long left to speak in Brussels on our behalf. Tory front bench claims that Labour allowed run away rises in our budget contributions when in office are undermined when you consider that it is almost precisely the same diplomatic deal-makers at UKREP now advising ministers.

To have confidence in a deal, you need to have confidence in the deal-makers.  But what confidence can we have in the Europhile mandarinate who negotiate on our behalf?

One reason Britain has got such a bad deal from Europe is that those cutting the deals are not properly answerable to the people. They have little appreciation of the national interest beyond their cozy world of Whitehall.

They see their role as splitting the difference between what one lot of "here today" politicians want, and what the Euro system will allow.  Unelected, mandarins have zero appreciation of what it is like to have to win over hard pressed voters.

We need a head of UKREP that answers to Parliament. Imagine how much more confidence we might have in any EU budget deal if head of UKREP sat in the Cabinet and answered to Parliament?

Imagine how much more fiercely UKREP might fight our corner if it was run by someone who knew what a marginal seat looked like?  Or better still, who owed their position in public office to swing voters?

Ministers and mandarins would be wise to think about this.

Who voted for Howard?

Few things depress me more than reading Howard Davies in tonight's Evening Standard.

Recently put in charge of a Whitehall-appointed commission to decide on future airport capacity, Davies' article is designed to reassure. It has the precise opposite effect on me.

What gets me down is not just the bureaucratic delay – Davies and co won't report until 2015, when we need a decision asap.

Nor is it his technocratic presumptuousness - Davies claims that his experts will have more than "just opinions".  Unlike the rest of us mere mortals, I guess.

No. What really gets me is the idea that it should be people like Davies making this decision in the first place. Who the heck ever voted for this man?

Didn't Davies once oversee financial service regulation as head of the FSA? Didn't he once have something to do with the London School of Economics? 

How could anyone have anything other than complete confidence over how we are making one of the most vital public policy choices facing the country.   Carry on, Whitehall.  Steady as she sinks ....

A constituent speaks

This morning, I received an email from a constituent.   It began like this ....

"Dear Douglas Carswell,

As a 73yr. old pensioner receiving just £77 per week state pension and still having my savings taxed,I resent any of my money being taken from me (without my consent) to be squandered by the unelected bunch of ( "ne're do wells) in Brussels."

Quite.

Even Ed Balls' Labour party recognises that at a time of cutbacks, we should not be giving more to Brussels.

I might think of myself as Eurosceptic.  But just imagine what my opponents might hit me with in my local constituency if I was to vote in favour of this £4.3 Billion increase in our EU budget contribution ....

EU budget vote; a simple choice

Tomorrow night, I face a clear choice as an MP;

a) Vote the way the Whips say I should - and approve an inflationary increase in the EU budget through to 2020, which will see the UK net annual contribution increase from £9.3 Billion to £13.6 Billion, or

b) Vote the way my constituents would want - and make it clear that at a time of belt tightening, the right thing to do is reduce the EU budget, too.

"But Labour supports the amendment!" I hear you say.

This amendment is a Conservative amendment, drawn up by Conservative MPs, reflecting the concern of my constituents. If even Labour realise that we cannot give more money to the EU, I am certainly not going to.

"If this amendment goes through, won't the EU just get an annual budget subject to QMV?" warn others.

If we put the government motion through the Commons tomorrow without the amendment, we'll get above inflation budget increases for seven years – and be unable to do anything about it.   Do I want to vote tomorrow to give the EU seven years license to take more of our money?

According to the European Commission, if the agreement for funding fails, there will be fewer EU programmes. "Organisations benefiting from EU funding" says a Commission briefing paper "would face sever drawback". Yep.  In other words, less Eurocracy. I'll vote for that.

It is a straight forward choice.  £4.3 Billion more for Europe or a real terms cut.   I will vote for the real term cut. Simple.

What do you mean the Greek crisis isn't fixed?

Apparently Francois Hollande is on his way to Berlin as part an international delegation to demand that Germany underwrite yet more debt as a way to "rescue" Greece and the Euro.

This latest plan has been put together by a socialist French President, the head of the World Bank, and Christine Lagarde, who as French finance minister presided over years of fiscal fecklessness.  

What could possibly go wrong?

Lucky Angela Merkel gets to meet them on Tuesday.

I hope she points out that every time there is a bailout, far from "rescuing" anyone, Euroland only seems to get sucked further into the mire.  

Hezza's growth plan? corporatist calls for corporatism

Lord Heseltime's plan to stimulate growth apparently calls for more money for LEPs. More R&D via tax credits. A bigger RDF ....

Who knew prosperity could be so easy?  You simply add to the alphabet soup of officialdom, and - hey presto! - we will be rich.

Hezza's plan sounds suspiciously like a corporatist wish-list.   Lots of grand plans - and confidence in the ability of grand planners.

But if regional quangocrats produced prosperity, we'd already be booming.

There's no shortage of officials drawing salaries in the belief that they can produce economic growth.  There just never seems to be much actually growth to show for it.

Haven't we heard this sort of thinking before?  Didn't we have decades of cheap credit and monetary stimulus - which landed us in this mess - precisely because public officials presumed they could engineer prosperity?

What we need is a report that recognises that prosperity is what happens when we get public officials out of the way.

Britain is getting poorer because we lack competitiveness, not because we are short of corporatist quangos.

If you ask a rather grand corporatist to write a report on stimulating growth, don't be surprised if it turns out to be full of grand corporatism.   I do hope that someone thought of this before they asked Lord H to write it?

The case for out

Today is the day that the House of Commons at last gets to debate quitting the European Union.

Thanks to the power of the blogosphere, for the first time for years the SW1 people will be asking questions that folk up and down the country have been mulling over; why are we part of the Euro club?  Would we be more prosperous outside?  What would self-government feel like?  And why did we sign up at all?

I expect to open the debate soon after 1 o'clock.  Do tune in and watch, if you can.  

Let's see who they line up to read out the Whips office questions,  eh?

The fish farming revolution

One of my great interests outside of politics is aquaculture.  I was thrilled to be able to spend this morning at the London Biomarine Convention listening to some of the great minds in the business. 

For most of human history, most of the fish that we ate was caught from the wild.  Over the past generation or so this has begun to change, and we are getting to the stage where soon most fish will be farmed.  This could be transformational stuff, providing a source of cheap protein to millions of people much the way that innovations in poultry farming did in the mid twentieth century. 

All sorts of fascinating innovations are starting to happen.  Instead of feeding farmed fish chopped up wild fish, folk are finding alternative sources of protein.  Techniques that once caused mega environmental harm are being replaced by farming methods that produce more for less, with minimal damage to the eco system.

While acquaculture is taking off worldwide, alas in Europe the sector has stagnated - except of course in non-EU Norway.  Why?

Perhaps it has something to do with the fact that it apparently takes an acquaculture project in Europe around three years to get official approval.  In Vietnam it takes three months.

Politics again, eh ....

Book launch at #iDemocracy - join us on twitter

Did I mention that I'd written a book?  No?

Well it is launched tonight at an event in London.  You can follow some of the chatter surrounding the event at #iDemocracy on twitter.  I will be holding an event in my constituency this Saturday, too.

Or alternatively, do feel free to post a comment below.

For those of you who've not yet had time to read it, Charles Moore kindly reviewed it here.  And I provide a short summary of some of the key points in this piece in the Evening Standard.

A Bill to quit the EU: debated in the Commons this Friday

William Hague has apparently told the Germans that disillusionment with the EU is "deeper than it has ever been". No kidding.

We Brits, apparently, feel that we've had "no say". Perhaps those who view the world from King Charles Street have analysed something correctly for a change?

This Friday, my Private Members Bill to get us out of the European Union is – by a stroke of luck – second item on the Order Paper for the day. Unless the Whips office mount an operation, there is a realistic chance that the prospect of quitting the EU will be debated on the floor of the Commons.

Far be it from me to bang on about Europe, my Bill was, of course, chosen from me by thousands of readers on Guido Fawkes website. Crowd sourcing, you might say. All very modern and Silicon Roundabout.

You can read the draft Bill here. You can watch the debate on Friday. Do email your own MP and ask them to attend the debate.

Elected Police Chiefs?! You'll be wanting to elect those who make the law next!

We keep on being told what a disaster the Police and Crime Commissioner elections are going to be.  

"Not enough information" say some. "Too few people going to vote".  "No one will stand" announce others.  "Boycott them" suggests daft Ian Blair.

Thanks to the internet, it has never been easier to find out about those standing for public office.  If you want to do a bit a research on those standing in the November elections where you live, have a look here.  And don't just see what they have to say, ask them a question directly through email.

Of course, not every candidate for the job will make the effort to push a leaflet through your letter box.  Some might not manage to mobilise the team of local helpers you need to win elections.  A shame, yes.  But perhaps that of itself tells you something about the candidate and what they stand for.

It may well be that voter turnout is low.  20 percent?  50 percent?  10 percent?   But what percentage of people had any say over how the police were run before? 0.0001 percent?   

And as for the idea that no one will stand, I see that Alun Michael, former first minister in Wales, and Tony Lloyd, have just quit Parliament to run for the job. 

Many of the candidates standing for the role are not even household names in their own homes.  But who saw Rudy Giuliani coming?  Some of those running in the November elections will become household names throughout Britain. 

Just because we are not used to something, it does not mean that it is not a good idea. And merely because something is not perfect, it does not mean it is not better than what went before.

'Right up there with the Communist Manifesto'

View the article here

According to Dominic Lawson, I'm not only the "most unruly and subversive" member of the Commons, but my book is a "revolutionary text ... right up there with the Communist Manifesto".

Unlike the Communist Manifesto – or indeed any other manifesto – my book argues not for some grand design in human social and economic affairs. We've had far too many of those.

Instead, I suggest that technology means we're entering an age when human affairs will not be arranged by grand design at all.  No more need for the grand designers, either.

Bad news for politicians and other parasites. Great news for everyone else.

Still wedded to the idea that we need government-by-grand-design? Think West Coast Rail fiasco .... 

In / In Referendum? Don't be so silly

The Prime Minister is, we're told, coming round to the idea that there needs to be a referendum on the EU.  Good.

If you stop and think about it, it'd be surprising if he wasn't.

A large chunk of the Cabinet, and most Conservative backbenchers, want one. The voters are four to one in favour. Along with the two other parties, under his leadership, we promised one before the last election.

Plus, of course, there's the small matter of the rest of Europe fusing into a fiscal-monetary core (Good luck with that, by the way, guys).

It is obvious that if the PM does offer us a referendum, then of course it cannot possibly a choice between a) staying in or b) staying in on different terms. That would be absurd.

Downing Street staffers are not daft, and if they gave this impression they must have mis-spoke.

After forty years of denying the people a say, for ministers and mandarins to then say the voters could have a choice – but between two versions of "in" - would lack credibility outside SW1.  Three or four years ago, it might have stood up, but if it was announced as our position now it would pretty soon look and feel absurd. 

Any vote will have to be a binary choice between a) membership on different terms or b) no more membership.

I am sure that those at the top understand this.  I reckon even Homer would understand it.

Frack away!

Gas and heating prices are rising. Many of my constituents are struggling as a direct consequence.

Why? Is it because of the beastly energy companies? Or perhaps because of rising demand around the globe?

Not really. Energy prices are rising in the UK largely because of wrong public policy choices made by successive governments

In pursuit of "green energy", hefty subsidies have been added to every energy bill. Targets and quotas have forced companies of comply with what officialdom decrees, rather than invest in giving the punter what they want. 

Like the Eurozone crisis, high energy prices are a man-made problem.

The solution? As so often in human affairs, technology comes along and re-writes many assumptions. 

Just as North Sea oil appears to be running out, it turns out that we are sitting on billions of tonnes of gas trapped inside shale rock.   Vast, almost unbelievable amounts of the stuff, I'm told.  Allow entrepreneurs to use the new technology, and get officialdom out the way, and it will be like having several North Sea oil bonanzas all over again.

In the United States, where there are fewer one-size fits all bureaucratic rules, this shale gas revolution has transformed things. America's shale gas revolution is transforming her economy, giving her a massive new source of cheap energy. Geopolitical assumptions are changing too, since she is less dependent on various nasty regimes around the world.

It is great news that the UK government has given the green light to fracking – the process for extracting shale gas. France, on the other hand, has apparently banned the process entirely.  Guess who is going to be more likely to prosper?

We must remain in the Single Market, right?

"The Prime Minister's view" says an un-named Downing Street spokesman "is that it is in our national interest to be part of a Single Market."

"That's right", I hear you say. "We might not want all that political union stuff, but it's good to be able to trade freely with the EU".

I agree that we want to be able to trade freely, but what makes you think that being part of the Single Market means free trade with the rest of the EU?

If the Single Market was a free market, any good or service produced in the UK could be bought or sold throughout the rest of the EU. But the Single Market means a good or service produced in the UK can only be bought or sold at all if it complies with a standardized set of rules.

Far from liberalising economic activity, the Single Market rules proscribe activity unless it conforms with an official's idea of what that activity should look like.

Out of all the economic activity that takes place in Britain, about 80 percent is based around internal trade. Of that 20percent of economic activity that relates to outside trade, slightly less than half – i.e. about 9 percent of total economic output – relates to trade with the EU.

Being in the Single Market, therefore, means that our economy must comply 100 percent with rules brought in to supposedly facilitate intra-EU trade, yet only 9 percent of economic activity is dependent on trade with the EU.

You have to comply with EU rules even if you are producing something that you have zero intention of selling within the EU.

Surely, it would be better if those firms and businesses wanting to trade with the EU conformed to EU standards, and the other 90 + percent of economic activity could carry on unhindered by the extra red tape.

Isn't that pretty much what China, Switzerland and much of the rest of the world do? They seem to have market access.

Sunday Times seems to have my role back to front

I've recently been contacted by a journalist from the Sunday Times running a story tomorrow about dodgy dealing in defence procurement.

They seem to be implying that I've been part of some sort of covert lobbying operation run by a former defence chief.

Regular readers of this blog will know that the idea I have been lobbying on behalf of any vested interests is absurd. It has my role precisely the wrong way round.

No other MP has done as much to challenge the way in which vested interests try to carve up the defence budget. See here or here - or see my proposal for a Bill to reform defence procurement here.  No other MP has more frequently made the point that the defence budget seems to be spent in the interests of the defence contractors, rather than the armed forces. See here.  I've banged on about the way MoD chiefs go off to work for private contractors and ran an FoI campaign on the subject.

I even got thrown off the Armed Forces Parliamentary Scheme shortly after raising questions about who was funding it.

It is absurd to imply that I might have had contact with academics, civil servants, soldiers or contractors, other than in pursuit of this long running campaign to ensure greater transparency over how we spend the defence budget.

I don't ask questions about defence procurement because contractors get in touch. Contractors – alongside a whole range of interested parties – often get in touch because I have an interest in defence procurement.

Of course, I made these points to both Jonathan Calvert and Heidi Blake of the Sunday Times.

Let's see if what they publish tomorrow reflects any of this.

Thought for the day

If government did your weekly shopping, they'd most likely run off with the change.

You'd then be made to stand in line to collect what you'd paid for. And when you did finally get to the front of the queue, you'd discover the officials had got not what you wanted, but what they thought best for you.

So if we're not willing to let government buy our groceries, why do we leave it to them to buy our kids education, or family health care or social care for our elderly relatives? Why can't we use our slice of taxpayer money to commission the services we need?

Too complicated? Government can't even run the West Coast rail franchise. The fact something is complicated is hardly a reason to leave it to officials.

Besides, letting folk do their own shopping is complicated. But guess what? We all pretty much end up with the stuff we want.

Unfair? Nonsense. Allowing everyone to self-commission more services will give all of us the sort of choices that today only rich people have.

Digital technology is going to allow a lot more self-commissioning because it will allow us as individuals to make complex choices simply.

The debt crisis will force government to think in such terms because only this kind of structural change is going to enable us to maintain the level of services people expect.

Another reason to love Mrs Merkel

The more I hear about German Chancellor, Angela Merkel, the more impressed I am.

Other Western leaders have been swept along with the fad for stimulus economics. Frau Merkel has encouraged far greater fiscal and monetary restraint.

Other leaders have looked for quick fix solutions; cheap credit, raising demand. The German leader has instead done something to tackle the underlying problem of competitiveness. Her "mini job" boom has reduced German non-wage labour costs at a time when they have risen in Britain.

Now we learn that Frau Merkel told those proposing a merger between BAE Systems and European defence giant, EADS, to get stuffed.

Frau Merkel is being "blamed" for the BAE/ EADS deal falling apart. The rest of us should cheer her.

Why? Whatever her reasons for saying "no", it appears that she, not the permanent officials that surround every Western leader, is calling the shots.

Contrast that to what seems to have happened in our own country.

When news of the deal became public, it seems that a lot of powerful people in Whitehall had already been squared. Extraordinarily, reports appeared in the press suggesting that Jeremy Heywood, the head honcho in the Cabinet Office, had been lobbying ministers to support the deal.  When did anyone ever vote for Sir Jeremy? They didn't? .... so why is he apparently deciding public policy?

Who, besides backbench MPs, was willing to say "no" to the deal?  Who in Whitehall was willing to not only stand up for the national interest, but to even recognise that we have one?

It was left to Angela Merkel to say "no".

"But what is going to happen to BAE now?" you ask. Perhaps if it was broken up, like the banks, we might get a bit of choice and competition in defence procurement?

Why do bad ideas come from the top?

What do Fannie Mae, urban tower blocks, low interest rates and the Euro all have in common?

They were, in their different ways, all pretty disastrous.

But more than that, they were projects based on the grand designs of experts and the elite.

Each of these innovations in housing and monetary policy were the product of those who, in thrall to various intellectual fads, believed they could achieve human social and economic progress by design.

Those who hold that human economic and social affairs are best arranged by grand design might see themselves as part of an avant garde.  They end up leading the rest of us off a cliff.

My new book explains why elites prove so bad at making public policy – and what we need to do to stop them lurching from one public policy disaster to the next.

What do you mean no growth?!

Having given the economic patient the stimulus medicine that the IMF prescribed, it seems that the IMF is now downgrading UK economic growth forecasts.

There's been lots of stimulus economics. Just not much growth to show for it.

Ever since the credit crunch first unfolded, Treasury ministers have responded with so-called monetary stimulus; low interest rates, handouts for banks and billions of pounds of funny money through QE.

Far from engineering growth, ministers are instead testing monetary stimulus to destruction - much the same way that successive Chancellors in the 1970s tested fiscal stimulus to destruction.

Politically, the key question is who is going to be sitting in the hot seat when, as happened in 1978/79, it eventually becomes clear the orthodox approach isn't working? Who'll get the blame once it becomes clear that print-and-pray monetary policy is a disaster?

Economically, the key question will be what does a post-Monetarist economic policy look like?   Government, it seems, is no better at managing credit and money than it is at anything else.  The big idea of the British left seems to be that we revert to pre-1976 Keynesianism.  All this suggests to me that it is only a matter of time before Austrian school economics goes mainstream. 

Tough questions if we want living standards to rise

In 1900, the average American spent $76 out of every $100 buying food, clothing and housing. Today?  They spend a mere $37 out of every $100 on such basics.

Its been a similar story in England and throughout the wider West, too.  

It might not feel like it, given the recent squeeze on living costs, but over the past hundred years or so, this "more-for-less" has been the norm.  We not only get to spend a smaller portion of our incomes on food, clothing and housing than our great great grandparents did.  Thanks to technology and human ingenuity, the quality of the clothing, food and housing, in almost every respects, been vastly better.

"More-for-less" explains why Westerners have enjoyed an extraordinary rise in living standards in recent generations. Because we are able to spend a proportionately smaller share of our income on the basics, we have, generally, had more to spend on other things - items our great great grandparents might have regarded as unimaginable luxuries.

There has, of course, been one great exception to this "more-for-less" rule;  when we buy government.

We have spent an ever larger share of our incomes buying ever more government.  Yet instead of getting more-for-less, we have at best got more-for-more. At worst, with falling public sector productivity, we have had about-the-same-for-more.

Why is government the great exception to the more-for-less rule? Perhaps it is because unlike the folk that supply us with food, clothes and housing, public administration has not faced much in the way of competition. When did the man from government ever have an incentive to offer you better value, or risk losing your custom?  

For a while none of this really seemed to matter.  So bountiful was the more-for-less rule when applied elsewhere, and so vast was the expansion in the West's productive base, we could afford to ignore the relatively poor deal we got when it came to public administration. Living standards still rose.  Until now.

Perhaps Western living standards are stagnating precisely because we now spend such a large slice of our incomes buying goverrnment - yet government almost never seems able to offer us a more-for-less deal?

With stagnating living standards, we need to ask if we might also be able to apply the more-for-less rule when it comes to all that government we buy. In my new book, I suggest how this might be done using digital technology and collective intelligence.

Clacton celebrates local history

Our Victoria County History group, together with the Heritage Society and local history group, put on a wonderful display in St James Hall, Clacton yesterday.

The various exhibitions focused on the coastline during the war - and there was enormous interest from young and old, with lots of people packed into the hall.  What I particularly liked was listening to people who were growing up in Clacton during the war giving their own accounts.

Well done to Roger Kennell, Colin Preen, Rachel Baldwin, Norman Jacobs and dozens of others for putting on such a great event.

Why debt and the digital revolution mean Big Government is doomed

BBC Politics gave me the chance to compress my 80,000 word book into a 60 second clip.

Watch it here. 

I don't develop the points I am making - for obvious reasons.  But the book does.

If you have read it, I would love to hear your feedback, either on the comment thread or @douglascarswell

What made government grow?

"Democracy" I hear you say. 

I have often heard this point asserted, but less often made.

First of all, the history does not fit. Most adult males in the United States had the vote since the 1830s. Yet federal government spending never exceeded more than 3 percent of GDP in peacetime at any stage during the nineteenth century. Britain, too, was more democratic at the end of the nineteenth century than at the beginning. Yet the state was less redistributive in the 1890s than in the 1820s and 1830s.

And then there is Prussia. Perhaps the least democratic state in Europe, it pioneered Big Government.

In my new book, The End of Politics and the Birth of iDemocracy, I point out that government in many Western states started to grow soon after the introduction of unequal taxation. In the first decade of the twentieth century, in Britain, America, Australia and elsewhere, so-called progressive taxes were introduced. Government has grown in every decade since.

This is hardly controversial. Those demanding a progressive income tax in Britain and America at the time did so, in part, precisely because they wanted to redefine the role of the state. With not everyone having to pay a proportionate amount, they knew it would be easier to overcome the parsimony of the electorate and get them to accept more government.

Unequal taxation allowed the ruling elite to subvert the democratic constraints that once kept government small. Borrowing and the manipulation of the money have likewise allowed officialdom to spend without asking the rest of us, too.  Far from being a product of democracy, maybe Big Government is a product of the elite, officials wanting more officialdom?

But here's a thought; what if the digital revolution makes it more difficult for governments to keep on spending without asking?

In my book, I argue that the internet will make it much harder for governments to keep on debauching money as they have done since 1971. They simply won't be able to keep siphoning off resources in this way.

Instead of taxing income, where it is much easier to charge unequal rates, I also suggest that in the digital economy of the future, states will need to tax consumption. In other words, taxes are going to have to get necessarily flatter. And once everyone is spaying a proportionate amount, many assumptions about the electorates' willingness to accept Big Government will be overturned.

The pillars on which the Big Government model rest are starting to crumble.

Steve Hilton was right

Francis Maude, the Cabinet Office minister, has hit out at senior Whitehall mandarins for obstructing ministers and failing to implement policy. It all sounds very "Yes, Minister".

When I raised this "Sir Humphrey" factor with the Prime Minister, he told me to get a sense of humour.  It doesn't sound like they are laughing about it round the Cabinet table now.

What I find extraordinary is not that senior Whitehall officials are obstructive, but that it should have taken two and a half years for this to become quite so obvious.

Even when we were in opposition, it was clear that the Whitehall machine would be against us.

What is the answer? I doubt it lies in commissioning a lefty think tank, like the IPPR to come up with plans to stream line departmental hierarchies blah blah. We need instead to recognise that the notion of civil service accountability to Parliament through ministers is broken. It does not work.  We need something else.

Mandarins must be made accountable directly to Parliament; confirmation hearings for senior civil servants, annual appeals for departmental budgets.  Do that, and the government machine might begin to do the things those you voted in promised to make happen. 

A successful reformist administration would understand this.

My new book is out today

The End of Politics and the Birth of iDemocracy is released on Amazon today, with the launch event on 24th October.

In the first part of the book, I argue that the West is in crisis because Western governments have grown too big.  Officialdom has outgrown the tax base and the ability of the rest of us to pay for it all. The bloated, bureaucratic state has also outgrown the ability of the democratic process to hold those who make public policy to account.

As a consequence we are mired in debt and chronically misgoverned.

Should we despair?  Actually, no.  Things are going to get better.

Precisely because the Big Government model is bust, things are going to have to change.

It is no longer possible to run an ever expanding welfare state on the back of a shrinking wealth-creating base. So public administration is going to have to become dramatically more effective.

In the second half of the book, I show how the digital revolution makes this not so much possible, but with the rise of the citizen consumer, almost inevitable.

For generations we have had to submit to those who hold that society is best arranged according to their notion of a grand design. The internet revolution renders obsolete not just many of the grand designs, but rule by the grand designers.  It will do to government planners in the West what the fall of Communism did to Soviet planners a generation ago.

Cheer up!  The days of Big Government are coming to an end.  Politicians and the parasitical elite might hate it, but it is great news for everyone else.

If you do decide to buy the book, I'd love to hear your response. Either tweet me @douglascarswell or post comments on this blog.

Are you a Eurosceptic? Blame the pesky press

Your Euroscepticism is all the fault of the pesky press, apparently. 

According to this daft article by the London School of Economics (LSE), its the "eurosceptic sentiment .... found within the British print media and the right-wing press in particular" which explains why we're so dubious about being part of the EU.

It's nothing to do with being a democrat. Or wanting to live in a self-governing country. Or because you switched on the TV and saw what European integration produced on the streets of Athens and Madrid.

Oh no, say the experts. It's because of what the press tells you.

I don't for a second dispute that there's a strong popular mood of Euroscepticism in the country. Nor do I doubt that many, if not most, of the large circulation newspapers are resolutely Eurosceptic.

What amazes me is that the LSE could publish an academic study that appears to lazily assume that the former is caused by the later.

"The feeling of separation from the EU expressed by British citizens" declares this academic research "mirrors the representation of Britain's relationship with the EU in newspaper discourses".

Might they not have that the wrong way round? Could it be the case that newspapers mirror what their readers think? The thought does not seem to have crossed the LSE academics' minds.

Recently, the Daily Express endorsed an In / Out referendum. I am told that partly as a result, their market share increased.  Has this influenced how other newspapers look at the referendum question?  

A serious academic study of the relationship between popular Euroscepticsm and the media might attempt to analyze this, rather than imply we think as we do because we are sheep.

More muddled thinking from the CBI?

Britons must, according to the head of the Confederation of British Industry (CBI), save more.  "Bravo!", you say.

John Cridland wants us to "raise savings levels" in order to prevent long-term economic and fiscal failure.

But hang on a moment....  Is this the same CBI that spent years, perhaps decades, insisting that we should have low interest rates? See here or here or here.

Did it ever occur to the CBI that the low interest rates they demanded might possibly create a disincentive for savers? Do you suppose the CBI "captains of industry" ever stopped to ask if low interest rates might perhaps encourage excessive debt and over consumption?

The CBI, of course, largely got its way. We have had years of low interest rates as they demanded.

The trouble is that with the price of credit so low, and so few savers thereby putting money aside, there was very little real credit in the system. So the banks instead lent out lots of candy floss credit – IOUs piled upon IOUS. The miracle of modern banking produced faux credit but real debt.

Eventually when the mountain of ponzi credit unravelled, it nearly brought down the banks. 

In any market, if you artificially lower the price of something, you diminish the incentive for suppliers to supply it. So to with credit and savings.  If Mr Cridland is serious when he says we should save more, he should have the courage to come out and question the easy money consensus that landed us in this mess.

Public spending has gone up

A couple of days ago I gave an interview for London Business, in which I said there had been no austerity.

My reasons for saying this?  Some facts.

Exhibit A – This August, the last month for which data is available, the deficit (i.e. difference between what the government spends and the taxes it takes) was the highest ever. Not just higher than in the last decade, or last century.  Higher than any month since the Coalition came to office.

Exhibit B – As Fraser Nelson and several other commentators have done, if you looked beyond the spin and study the maths, you will see that core spending and debt are up this year.  See the graph for core public spending at the bottom of this Coffee House blog.  It is up.  Not down. 

Exhibit C – Data from UKPublicSpending.co.uk shows total public spending this year is £688 Billion, compared to £621 Billion during Gordon Brown's last full year in office.

All of these are facts, not statements of opinion. You may disagree with my use of the data. You might prefer I also look at other data. You may even suggest that there have been some cuts in some areas, so my point only applies to overall spending. But my claim remains one rooted in facts.

Whenever I point this out, I find I am attacked for it - most recently in an anonymous article on a newspaper site.  Yet rarely do those attacking me make any effort to repudiate the facts on which I base my case.

Nor when I claim that there has been no cut in public spending am I suggesting that there has not been a fall in living standards.  There has been both a falling living standards for many people and an increase in public spending. 

It might suit the government to tell us that there is austerity because it makes them appear as if they are getting to grips with the public finances. It might suit the Opposition who can make great play of the cuts. But the maths suggest something different.

I happen to believe that the British state has lived far beyond the means of the rest of us to pay for it. For almost a decade it has had to borrow the equivalent of a tenth of total output, just to pay the bills.  Our Big Government model is bust.

I make this point even more vividly in The End of Politics and the Birth of iDemocracy, published next week.

The way we are governed

When was the last time you ate out? A pub lunch or a curry, perhaps?

Did you look up the restaurant's FSA FHRS score first? No? You reckless risk taker.

What!? You don't even know what the FSA's FHRS is? Me neither, actually.  Until recently.

FHRS stands for the Food Hygiene Standards Scheme. It is a scheme overseen by the Food Standards Agency, a government quango, and administered by local authorities. It boils down to food safety officers inspecting premises and giving them a score out of five.

No bad thing that restaurants are inspected, you might think. And I agree. It is right that local authorities can shut down sub-standard food retailers. But what is all this about restaurants that have perfectly acceptable standards having to be graded on top of all that?

The FSA freely admits that the scheme tells customers nothing about the quality of the food. If it tells us little about food, the new scheme does say a lot about the way our country is run.

For a start the scheme is supposed to be voluntary. "How could you possibly complain about a scheme that is voluntary, Carswell" I hear you say.

Except it is not voluntary in the sense that a local business can politely decline to take part. It is voluntary in the sense that a local authority can decide not to be part of it – but then get bulling letters from the head of the FSA demanding that they should.

So much for localism, eh? So much for the fallacy that we elect local people to run local government the way local folk want them to. The apparatus of central government expects them to opt in.

Even without quangocrats waving the big stick, with an enhanced role for local authority food inspectors, it seems that it did not take a lot to get council officers to recommend that local councils sign up.  

When not promising to burn quangos, politicians often like to promise that they will cut red tape.

Next time you hear such faux promises, ask them how the FSA managed to escape.  Demand to know why the new inspection regime is imposing an additional regulatory burden on thousands of small businesses.

Who do you vote for it you want to throw the FSA out of office? You can't.

The state is dysfunctional, Ma'am

The Queen, we are told, personally raised the issue of Abu Hamza's extradition with the Home Secretary. Apparently she asked why somebody inciting violence had not been arrested.

What I find so shocking about this is not that Her Majesty raised the issue. But that our head of state, who has for years steered clear of politics, should feel the need to do so.

What does this say about the state of the country?  What does it say about the way we are governed that it should take a hereditary monarch to prod ministers to find out why the state does not seem capable of fulfilling its elementary functions?

So beholden to human rights law and human rights lawyers have we become, ministers tie themselves in knots dealing with a single individual intent on stirring up trouble. And despite all the pre-election promises, nothing has been done to sort the human rights mess out.

A few years ago, as the credit bubble went pop, the Queen famously asked why no one saw it coming.

Putting power in the hands of experts and unaccountable rule makers does not mean we are ruled wisely.  It makes the state dysfunctional.

The economic consequences of economists

This financial crisis has now rumbled on for almost as long as the Second World War. Are we any closer to resolving it?

Not according to Christine Lagarde, head honcho at the IMF. In a starting admission, she today said "I am often asked, five years into the crisis, whether the financial sector is safer today than it was then. My answer? 'Despite real progress, not yet.'"

You heard that right. After billions on bailouts, and years of print-money-and-pray economics, the banks are no safer.

Meanwhile, across the Atlantic former head of the Fed, Paul Volcker, has suggested that after endless talk of reform to deal with the "too big to fail" fallacy, taxpayers are still liable should the banks go belly up.

We are starting to see some of the disastrous economic consequences of economists. Ever since the credit crunch came along we have handed them a blank cheque to put things right. Have they?

Central bankers and economists have produced a response to the credit crunch that could well turn out to be worse than useless. They have spent billions making it worse in the long term.

What I find so odd is that Monetarists, who otherwise seem to recognise the importance of free markets, are apparently unable to appreciate the need to have the free market allocate credit, too.  All too often they end up, in effect, calling for the state to hose the economy with cheap credit.  State rationing like any other.

Until the Keynesian-Monetarist orthodoxy is overturned by the Austrian school of economics, I fear that everything the experts do will ultimately make things worse.  Of course once we are all Austrian, there won't be any experts to muck up the money in the first place.

iDemocracy - how the West's political economy is about to change

With the launch of my book in October, I've an article in today's Sunday Telegraph outlining some of the key themes.

The Western Big Government approach is bust, I argue.  The Big Government model has been bankrupted by a state sector that has persistently lived beyond the means of the rest of us to pay for it - and let down by parasitical politicians.

Yet we should not despair.  The digital revolution is about to "reinvigorate the West, lifting us out of our big-government-induced stupor."

"The West arose because Europe, unlike the empires of the Ming, the Mughals or the Ottomans, was never politically centralised. Europe progressed because no oligarchy could ever impose its idea of what progress should look like. Since the Treaty of Rome, Europe has stagnated because a centralised elite is trying to run a whole continent on the basis of blueprints.

Maths and technology are about to do to the grand planners in the West what the collapse of Communism did to the socialist planners in the old Soviet bloc. We are about to be set free not only from the grand plans, but from the conceit of the grand planners".

More evidence that Continuity Brown doesn't work

And so it goes on. Public sector borrowing in August was the highest figure ever.

Austerity rhetoric cannot mask the maths forever. Far from restoring sanity to public finances, the Coalition is presiding over appalling increase in public debt, which is expected to rise by over £100 billion this year.

The government said it would reduce the deficit by almost 5 percent this year. Data out yesterday suggests that over the second and third quarter of the year, the deficit is likely to have increased by almost a fifth.

These dreadful statistics show that if you run the economy the way Gordon Brown did, you end up in the same mess.

Just like under Gordon Brown, the Treasury is looking to various stimulus remedies to deal with what they still regards as a cyclical downturn. It is because of this that they have shied away from being much tougher on public spending. It explains why they have left the PFI taps running, merrily running up more off-balance sheet debt for the grand kids.

It is because of the Treasury team's misplaced faith in stimulus that they are happy to sit back and watch as the Bank of England embarks on another bout of print-money-and-pray madness.

Worst of all, the Treasury is so trapped in the stimulus frame of mind, it has simply not given enough thought to the fundamental problem of competitiveness. It is not just a case a new airport runways or tinkering with employment law.  At a fundamental level, non-wage labour costs, energy costs and the costs of funding a bloated state bureaucracy are all far too high. If we want to produce wealth and prosper in the global economy, we need to lower them.

The Treasury still does not seem to get this.  Until it does so, Britain will not prosper economically, nor the governing parties politically. 

Another week, another stabbing

Yesterday afternoon as I was out and about in Clacton, there was yet another stabbing.

I don't know the full facts. But I know enough to know that enough is enough.  There have been far too many violent incidents in Clacton over the past year or so - many involving knives.

For too long we have been told that the problem is one of perception about crime. It isn't. The problem is too much crime - and too much tolerance of the low level disorder that breeds it.

The local criminal justice system needs to recognise there is a real problem - and start to deal with it.

What needs to change?

There is far too much tolerance of drunken disorder in the town. Only yesterday morning, a local mum sent me a message on facebook saying she no longer felt she could sit by the fountain in the town square because of the drunks.

What happened to the order prohibiting drinking in the streets?  Why is it not enforced? How many people have been nicked for being drunk in the centre of town over the past month? If none, then why?

How many people have been arrested and prosecuted for drug dealing in the district in recent months?

If we abandon the centre of our town to trouble makers, to the extent that a local mum feels she cannot sit by the fountain with her small children, we are asking for trouble.

I would welcome more initiatives in schools to warn young people of the dangers of carrying a knife. But it must not be a substitute for changing the way we police the town. Perhaps we should ask why the police not use their considerable stop and search powers as a deterent too?

Several local officers I've listened to tell me that part of the problem is the Crown Prosecution Service. The reason they don't always do more, they imply, is that the public prosecutors won't follow it through the courts.  If this is so, then we need to start holding the public prosecutors directly to account.

Clacton is a wonderful town.  Things do not need to be the way they were yesterday afternoon.  If the criminal justice system responds to local concerns, we can make sure they aren't.

Of course there are broader social issues involved. But the most immediate response must be to change the way Clacton is policed - and the way wrong doers are prosecuted.

This November, local people will have the power to elect a local Police Commissioner with the power to ensure that we change the way we police Clacton.  Let's make sure it happens.

Nudge the Aussies? We should try learning from them instead

The UK government's Behavioural Insights Team - or "Nudge Unit" - has apparently been asked to advise the New South Wales government.

The "Nudge Unit" is all about behavioural psychology.  Many of its ideas and assumptions are currently fashionable amongst the governing classes in Britain.

Rather than lecturing Australia on how to run a country by nudging people, perhaps our Cabinet Office team could use their trip to learn some things about good governance instead?

I've prepared a few questions for our Cabinet Office gurus to ponder on the flight over:

• How come you have so many healthy banks here in Australia? We nudged our UK banks with over 6,000 pages of FSA regulations, but still they went belly up?
• How come Australia has such a clear, no nonsense immigration system? In the UK our immigration system is one endless balls up?
• How come your economy is growing? We try to nudge ours along by printing lots of money and giving it to banks.  Somehow it has not made us rich.
• How come your public finances are in such good shape? Ours are a complete mess. Despite a 50% increase in government speeches using the word "austerity", we're piling up over £100 billion of public debt each year?

Once the Whitehall elite have sorted out the basics about how to run a country, then they can worry about encouraging folk to pay their road tax on time.

Should we arm the police?

Following the appalling murder to two WPcs in Manchester, the question is being asked.

Personally, I would not want my local police force to be routinely armed.  The police are the public and the public are the police.  Giving police officers guns would turn them into a para military force.

But perhaps the answer ought to be for us to let local people decide.   

In November, we each get the chance to elect a local Police Commissioner.  Ought we not to allow Police Commissioners to decide?

I'd not vote for a Police Commissioner who favoured arming the police.  But why not allow the decision to be made locally?

After the EU

"But what would it be like outside the EU?" is a question I find I get asked increasingly often.

Daniel Hannan's new book – A Doomed Marriage: Britain and Europe – helps provide us with some answers.

Looking back, it is increasingly clear that Britain's EU membership has been a historic mistake.  When we joined, as Hannan puts it, "Western Europe ... accounted for 38 percent of world GDP. In 2010, that figure was 24 per cent. In 2020, it will be 15 per cent .... Far from joining a growing and prosperous free trade area, the United Kingdom confined herself in a cramped and declining customs union".

While we have been boxed in to a continent beset by man-made folly and failure, the Anglo sphere beyond has forged ahead.

So how best to realign ourselves with the rest of the world?

Those opposed to the UK's withdrawal from the EU, like the think tank Open Europe, are often keen to tell us that life outside the EU would mean being like Norway. We would, they say, have to comply with Euro rules, yet have no say in their drafting.

Given that Norway's per capita GDP is considerably higher than ours, and that Norway manages to do far more trade with the EU from outside than we do from within, I can think of worse things than being "like Norway".

Yet it is absurd to suggest that outside the EU, Britain would adopt the same terms as Norway has. Switzerland has managed to negotiate access to EU markets, without having to carry the costs of membership. "Switzerland is" Hannan explains "free to sign trade accords with third countries". Her relationship with the EU does not prevent her from forging closer ties with the world beyond - where the growth is.

Britain can and should, argues Hannan, seek a similar arrangement.  If those British diplomats who do all the negotiating on our behalf were made properly accountable to us for the deals they strike, such arrangements would be perfectly possible.  Jon Cunliffe and Britain's UKREP officials in Brussels ought to be made to read this book.

EU referendum? Looks like a choice between "Yes" or "Yes-Yes"

Twenty years after he presided over the ERM debacle, John Major is back talking about Europe.

Writing in today's Telegraph, he makes a number of rather striking points.

His infamous "wait and see" approach to the question of Britain's Euro membership is, it seems, alive and well – "the prudent would not close the door for all time". Major also appears keen to justify taking us into the ruinous Exchange Rate Mechanism on the rather curious grounds that the economy recovered once we left it.

Enough of the historic revisionism.  What does the article tell us about Europe policy today?

John Major's article confirms that the current administration is pursuing an essentially Majorite Europe policy.  Despite all that has happened these past two decades, government ministers continue to go along with the views of the Europhile Whitehall mandarinate. All those Euro sceptic promises – cast iron guarantees, even – have turned out to be so much hot air.

Perhaps John Major did not merely pen his article to defend his role in the ERM debacle? Might it be that we are being softened up for what is to come?

With the Eurozone preparing to fuse into a federation, even the Whitehall elite realise that they are going to have to give us a referendum.

It looks like we are about to be offered a Henry Ford style referendum on Europe.  Any choice you like, so long as it is in a box that says "yes". (Note how Major dismisses the idea of national self-determination as "romantic folly".)

Far from offering us an "In" or "Out" choice, the political elite seem to be preparing to offer us a "Yes" or "Yes-Yes" choice.  We'll be able to vote to either remain in the European Union or in the new European Federation.  It will not do.

What should we think of the BAE / EADS deal?

BAE Systems, the massive defence contractor, says it wants to merge with the Franco-German giant EADS, to form a super defence conglomerate. Should we approve of the deal?

For years, I've listened to defence lobbyists argue in favour of "defence sovereignty" to ensure we award contracts to UK firms. Now it seems they're out to sell the UK defence industry to a conglomerate controlled by the French and German governments.

Big contractors have spent years telling us needed a Defence Industrial Strategy to help UK plc.  They never seemed to mention anything about selling it off to the French.

Look on the bright side though.  If this deal goes through, at least we won't keep having to pretend there's anything patriotic about defence contracts that give poor value for money and leave our armed forces ill equipped.

No doubt those behind the BAE / EADS deal will tell us that it is going to mean greater economies of scale. It will, they will say, mean we get better value from the defence budget.

We should take such claims with a large pinch of salt. For years, the UK supply base has been consolidated. Rival firms have been rolled into one in order to ensure supposed economies of scale. Far from giving us more bang for our buck, the lack of competition as a consequence of the consolidation meant we got even less value for money.

So what should politicians do about the deal?

We should allow the deal to go through – but in return for doing so, treat the new EADS/BAE entity as just another firm bidding for business.

No more favourable terms for favoured contractors. No more fatuous arguments about "defence sovereignty" to justify spending money in the interests of the contractors. No more pretence that the defence budget is some kind of giant job creation scheme.

If this deal means the beginning of the end of the Defence Industrial Scam, we should let in go ahead.

A fundamentally different approach to the economy - and what it might look like

Following my recent blog about the Coalition's contradictory stewardship of the economy, I was asked to give an indepth interview.

Click here for more details about what the government has got wrong - and what we need to do to get things right.

That 70s feeling

The public finances are in a mess. The economy is stagnating. And there's talk of a Wealth Tax.

It's beginning to sound like the 1970s again.

Just like the 70s, the government seems to be drifting towards corporatism. Hand outs for big business. An industrial policy. Whitehall fiat trying to engineer growth.

Coalition economic policy is not just Continuity Gordon Brown. Its starting to seem like Continuity Heath.

A generation ago, a Tory Chancellor, Anthony Barber, tested the notion of fiscal stimulus to destruction. Today a Tory Chancellor seems to be doing much the same to the idea of monetary stimulus.

Back in the days of the Bay City Rollers, external oil shocks pushed up energy costs, making us less competitive. Today we're managing to do it all by ourselves, subsidised wind turbines and restrictions on shale gas pricing us out of world markets.

But perhaps the most striking parallel with the 1970s is the inertia of the public policy making establishment. Like in the 70s, the Downing Street Policy Unit is run by civil servants. All too often mandarins seem to run ministers, not ministers their departments.

So six years into a prolonged downturn, it does not seem to have occurred to anyone in the Treasury to try something other than more stimulus. The banks are still zombies. Public debt is still rising by over £100 billion a year.

Is this what national decline looks like? Too many inert and vested interests, carrying on with the same failed policies that landed us in this mess to start with?

Of course, back in the 70s we snapped out of it because a handful of radical thinkers started to think differently.

Those at the helm today seem unwilling to be bold. They are dismissive - often literally - of anyone prepared to think differently. I fear that if they'd held office in the late 70s, they'd have dismissed Keith Joseph as a crank.

Say's Law says we're wrong

We’re in this economic mess, they tell us, because there’s not enough demand. What we need, agree the experts and the politicians, is stimulus to increased demand. 

They might bicker over how to stoke up demand. “Fiscal stimulus”, say some.  “Monetary activism”, cry others. "More conservatories", insist yet others. But they all share the same basic presumption that the way to raise economic output is to increase demand.

But what if they’re wrong?

According to Say’s Law, “supply creates its own demand”. 

We keep being told that an economy grows because demand increases. But what if it is instead the case that demand increases because an economy grows?

If so, the then much of the Western world’s response to this economic downturn has been based on a false premise. Which might also help explain why after six years of stimulus solutions, the economy is still in the doldrums.

Politics isn't working

A couple of years ago, I happened to share a platform with a Lib Dem. The first question from the audience was on House of Lords reform. I'd like to see an elected upper chamber, I explained. The status quo was indefensible.

Then it was the turn of my Lib Dem friend to answer the question. What did they say? Did they welcome support for long standing Lib Dem policy?

Not a bit of it. They framed their entire response in terms of being against the points I had made. Indeed, they almost ended up opposing Lords reform on the grounds I had supported it.

In politics we often use various "isms" to try to define what people believe; socialism, liberalism, environmentalism, capitalism.

But I wonder if many politicians and pundits today are driven primarily by "opposite-ism". That is to say, they define what they believe in terms of what they think will annoy the other lot.

Vince Cable today suggested he opposes de-regulation, except when it comes to more immigration.

Do you suppose he thought through the way that high non-wage labour costs, combined with open borders, might paradoxically, import cheap labour while exporting jobs? Or do you think he just said what he did because he thinks it'll annoy Tories?

Similarly, when some Conservatives rail against legislation intended to ensure equality before the law for everyone, have they carefully considered how to best achieve social cohesion? Or is their attitude a reaction against those they deem to be tediously PC?

Politics ought to be a competition between different parties for good ideas and votes.

Too often instead our rotten, out dated political system boils down to different tribes opposing what they imagine the other lot favour. Favouring whatever gets up their opponents nose. Each tribe projecting on to the other what they wish to see about them.

No wonder folk outside SW1 have so little faith in the whole process.

The descent into corporatism

Yesterday it was announced that there'd be £10 billion of state backed credit for developers. Today we hear of targeted tax breaks for North Sea oil corporations.

The descent into corporatism has begun.

Don't get me wrong. I'm not against new housing development - I recognise we've a chronic shortage of new homes. Nor do I oppose lower taxes - quite the opposite.

What is so wrong is the way government policy awards new credit or tax breaks as a favour to corporations.

Developers will be able to ditch rules on so-called affordable housing targets - if they can prove to a committee of expert officials that they deserve to. Corporations will get North Sea tax breaks conferred on them - after deal making with Treasury officials (So much for tax simplification, eh?).

None of this stuff is about the free market. Its more a case of crony capitalism, dishing out deals and favours. It all favours the big, the well connected. Those who can convince officials - not willing customers - that they deserve the deal.

We've been here before. Back of the 1970s, round about the time the government tested fiscal stimulus to destruction, the Heath government tried corporatism. They tried to use Whitehall fiat to make the economy grow.

The breakthough came when people started to realise that the economy grows when you get Whitehall out the way.

Today we are testing to destruction the idea that monetary stimulus will make us rich. As we do so, corporatist efforts to kick start the economy will grow more desperate.

In so far as ministers are looking at free market alternatives to the status quo at all, they are only thinking in terms of micro economic policy reforms, not yet the macro.

Eventually a free market alternative will emerge. It does not have to be like this.

The economic orthodoxy will crumble

Jeremy Warner has a ground breaking piece in today’s Telegraph – I strongly recommend you read it.     

Why ground breaking? Because it is one of the first examples of a leading economic pundit beginning to break with the Establishment orthodoxy on the economy. More will follow. 

Slightly misleadingly, the title to Jeremy’s piece declares that the Conservatives have got it right on the economy. Reading the article it is clear that what he means is that all three parties have got it wrong – but that Ed “more debt” Balls is even more hopelessly wrong than the rest.

So far, Jeremy seems to be saying, the Gordon Brown / Continuity Brown view has been that we need to “get the money moving again with repeated rounds of monetary and fiscal stimulus”. All this stimulus would mean growth, and – hey presto – all would be well.

As regular readers of this blog will know, it won’t work. The stimulus approach will not work.  George Osborne is testing monetary stimulus to destruction today the way Ted Heath's Chancellor tested fiscal stimulus to destruction in the 1970s.

Warner – perhaps influenced Raghuram Rajan – has clocked that it was fiscal stimulus and easy credit that landed us in this mess in the first place. 

Western governments aren’t running deficits and credit easing to deal with the financial crisis. We're in a financial crisis because of years of deficits and credit easing.   

How long before other pundits start to say that we have had chronic malinvestment? Is the Austrian analysis about to go mainstream? Post-monetarism, anyone?

What if the re-shuffle triggered a dozen by elections?

The government would today be facing a dozen or more by elections had yesterday’s reshuffle had taken place under the old Parliamentary rules.

I am not suggesting that dozens of disappointed backbenchers would have quit the Commons in frustration at not getting a job. On the contrary, those backbenchers invited to join the government would have been required to resign and fight a by election before taking up their appointments.

Why? Because that was the norm until the 1919 Re-Election of Ministers Act.  Under the Succession of the Crown Act 1707, if you were made a minister, you had to get the approval of the folk who put you in Parliament in the first place.    

We are so used to the idea that MPs are there to spout the party line that it perhaps comes as a shock to remember that it wasn’t always so. MPs were once expected to represent the people who elected them by first and foremost holding ministers to account. 

If an MP was invited to become a minister, they were seen to be changing sides – and had to seek a fresh mandate from the people to be their representative.  Once there was a seperation of powers in this country.

Yesterday, many MPs waited nervously for a phone call from Number 10.  Until 1919, getting a job in government did not only require the whim and patronage of one man in Downing Street.  A would-be minister faced the equivalent of a confirmation hearing – with every voter in their constituency on the hearing panel.   

Of course the old rules didn’t suit the politicians and the powerful. So they changed them.

I am not proposing that we repeal the 1919 Act. But we could do something even better, and allow local voters power to hold their politicians to account via open primary selection and the recall.

Of course, the politicians and the powerful promised precisely that in 2010. But somehow since then they’ve wiggled out of giving us either.

Cover design for my new book

I've just seen a hard copy of the cover design for my new book, The End of Politics and the Birth of iDemocracy. 

I hope you like it as much as I do.  I think the designer has done a wonderful job.

The book is out in October and you can read some of the blurb about it, or order your own signed copy,  here. 

Who is being contradictory on the economy?

Here is my list of top ten Coalition economic contradictions:

1. The belief low interest rates will increase the supply of credit. Lowering the price of something usually reduces its supply .....

2. The idea that we can restore sanity to public finances by increasing public sector debt by £600 billion during this Parliament.

3. Responding to a debt crisis by giving people every disincentive to save.

4. Re-balancing an economy built on excessive consumption by encouraging more consumption.

5. Re-balancing an economy overly reliant on the financial sector by giving massive state handouts to the financial sector.

6. Raising taxes, supposedly to pay down debt, but spending the additional revenue raised.

7. Ruling out any unfunded tax cuts, but endlessly going along with unfunded spending increases. (See 2 above).

8. Helping our European trading partners deal with the ruinous Euro .... by lending money in order to keep them locked inside the ruinous Euro.

9. Encouraging banks to lend more by raising reserve ratios, reducing how much they might lend.

10. Ensuring sound fiscal foundations for the future by printing money and getting busted banks to buy lots of government debt.

It does not have to be this way.

Just like the 1970s, an alternative to the failing Whitehall consensus can be found.

For a coherent, free market alternative approach to the economy, please keep reading this blog over the coming weeks.

How to fix the economy, minister

It is not about demand.

It is not about demand.

At the risk of repeating myself, our economy is not in this mess principally because of a lack of demand.

Tragically, for Britain - and for themselves - Treasury ministers persist in responding to the economic downturn as though it is all about demand.

Hence their focus on stimulus remedies of one kind or other; Easy credit. Low rates. QE. Credit handouts. £100 billion more spent each year than the Treasury takes in tax.

The stimulus approach has not worked under this administration. It did not work under Gordon Brown. It will not work in future. It will not work because a lack of demand is not the main problem.

Our economy is in this state because we are not competitive. Years of easy credit generated chronic malinvestment, which the political elite mistook for growth. This masked a long term decline in our ability to producing things at a price other folk are willing to pay (Note how tiny Switzerland now sells more to China than we manage to).

Perhaps you still doubt me? Then just look at our sky high energy prices. Or our non-wage labour costs. Ask yourself how many of our global competitors have to carry the costs of a state sector that consumes the equivalent of 50 percent of output?

Fast tracking a few housing developments alone will not address these fundamentals.

Ministers need to ask why we have sky high gas prices while vast reserves of shale gas sit in the ground beneath our feet. Or why entrepreneurs are taxed for creating jobs. Or why nothing has been done to arrest the blizzard of regulations spawned by government agencies.

Why so much crony capitalism, yet too little free market enterprise?

Until these questions are answered, our economy is not going to recover properly.

What should we think about the gold standard?

What do you think about the gold standard?

Was it a system for fixing the value of currencies, which helped plunge the world into the Great Depression? Or was it a currency system that prevented anyone from fixing currencies, helping the growth of international trade and prosperity?

I would say it was both. There were two gold standards, the pre-1914 system - or the classic gold standard - and the post-first world war system.

The later gold standard was, rather like the Euro today, a straight jacket system of currency price fixing. Far from facilitating the market, it tried to buck it. And perhaps like the Euro, the market ultimately bucked it.

But the pre-1914 gold standard was a very different beast. It meant not just that central banks paid one another in gold. Crucially, it meant that a private individual was able to exchange their paper money for gold.

This ability to convert paper money into gold - which I would argue was the key to the whole system - never came back after the war. To talk about there having been a "return" to the gold standard is, therefore, misleading. We returned to a system where governments fixed the exchange rate.

The classical gold standard was perhaps the antithesis of a fixed exchange rate system. Indeed it removed the power to control and manipulate money from governments.

While Britain infamously came off gold in 1931, in many respects we have only had a fully fiat, or paper only, currency since 1971. Until then, Sterling tended to be linked to the US dollar, which tended to be pegged to gold.

Thus while we never returned to the classic gold standard as it existed pre-1914, in some ways we stayed linked to gold until forty years ago.

Could we ever return to the gold standard? At this point right thinking people are supposed to scoff. The very idea!

But I suppose smart folk would have scoffed in 1913, if you said we were about to abandon the gold standard. Nothing is ever permanent. Especially not money.

History is littered with paper currencies. Which is the whole point. Sooner or later, paper money becomes history.

Will we return to a system of gold backed money? I don't know. But unlike many of the "expert" pundits, I know that I don't know.

What I do know is that in the digital age we will have far more scope for currency competition. People will be able to escape from the tyranny of monopoly money regimes. Currencies will evolve organically, and that may mean commodity backed currencies, as well as national and private currencies.

This will mean all kinds of accident and innovation. Which is, if you think about it, how the world once developed a system called the gold standard.

Red tape talk

There’s been little economic growth for two years. It is becoming increasingly obvious that monetary stimulus has failed to produce prosperity. And the party conference season is about to begin.

I reckon this means that sooner or later we’ll hear a minister will give a speech about deregulation. Like Hezza, Blair and all the others before them, someone will soon tell us about how they intend to “slash red tape”.

But will it ever happen?

In this morning’s constituency post bag alone, I had two cases complaining about new regulations. 

In the first case, a local entrepreneur is worried about new rules that will harm his wedding car hire businesses.  Apparently the Law Commission (I don’t remember them standing at the last election?) want private hire rules extended to include his business. To what urgent problem this is the answer they will not say.  

In the second case, a local food retailer is anxious about a new national food standards regime that the Food Standards Agency wants to impose across every local authority area. How we managed to cope for so long without this blanket scheme, we can only guess.     

Deregulation? Judging from the content of one morning’s post bag, the government has not even begun to slow down the rate at which red tape is generated.

Cocooned in Whitehall, how many ministers yet grasp that it is the army of officialdom over which they nominally preside that produces much of the problem in the first place?

What is honourable about the honours system?

Now we know why Sir Humphrey is always Sir Humphrey. 

The Whitehall system that dishes out all the gongs and knighthoods is run by Whitehall officials - accountable mainly to other Whitehall officials. 

So guess what? Whitehall officials tend to get lots of gongs and knighthoods just for .... errrr .... doing their job.  Today's Public Administration Committee report exposes a little bit more about the "Carry on, Whitehall" culture that pervades within SW1.    

The trouble is that it is not only the honours system that seems to be run this way. The entire machinery of state seems to be run in the interests of the people who work for it.

Every wondered why officials in the department of education consistently obstruct efforts to give parents greater power? Because giving mums and dads choice means less role for Sir Humphrey.

Every pondered why our diplomatic corp always seek to cut supranational deals with other diplomats? Deal making is what diplomats do, even if it is not in our national interest to sign up to binding international agreements.

A generation ago the Conservatives realised that they could never make the radical changes that Britain then needed without taking on the National Union of Miners. Today’s Conservatives will never deliver the change we need unless they are prepared to take on and defeat the Sir Humphreys. 

This is about far more than who gets the Establishment baubles .....

Why we are in a double dip recession

Whether you believe ministers are doing a good job on the economy probably depends on why you think we're in a double dip recession.

Like most mainstream pundits, perhaps you think the double dip recession is basically due to austerity. Cuts in government spending, you assume, are sapping demand.

"Terrible!" you cry, if on the left, since you believe that by reversing such savage cuts, we can return to prosperity and growth.

"Unavoidable!" you declare if of the old right, because you believe that austerity is necessary given the scale of debt - even if it means an unavoidable lack of growth.

While the former believe that the government has got it wrong because it is not spending money it does not have, the old right believe our Treasury team deserve a jolly good pat on the back for trying to sort out the whole beastly mess.

But what if they are both wrong?

There simply have not been large enough cuts in public spending to account for the double dip downturn. And with the government this year spending way over £100 billion more than it takes in tax, surely we have a massive fiscal stimulus in everything but name.

The old right like to imply that the Eurozone might have something to do with the douple dip, too. Again, I am doubtful. If you look at the numbers it seems implausible.

We need a new, better explanation instead.

Perhaps we are in a recession not so much because of falling demand, but because of the great glut of credit that preceded the recession?

It takes a whole new way of looking at the economy to see that this caused chronic malinvestment. Which in turn misallocated resources, distorted prices and has yet to unwind. It is this new, analysis that might account for why the banks remain loaded up with bad debts, hindering recovery.

Perhaps, this "new right" analysis also explains how that bonanza of cheap credit masked a long term decline in our competitive position? Now we have neither the candy floss sugar rush of cheap credit, nor the ability to produce wealth. Hence the lack of growth that has confounded all the expert forecasts.

I do not attack government economic policy because it fails to be traditionally Tory, but because it seems so stuck in the past. The Treasury team don't seem to understand why we are still in recession. Nor, as a consequence, do they yet have bold, new ideas to deal with it.

Essex wildlife

Is there a lion on the prowl near St Osyth? Apparently the police are on the lookout for one.

A day or so ago, I spotted a muntjac deer. And a day so before that, two beautiful tawny owls at dusk.

As of yet, I've not spotted a lion.

GDP data doubts

The Office of National Statistics has upwardly revised GDP data. This means that the economy is in slightly less worse shape than we thought. Good.

But how reliable are GDP stats anyhow?

If a farmer produces £100 of apples and sells them, it shows up as a £100 increase in national output. But if government spends £100 on something, that too shows as a rise in economic activity.

But is it? Does it really increase national wealth? Does it make our economy bigger, especially if the extra £100 of public spending is money we don't have?

A lot of what slender growth we have had in recent years has been due to the expansion of the public sector. Is that real growth?

Rising employment and falling GDP data a couple of months ago led a lot of pundits to speculate about falling productivity. I am not sure that is necessarily right.

I suspect that a lot of what we regard as GDP increases in recent years is phoney growth. Froth caused by the credit glut and higher state spending. It might cause the GDP data to increase on government spreadsheets. It does not amount to an increase in wealth creation.

As the malinvestment unwinds, perhaps a lot of the GDP "growth" from the boom years will turn out to have been froth? If so, how much will have to unwind?

Enter elected Police Commissioners - a decade after I first proposed the idea

Ten years ago this week, I was spending my summer break putting the finishing touches to a pamphlet calling for directly elected Police Commissioners.  You can read it here.

It was published in October 2002, on the eve of the Conservative party conference.  I am thrilled that almost exactly a decade after I first proposed the idea, we will see the first Police and Crime Commissioner elections this November.  Three cheers to Nick Herbert for overcoming all the vested interests and making it happen. 

(Amusingly, one of the think tanks that today likes to claim the idea as their own specifically turned down my pamphlet for publication on the grounds that it was a crazy idea - but that is another story).

This is what the Telegraph had to say about the pamphlet at the time:

"....shadow ministers may like to look at a pamphlet being published tomorrow by the think-tank Cchange.

"Direct democracy" by Douglas Carswell argues, in essence, for American-style local democracy: directly elected sheriffs .... public hearings for judicial appointments, the democratisation of quangos. Here is an agenda that is easily communicated, attention-grabbing and popular."

If only we were to implement the rest of that direct democracy agenda ....

Continuity Brown has failed. We need a Conservative approach to the economy

Public sector borrowing is £9 Billion higher now than it was at the same stage last year. July, which normally brings in a surplus for the government, saw a large deficit.

Far from getting public finances under control, this administration seems to be running things pretty much the way Gordon Brown used to.

Brown once talked of "prudence", while running up ruinous debts. Today's Treasury team speaks of "austerity", as they borrow more in five years than Gordon managed in thirteen.

Worse, the government shares the same Brownian notion that growth can be kick started. As under Gordon, the Treasury is so fixated up in the idea that monetary stimulus can engineer growth, they've not seemed to have thought through the alternatives.

It is no use pretending that it is the Lib Dems who have blocked supply side reform. The Treasury hasn't proposed anything much to block.

Any mention of tax cuts is dismissed as irresponsible. "We can't afford unfunded tax cuts" they say.

So why is it, that like Brown, we seem to afford endless unfunded increases in borrowing? Like Brown, we seem willing to run a deficit to pay for more government, but never for less tax.

If you run the economy with the same Brownian assumptions, economically you end up in the same Brownian mess. Politically you achieve the near impossible and begin to make Ed Balls look credible.

Glorious Essex

No, this is not some fashionable Mediterranean resort full of Euro oligarchs.  It is much better than that;  it is a view of Frinton beach, in my Essex constituency, where I took the family over the weekend.

Lots of sandcastles were built and ice creams eaten.  Why go abroad when you can visit this?

House building - what might a free market look like?

Individual homeowners built more homes last year than the big developers, according to the Financial Times.

What does this tell us about Britain's home building market?

Perhaps it suggests that the big developers tend to build homes not so much to satisfy what paying punters are willing to buy. Maybe they construct in compliance with what the regulations permit. If you want a home built the way you want, build your own.

That at least might help explain why 15,000 plus did just that, rather then buy what Barratt, Taylor Wimpey and the rest provide.

As a libertarian, I have real difficulty with rules that prevent people spending their own money building a place to call home.

The trouble is that without genuine liberalisation of the housing market, granting planning permission to corporate developers to build more homes is the twenty first century equivalent of a granting a medieval monopoly. It licenses economic activity, but does not ensure it happens in response to what a free market wants.

Getting the design of a house approved today is a costly business. It is one of the key reasons developers tend to use their planning permission to construct so much identikit housing.

Why not repeal the prescriptive rules about design, and let developers build houses shaped by what the person paying for it wants?

The government's talk of freeing the housing market will, I fear, give us the worst of all worlds. Freedom for corporatist construction projects. No free market to ensure what goes up is what the paying punter prefers.

Monetary policy is failing. It will eventually be seen to have failed. What then?

Back in the 1970s, a Conservative government tested the idea that fiscal stimulus could produce prosperity to destruction. Ted Heath, and his chancellor, Antony Barber, did what the economic experts of the age recommended. They gave the economy a massive dose of stimulus spending.

The result? Failure.

Fortunately for the Conservatives, it was the Labour party that happened to be in office in 1978-79, when the Winter of Discontent provided irrefutable evidence that the orthodox approach was not working. Even though it had been a Labour leader, Jim Callaghan, who had first denounced the fiscal stimulus approach, the Conservatives, mercifully, ended up on the right side of the argument. 

I fear that Conservatives today are on the wrong side of the monetary stimulus question, much like we were on the wrong side of the fiscal stimulus approach for most of the 1970s. 

Just as like Heath-Barber Tories once believed that fiscal stimulus could make us rich, the Conservative leadership today seems to buy into the idea that monetary stimulus will produce prosperity.   It won't.  The fact that Labour has also bought into this washed up orthodoxy in favour of low interest rates, cheap credit and QE does not make the Conservatives any less wrong.

I believe that this monetary stimulus approach will fail – and will be seen to have failed as comprehensively as the fiscal stimulus approach was seen to have failed in the late 1970s. What then?

The Conservatives will need a fundamentally new approach. We will need to not merely reject the Keynesian approach, but monetarism, too. 

Ever since we ditched high monetarism in the late 1980s, Conservatives have had a muddle headed approach to money. This saw us drift; first into the ERM, and then float along with the Brownian notion that an endless supply of cheap credit could make us rich.

Our confused, poorly thought through approach to money and credit has prevented us from developing a coherent alternative policy since the credit crunch first struck five years ago. Instead of offering an alternative that works, we have pursued pretty much the same easy money approach that Gordon Brown pursued.  It is not really working, is it?

The new Conservative approach needs to reject the Keynesian-Monetarism muddle, and look instead to Austrian school economics. It needs to recognise that government is no better at controlling the supply of money and credit than it is anything else. We need to understand what a macroeconomic policy based on sound money would look like.

We are witnessing the failure of a soon-to-be discredited monetary orthodoxy.  We need to prepare for what lies ahead, and that means having a radical alternative.  Like in the late 1970s, it is vital not to be seen as the party of a bankrupt status quo.

Clacton surgery

A young lad turned up at my morning surgery with a complaint about his unemployment benefits.

I was so concerned to see a young person living that way that I took him down to the local Job Centre. He's been in there this afternoon discussing some of the 181 job vacancies they have at the moment. I hope someone gives him a chance - and that he gets off welfare.

Don't let's be beastly to Sir Humphrey

The poor dears! According to Sue Cameron in today's Telegraph, the Sir Humphreys who preside over the British state are upset. They are, we're told, feeling miffed. So much so that they are quitting their departments in droves.

What seems to have upset our sensitive mandarinate? According to Sue Cameron, its those pesky politicians. They've started to insist that public officials do the things that they, the ministers, were elected to make happen.

The cheek! The horror!

Except of course it is nonsense. Far from doing what those we elect to Parliament would like, those who run government departments seem to determine public policy. Carry on Whitehall seems to be the big hit in SW1; the same mess over immigration, the same Continuity Brown at the Treasury, the same half hearted approach to reform.

This administration, much like Tony "scars on my back" Blair, has been worn down by the institutional inertia of the Whitehall machine. They saw off Steve Hilton.  See Boris Johnson's recent comments on government inertia.

Even the Civil Service reform Bill, an effort to make Sir Humphrey more accountable, has been captured by the mandarinate, proposals for change watered down to mushy nothingness. Instead of answering to the people through Parliament and ministers, some civil servants might occasionally be "assessed" by ministers. Gosh.

Sue Cameron tells us that ministers ought to jolly well leave Sir H alone, and "remember that it is our Civil Service". Who does she mean by "our"?  Media pundits lucky enough to get one-to-one briefings from Sir Humphrey about what a Roll Royce service he provides?

Those who make public policy ought to be made answerable to the public.  That means greater civil service accountability; confirmation hearings, annualised budgets approved by select committees and, even perhaps, P45s for failure.

Looking at what happened to the reforming zeal under first Blair, then the Coalition, it seems no government will be able to make the changes Britain needs until it takes on the Whitehall mandarinate.

Perhaps a future Tory government will need to deal with the mandarins of Whitehall much like Mrs Thatcher did the National Union of Miners?

It's a lack of competitiveness that's the problem

Last week's trade figures revealed that Britain is currently running one of the largest trade deficits for many years.

What does this tell us? Put simply, we are not producing enough things at a price that the rest of the world is willing to buy.

This is yet more evidence that the root cause of our economic problems is that we are not competitive enough.

All the monetary or fiscal stimulus that we could throw at the domestic economy would do little to tackle this underlying problem. Encouraging yet another dose of excessive consumption, another trip to the shopping mall with the credit cards, another round of asset price inflation, will do nothing to help us earn our way in the world.

Tragically, since the downturn began five years ago, policy makers in the Treasury - under governments of all three parties - have behaved as if the problem is a lack of demand - first in the UK, then in the Eurozone. No wonder we are stuck in a rut.

We ought to be alarmed at the way that Britain's trade position has deteriorated despite having our own currency, which might have helped price us back into world markets.

To me, this suggests that the pre-crunch credit boom masked a deterioration of our competitive position to a far greater extent than the experts yet realise.

It is not simply that we have grown less competitive after years of regulation and red tape. In a truly global economy, the definition of what is competitive has changed. Maybe the high tax / high regulation Western model we take for granted just doesn't work the way it used to any more?

Who next to run the Bank of Wrong?

Christine Lagarde was finance minister of a country that last had a budget surplus in 1972. On her watch, French public finances deteriorated further.

So we put her in charge of trying to fix Europe's debt problem as head of the IMF. The result has been more failed bailout-and-borrow.

Adair Turner, as head of the CBI, urged Britain to join the Euro - as Dominic Lawson usefully reminded us in the Sunday Times. In other words, on perhaps the biggest economic judgment call of the past thirty years, Turner proved to be hopelessly and emphatically wrong.

So I imagine he'll be a shoe in as next Governor of the Bank of England. He's almost certainly on the Chancellor's shortlist. And the result would be endless print-money-and-pray.

Being wrong about the macro economic fundamentals need not stop anyone from becoming Governor of the Bank of England. Given how hopeless the "experts'" orthodoxy, I'd say it was probably a prerequisite.

Changing banks for the better. It can be done

Sir David Walker, new chairman of Barclays, is interviewed in the Telegraph.  An interesting read for several reasons. 

First, Walker hints that banks might start charging customers for having accounts. This might actually be something we should welcome, not complain about.

Why? Perhaps one of the reasons we get such poor customer service from banks is the fact that we’re not always regarded by them as paying customers?

Banks, of course, still find ways of getting us to pay for things, even without upfront fees. Hence many of the mis-selling problems. Perhaps upfront fees, combined with Andrea Leadsom’s brilliant proposal for portable bank accounts, would do a lot to change things for the better?

No doubt some folk will grumble at the suggestion that we should pay banks to hold our money. Surely banks ought to be paying us interest for holding on to our money?

Except, of course, ever since the retail deposit guarantee scheme came in the first tens of thousands of pounds anyone pays into a UK bank account is guaranteed by the state. Rationally, with zero risk associated with loaning the money to the bank, the rate of interest is likely to be close to zero. As long as there is a retail deposit scheme, don’t expect banks to pay you much to hold on to your money (Another reason why we don't save enough?) 

Walker says that one of the things he is keen to change at Barclays is the compensation system – bonuses, in plain English. Glad to hear it.   

Here’s a simple idea to do make it happen;  banks like Barclays ought to pay their shareholders their dividends first. Then – and only then – pay out bonuses with what is left over. The way to sort out bank bonuses is to ensure that senior management at the banks works for those who own the banks, rather than keep helping themselves to the lion's share of the businesses revenue.

Continuity Brown has failed to fix this mess

“In Britain ... policy seems to have been directed more at treating the symptoms of the disease than its causes. The tax burden has been increased .... negligible progress has been made in cutting current spending by the public sector” writes Jeremy Warner, in another brilliant article in the Telegraph.

Coalition economic policy, he warns “seems to be an attempt to return us to the way we were in Brown’s Britain”.

Yep. Continuity Brown, I prefer to call it. 

Too many lobby journalists have been simply regurgitating Treasury spin. They’ve taken at face value those briefings about how the government is bringing public borrowing under control. They’ve faithfully recycled all that stuff about it all being the fault of the Eurozone.

The reality is that Treasury policy has changed very little since Gordon Brown was in charge.  We see the same massive accumulation of new debt. The same print-money-and-pray economics. The same misplaced reliance on monetary stimulus to produce growth. The same tendency to blame Europe or the United States for a problem caused by our own lack of competitiveness.

Slowly put surely the penny is starting to drop; if you run the economy the way Gordon Brown did, you end up in the same sort of mess.

The Bank of Wrong

The Bank of England is this morning expected to revise its economic growth forecast for 2012 down to almost zero. Yet more evidence that stimulus economics does not work.

For several years now we have witnessed the largest monetary stimulus in our history – interest rates of 0.5 percent, massive Quantitative Easing and a bond-buy-back scheme between bankers. With the Treasury spending over £100 Billion more each year than it takes in taxes, we have also seen a massive fiscal stimulus, in all but name.

The result of all this stimulus? No growth.

What gets me down about today’s announcement is not just the absence of growth. What is truly depressing is that way that the Bank will use the data showing that its policy is not working to justify more of the same approach.

Expect today’s announcement to be accompanied by calls for even lower rates and yet more print-money-and-pray economics. How many more months of stagnation do we need before we start to recognise that our central bankers have got it wrong?

Since the financial crisis hit, we have given central bankers carte blanche to decide policy. And they have made a mess of it. Central bankers are no more capable of engineering sustainable economic growth than Soviet planners. 

The Bank of England continues to respond to our economic predicament as though the problem was fundamentally caused by a lack of demand. It isn’t. We are in this situation because of the expansionary credit policies pursued by central bankers in the years that preceded the credit crunch. 

What ought we be doing instead? First we need to deal with the problem of malinvestment caused by the Bank of England’s own interest rate policy. Painful but unavoidable. Secondly, we need to recognise that the pricing mechanism ought to allocate the supply of credit in the economy. If we want more credit, we must ultimately encourage more savings. Thirdly, we need to deal with the constraints not on the demand side, but on the supply side.

What is the Coalition for?

What is the Coalition for? 

Cutting the deficit? Except the government will still be running a deficit in 2015 – and beyond. 

Sorting out the public finances? The Coalition will borrow more during its five years than Gordon Brown managed in thirteen.

So what is the Coalition for? Does it boil down to horse-trading between the two parties over their pet projects? Does it simply exist to keep various ministers in office?

Before Parliament resumes in the autumn, the Conservatives and Lib Dems need to draft a Coalition Agreement Mk II. Every MP in each party should be involved in the process. 

The first Coalition Agreement was drawn up in a rush. It is the handiwork of a few, working under the supervision of Whitehall grandees. As the row over Lords reform shows, key parts of it simply do not command much buy-in from backbench MPs.

When the initial Agreement was drawn up, few people understood quite how serious the economic situation would turn out to be. 

Back in May 2010, it was still possible to see the downturn as another of those cyclical recessions. It isn't.  It seemed to many that a little fiscal prudence and a lot of monetary stimulus would sort the economy out. It hasn’t. 

The economic outlook has changed.  We need a new Agreement that reflects the new reality.  

If the West is to prosper, it needs to change; Fundamental currency and banking reform. A supply-side revolution. An end to crony corporatism.  There is much in there that that both Tory and Lib Dems can find common cause on.

If the Coalition is to successfully deal with the problems the country faces, it needs to have an Agreement that puts the condition of Britain – not the pet projects of party chiefs – at its core.  Let's draw up a new deal.

It's Europe

"The main reason this government is at odds with many Conservative backbenchers is its refusal to demand a new relationship with the EU. If they would change that they could make the Conservative party much happier with its leadership."  - John Redwood blog.

It is a remarkably straight forward choice; You do what MPs from marginal seats want, or you do what the Europhile Whitehall mandarinate expects?  One or the other.  It is no longer possible to do both.   

A glorious bucket and spade holiday

Having helped defeat the government’s plans to slap 20 percent VAT on static caravans, where better to enjoy my summer holiday? 

I have just returned from a glorious bucket and spade seaside break with the family - in a static caravan. Lots of sandcastles, ice cream, running on the beach and sunshine. 

Knowing that the Treasury was not able to get its grubby paws on a classic English seaside holiday made it all the more relaxing. The sky was a perfect Tory blue - which is more than one can always say about Treasury tax policy.

I know that this blog is read by folk inside the Treasury. So, guys, if you are reading this, I advise you to leave our bucket and spade holidays alone. Go tax something else instead. 

Or better still, do what ordinary folk do and start living within your means .....    

Bailout basket cases

RBS has announced a half yearly loss of £1.5 Billion.

That's not what they implied was going to happen when billions of pounds of taxpayers money were thrown away propping up the bank. Back then we were told this was an "investment". Lucky taxpayers might even make a profit, we were told.

Of course it has never happened. And it never will.

One bank bailout begets another. State handouts only lead to demands for more handouts.

Even now, after the bail outs have failed to restore the banks to profitability, there are those demanding full blown nationalisation. Do that, and the losses and the state-subsidies will stretch ahead for years.

Since the bank bail outs, we have had dither, indecision, promises of half-baked Vickers reforms, and more losses for the taxpayer.

We should instead break up the banks, sell them off, and enact this simple bank reform. No more handouts. No more bailouts. It could all be done by the end of this year.

1976 again

“The Coalition’s proclaimed economic policy is one of fiscal conservatism and monetary activism. In practice, the fiscal conservatism seems to be as absent as the monetary activism is ineffectual.” - Jeremy Warner, Daily Telegraph.

Indeed. 

I sense that we are heading towards a 1976 type moment - a time when folk realise that the orthodox approach isn’t working.

A generation ago, it was Jim Callaghan who stood up and announced that Keynesian attempts to kick start the economy were not working. But it was not until three years later, 1979, that a government deliberately embarked on a coherent alternative. 

So what might the alternative to the ineffectual, macroeconomic mess we are in look like?

Those calling for monetary activism (George Osborne and co) and those advocating fiscal activism (Ed Balls and co) are, it is often suggested, at opposite ends of a policy spectrum.  Change will come once we realise that advocates of monetary stimulus and those calling for fiscal stimulus actually share quite a lot in common.

Both believe that government can engineer growth - and that an absence of demand is the key problem. It isn’t.   

The problem is the credit boom that preceded the bust. Years of artificially cheap money caused malinvestment, which we mistook for growth.  Until that unwinds, there will be no sustainable increase in output. 

Showering the economy with cheap credit will not produce prosperity. Spending money we do not have will not make us rich.

So what will the new post-Monetarist / post-Keynesian approach look like? What will the 1979 type moment look like?  Read this for some clues.

Clacton hero

This afternoon I went to the funeral of PC Ian Dibell. He was killed in Clacton a couple of weeks ago confronting a gunman.

The service was extraordinarily moving. It marked not only the passing of Ian's life, but his act of remarkable courage.

Somehow the service in Weeley did not seem to do full justice to the enormity of his bravery. We need to do something more. You see, Ian Dibell was off-duty when, unarmed, he challenged the gunman. It seems he must have made a split-second, selfless, decision to go to the aid of his neighbours.

I have written to the Home Secretary to ask that Ian Dibell's bravery be recognised nationally at the highest level.

The economic consequences of experts

Interest rates should be cut to zero, according to expert economists at both the British Chambers of Commerce and the Ernst & Young Item Club.

Apparently even lower rates will mean oodles of cheap credit. Which will allow businesses to do more business. Shoppers to shop more. And - hey presto! - prosperity.

Alas, those calling for this rate reduction don't explain how lowering the price of credit will increase its supply. It won't.

Nor do they explain how lower rates might encourage less debt, and thus get us out of a debt-induced stupor. Low rates will instead encourage the accumulation of yet more debt.

Or how zero interest rates revived growth in Japan. They didn't.

But hey, economic experts have been calling for lower rates since the financial crisis struck in 2007/08. So why stop now, just because its not working?

Everyone knows we need lower rates, I keep being told. All the experts agree.

I can't help notice that a strong dose of lower rates has been the "expert" response to just about everything, since the 1987 stock market crash.

Perhaps that has been part of the problem? May be it is easy money that has caused over consumption, a giant asset price bubble and lots of malinvestment - which we mistook for growth? Perhaps you have to be an "expert" not to see it.....

Change is coming - local people will soon decide local police priorities

Almost ten years ago, I wrote a pamphlet advocating directly elected Police Commissioners – or sheriffs. I argued that we should scrap Police Authorities and the old tripartite governance system, and have a single elected individual set police priorities, as well as hire and fire the Chief Constable.

I lost count of the number of people who initially dismissed the idea as mad. A decade later, I’ve lost track of the number of people who tell me it was their idea all along.

This November, everyone will get a vote to decide who should set police priorities where they live.   You elect the Police Commissioner, who then answers directly to you and to whom the Chief Constable is accountable.  

As with the London 2012 coverage, the press have started out a little sceptical about the whole thing. However, just like the Olympics, I suspect the scepticism will give way to last minute enthusiasm for the idea – not least when it is realised that the new Police Commissioner will have a much greater say than many have assumed.  

Here in Essex, Nick Alston is standing for the role. He is not a typical politician. Indeed, he’s not been a politician at all.

Nick – who grew up in this part of Essex – was out and about listening to local people in Clacton today. Find out more about Nick, and the things he stands for, here.

If you live in Essex, why not follow Nick on twitter @NickAlstonPCC ? 

Voodoo economics isn't working. It is time for a different approach

The economy has contracted for three successive quarters. In the second quarter of this year, economic activity was down by a whopping 0.7 percent.

It will not do to blame this on the Eurozone. Trade with the Eurozone accounts for less than 10 percent of all economic activity in the UK. Even if the Eurozone were to have experienced a 10 percent fall in economic activity (thus far it has been nothing like that), that would equate to about a 1 percent reduction in UK output.

It is not the Eurozone or the United States that are to blame for the state of the economy. We are in this mess because of Treasury policy, which under successive administrations has assumed that the government can conjure up growth and prosperity. Today’s figures are further evidence this voodoo economic approach does not work.

Yet ever since the financial crisis struck, the Treasury response has been about trying to conjure up growth. They have tried to do this first and foremost via monetary stimulus - low interest rates, easy money and print-money-and-pray economics - the technical term for Quantitative Easing.  (With the Treasury spending £100 Billion more each year than they take in tax, it is arguable that there has also been a fiscal stimulus in everything but name).

By ploughing ahead with the stimulus-growth-magic approach begun by Gordon Brown, the Coalition has generated more debt, more malinvestment – but not a lot of growth. If you run the economy the way Gordon Brown did, you end up in the mess he did.

Instead of trying to magically produce growth by showering the economy with cheap credit, the Treasury needs to address the underlying problem of uncompetativeness, which prevents the economy from expanding; Labour market reform, ideas for so-called “default deregulation”, tackling crony corporatism, ensuring credit is allocated by price, not political fiat, lower taxes, less government.

We need a free market approach, based on honest money and open competition, to lift us out of this mess.

Establishment opinion is still wrong about the Euro

Adair Turner has apparently called for more Europe to fix the Eurozone crisis. Europe must not “hang around”, his lordship tell us. They need to “accelerate” moves towards a banking union.  

Didn’t Turner once suggest that the UK might like to join the Euro? And wasn’t he something big in financial service regulation at a time when .... well, you know ....

Is there nothing Lord Turner doesn’t get right? 

Turner’s latest pronouncement doesn’t tell us much about how the Euro crisis might be resolved. But it does say a lot about the extent to which Establishment opinion in this country still doesn’t get it. 

The Eurozone crisis demonstrates the folly of trying to arrange the affairs of millions of Europeans by grand design. Rather than recognise this, elite opinion in Britain believes that any flaws in the grand design approach require an even grander design. 

I'm no rebel

Conservative Home has a fascinating article about the 143 Conservative MPs who have, at one time or another, defied their party whip, and voted against the government.

As Tim Montgomerie eloquently puts it “the genie of backbench power is out of the bottle it won't easily be put back .... Rebelliousness is now in the Tory bloodstream”.

I agree with all of that, and welcome it. 

Now that this not-always-voting-the-way-the-whips-tell-us thing is an established feature of political life, please can we stop referring to the MPs who do it as “rebels”?   

A rebel is someone who seeks to overturn legitimate, established authority. MPs who vote against their government are not usurping established authority. We are helping to re-assert the sovereignty of the legislature – shorthand for sovereignty of the people - which has been usurped in recent decades by a tiny oligarchy.

If ministers worry that some of their Bills and budgets will not get through the Commons, perhaps it says more about the laws they are trying to make and the taxes they wish to levy, than it does about the stubbornness of MPs?   

A Member of Parliament is first and foremost precisely that – a member of Parliament, not the government. Until the First World War, when a backbencher was asked to join the government, they had to resign their seat and win a by-election because they were deemed to be changing sides.

I am not suggesting that we go back to that, but we ought at least recognise that those of us elected to the Commons as backbenchers have a duty and responsibility to hold ministers to account. 

Doing that is not being rebellious. It does not make me any less of a Conservative.  It does not mean I do not wish the government well.  It is called doing my job.

Do small cliques make wise decisions?

Ferdinand Mount’s brilliant book, The New Few, has an excellent chapter on the way in which decision-making has been centralised within Downing Street. Published before the recent so-called “omnishambles”, Mount’s observations might help us avoid similar episodes again.

Under Tony Blair, government policy was increasingly determined not by the full Cabinet, but by a small clique of unelected advisers in Downing Street. Sofa government. In opposition, the Conservatives understood this. However, in Coalition, too many decisions remain in the hands of too few – the “quad”, special advisers, nudge unit gurus, Cabinet Office and Treasury officials. 

Ministers inside the Cabinet are often out of the loop. Those outside the Cabinet expected to stick to a script handed to them from on high. 

MPs in the Commons might have slogged for years to win over swing voters in marginal seats. Too often they are then expected to meekly rubber stamp policy decisions made by those who have never had to face the electorate. 

Does this matter? I think it does.

Mount suggests that oligarchy - rule by a few - tends to produce policy omnishambles. 

It might seem neat and quick and tidy to have only a few decision-makers. But without contrarian views, mistakes can be made. The obvious questions never get asked. Assumptions remain untested. There is no one to point out why VAT on caravans or a 3p hike on fuel duty might not be such a smart move after all.

More and more people now recognise that many of the big banks ought to have had much stronger, independent non-executives overseeing what the CEOs and the senior management were up to. In order to make sure it makes the right choices, government needs stronger non-executive input, too. 

Fortunately there is already a non-executive board in place to oversee decisions made in Downing Street. It is called Parliament, and it is elected by every citizen.

As a Conservative MP, I want to see this government do well. Ensuring more of us are involved in the decision-making process might just mean we make better decisions – and avoid unforced errors. 

Monopoly money won't last forever

William Rees-Mogg has an interesting piece in today's Times (behind the pay wall). He points out how the gold standard once "provided a discipline" and "gave money its sense of reality".

What I found striking about the article is less what Rees-Mogg wrote, but the hostile reaction to it by a number of pundits.

Rees-Mogg does not call for a return to the gold standard - "gold is gone and it cannot be replaced". What Rees-Mogg instead suggests is that our post-Bretton Woods fiat currency system might not be all it is cracked up to be. It might - whisper it softly - have something to do with our ongoing financial difficulties.

"Crackpot" declared one. "Serious economists" disagree, another informed me.

Perhaps these are the same "serious economists" who failed to see the financial crisis coming? Five years into this financial crisis, the orthodox diagnosis and remedies have failed to fix things. Perhaps it is time to question the orthodoxy?

Since 1971, when the US broke the link to gold - and we broke the peg to the dollar - we have run a great fiat currency experiment. Perhaps it isn't working?

Maybe it allowed a decades long credit boom? Years of malinvestment, which we mistook for growth? And has ended in the financial mess we are in?

Those living in Britain a hundred years ago would have regarded the classical gold standard as a fixture. Permanent, reliable, a certainty. Within a few years it had gone.

What I find truly "crackpot" is the lazy assumption that our post-Bretton Woods system of monopoly money is necessarily here to stay.

Back to Keynes, corporatism and the 1970s

The government has just announced it is to underwrite £50 billion of infrastructure investment.

This will, we are told, get the economy moving. It won't, they assure us, cost the taxpayer.

Hmmm.... For two decades Japan's economy has been in a prolonged slump, following a credit-induced boom that left it with high debts and zombie banks. Sound familiar?

Just like today, Japan tried massive government-backed infrastructure investment to boost the economy. Trillions of Yen later, she remained in a rut.

I fear that the only thing that will grow following today's announcement is the share prices of those few corporations lucky enough to be able to spend money at your risk.

What about this £50 billion initiative being cost free?

Ministers are keen to point out that the taxpayer will only have to stump up if things go wrong. Given the history of infrastructure projects, what do you think are the chances of that happening?

Pretty high, I'd say. Especially when you take into account that the only reason the state is stepping forward with the credit guarantees is because no private investor is willing to do so risking their own money.

Perhaps the real danger of today's announcement is that it legitimises Ed Balls economics. Until now, the idea that fiscal stimulus could produce long term prosperity had not been taken seriously by anyone outside Labour circles for years. Indeed, Labour's Jim Callaghan specifically ruled it out in 1976.

Today's announcement helps legitimise pre-1976 Keynesian thinking again. It is a boost for corporatism, not for free market wealth creation.

We are moving in precisely the wrong direction. The failure of the government's monetary stimulus ought to mean we move towards a new, post-monetarist, properly free market approach. Instead we are lurching back to Keynes, corporatism and the 1970s.

What is the point of the FSA?

"Cash reserves in the UK held by banks in 1968 represented 20 percent of its deposits. By 1998, the figure was 3.1 percent" - Ferdy Mount, The New Few

Luckily, we had the Financial Service Authority then come along to make sure that the obvious never happened. Except they didn't.

Instead the FSA imposed complex regulations on financial institutions. So much so that City firms created entire compliance departments. Shame the regulator omitted to ask basic questions.

A macro economic mess unfolds

Five years into this economic mess, and the IMF has just lowered its UK growth forecast.  

How much more evidence do we need before we accept that the government's macro economic response has got it wrong?  

Neither Brown nor Continuity Brown have worked.   

Faced with the end of a decades long credit bubble, policy-makers have responded as though they were dealing with another cyclical downturn.  First under Gordon Brown, and now under George Osborne, the emphasis has been almost entirely on stimulus.

With the government spending £100 Billion more than it takes in tax, we have seen a massive fiscal stimulus in all but name. With low interest rates and print-money-and-pray from the Bank of England, there has been a massive monetary stimulus.

The result of this stimulus approach?  No growth.  More debt. And mounting evidence that the macro economic orthodoxy - just like in the 1970s - is wrong.

Years of easy money caused chronic malinvestment, which we mistook for growth.  Instead of allowing that to unwind, the government's macro economic policy has done the opposite. 

Stimulus short cuts are no substitute for dealing with the underlying problem of competitiveness.   

While the UK economy flat lines, many countries outside Europe are booming. Growth is possible, but it will only happen once we have removed the constraints on wealth creation that are holding us back. 

We will only return to prosperity when we have a government that pursues a policy of sound money, less state spending, radical deregulation and an end to crony corporatism.

Where's the beef?

One day it's going to be 2015, and a General Election will be looming.

Imagine if public debt was still growing, but not the economy?

What if in two or three years time we've still not reduced immigration or reformed Human Right law?

Nor cut the number of quangos? Nor brought back powers from Brussels?

Perhaps the Downing Street Nudge Unit might then pull some last minute policy pledge out of the hat to save the day? Traffic cones online, rather than a traffic cones hotline, perhaps? One should never underestimate the radicalism of ex-McKinsey mandarins.

Alternatively, now might be the time to abandon the Treasury's failed stimulus orthodoxy. The moment to fight the kleptocratic corporatist interests that snuff out free markets. The occasion to take on the judicial activists and the Whitehall mandarinate. And to do these things with restless urgency.

If we aren't prepared to fight the oligarchy that has run Britain into the ground, I fear that in 2015 Ed Miliband will paint us as being part of it.

Rain dance economics

A few months ago, Caroline Spelman, the Environment minister, announced a hose pipe ban because of the drought.

It started raining a few days later. It has kept on raining heavily in almost every county across England every week since.

Perhaps we need to put her in charge of the economy?

I reckon it'd have more chance of producing growth than the Treasury's "rain dance" approach of QE and monetary stimulus.

How's that deficit reduction coming along?

The Office of Budget Responsibility has said that a further £50 billion of tax rises or spending cuts is needed to balance the books. No kidding.

You don't need to spend millions setting up a Whitehall quango with an oxymoronic name to tell you what the sums say; government is still living way beyond the tax base. There's nothing responsible about it.

Perhaps we could set up an "Office of the Bond Bubble Not Bursting" to ensure that government is able to keep piling up the debt with endless willing lenders?

Or how about an "Office of Print Money and Pray Economics" to ensure there's growth.

If having a coherent fiscal and monetary policy that worked was as easy as setting up a Whitehall committee, we'd be prosperous. We need a new fiscal and monetary approach.

Meanwhile, the economy ....

While folk in SW1 work themselves up into a fury over House of Lords reform, the economy tanks.

Growth is non existent.  Factor out the way government spending artificially distorts GDP upward, and the economy is probably shrinking.  Public debt is growing at over £100 Billion a year. 

So what do the SW1 folk do about it? 

When not wittering on about the primacy of the Commons versus an elected Senate, they plough on with the failed economic remedies that landed us in this mess.

Continued low interest rates, holding down the price of credit thereby guaranteeing its scarcity.  More print-and-pray QE from the Bank of England.  More muddled thinking about bank reform.  More fiscal stimulus in everything but name.

Zero supply side reform.  Little effort to achieve the public service productivity gains needed.  No concerted effort to remove the restrictions on wealth creation.

I no longer expect this administration to make the kind of bold, radical changes Britain desperately needs.  In case ministers do wake up and decide to do something that hasn't been handed to them as a memo from a mandarin, here are some ideas to reform the banks, which Matt Ridley has written up in today's Times.

If the Commons spent as much time debating economic reform as we do House of Lords reform, we might stand a chance of sorting out the economy. 

What is the Coalition for?

To fix the nation’s finances? The Coalition will borrow more during this five year Parliament than Gordon Brown managed over thirteen years. To fix the economy? We’re in a double dip recession.

Is it all about a “new kind of politics”? Not if the AV referendum or House of Lords reform are anything to go by.

Of course, some of the things that some ministers are doing are tremendous. Michael Gove in education. Nick Herbert on policing.  Iain Duncan Smith, Maria Miller and Chris Grayling on welfare. I even rather approve of some of the things Andrew Mitchell is doing to recalibrate our overseas aid effort. 

But where is the over arching theme? The vision? The sense of getting our country off its knees?

Too much is piece meal – particularly when it comes to the economy. Too much is managerialist tinkering – with the Whitehall mandarins in charge. Again and again, tactics get mistaken for a strategy. 

We are now almost mid way through this Parliament. Perhaps over the summer the Coalition partners need to draft a fresh agreement? One that, you know, those of us elected to Parliament could have some say over?

The civil servants working in the Downing Street policy unit might be out of radical ideas. The Parliamentary party isn’t.

What do the Bank of England emails tell us?

Email exchanges between Deputy Governor of the Bank of England, Paul Tucker, and senior Downing Street official, Jeremy Heywood, have been released.

What do they tell us?

One thing that these emails help bring home is the degree to which we are really governed by an unelected, unaccountable mandarinate.  At a key stage in the credit crunch, key calls were being made not by the Prime Minister, or members of the Cabinet, or anyone who had taken the trouble to get elected to anything.  But by the permanent officials in Whitehall and the central bank.

The second thing that I find striking is that these officials are still in place.  Gordon Brown and Alistair Darling might have moved out of Downing Stree to make way for David Cameron and George Osborne.  But guess what?  The guys that helped get us into this mess are still there behind the scenes in charge.

Steady as she sinks, eh ....

A way forward on Lords reform?

The harder a certain kind of grandee attempts to defend the House of Lords we have at the moment, the more convinced I am of the case for change.

I just don't buy the argument that it is an effective revising chamber. It seems, more often, to embody the dreadful quango corporatist elite that have come so close to running this country into the ground.

But does that mean I ought to support the proposals for change that the government has come up with?

I fear the new "senate" would be even more representative of our failed oligarchy. It would be a chamber purring with vested interests, and no more representative of the people than the guest list at a Banqueting House dinner.

So here's the deal; I will back Lords reform, but with one proviso; the new arrangement is put to the people in a Yes / No referendum.

If those opposed to the status quo are daft enough to press ahead with something even worse - as they managed to over AV - they will lose. And if they want to come up with something that the people will support, they better start thinking sensibly pretty sharpish.

The causes of City cronyism

There is, it seems, something seriously wrong with the City.  It is not just the libor scandal.

Government bailouts have socialised many banks losses, while profits remain private.  Mega bonuses have been paid to corporate muppets for running their shareholders' businesses into the ground.   

What has gone wrong?

I am not convinced by those who say it was all down to City de-regulation.  To me, the problem seems to be not excessive free market capitalism, but a lack of it.  Those who claim that the City was de-regulated are perhaps unfamiliar with the Financial Service Authority's 6,000 pages plus handbook.  Corporatism, not shortage of compliance, account for most of the City's failings.

Instead of looking back to the financial service reforms of the 1980s, perhaps the seeds of the current crisis go back even further..... to 1971. 

That was the year that the Bretton Woods currency system for came to an end. To put it crudely, since 1971, the only thing constraining the amount of money and credit that government put into the system has been government.  And government is not very good at reining in government.

Could it be that we have had a massive, decades long credit bubble?  And if so, might it be that forty years of easy-money became almost a kind of  state subsidy for those in the business of flogging credit?  

Free market conservatives must never confuse support for free market capitalism with support of corporate cronyism. 

The Establishment is bankrupt

I see that the Bank of England's Financial Policy Committee says the UK's banks need more capital. Even after all those bail outs.

In other words, at the same time that the Establishment is demanding banks lend more, they are also saying to the banks that they should put more aside to be safe.

Another day, another example of muddled thinking at the very top.

Until I became an MP, a bit like Dorothy in the Wizard of Oz, I assumed that those at the top were wise and omnipotent beings. I took it as read that they would consider public policy matters from every angle.

Yet just like in the Wizard of Oz, draw back the curtain and you discover there's rarely any great wizard there. More often it turns out to be a slightly flustered, middle-aged man pulling at levers and hoping no one asks too many challenging questions.

Ever since the credit crunch hit, we've left it to these people to sort things out. But it turns out they don't really have a clue.

They still cannot see that the credit crunch was caused by the credit bubble that preceded it. They still cannot see that artificially lowering the price of credit will leave it in short supply.

Neither fiscal nor monetary stimulus will return us to prosperity. Yet those at the Treasury cannot envisage an economic strategy that does not involve more of both.

This crisis may well mean the end of the Western welfare model. It may mean the beginning of the end of the post-Bretton Woods monetary system. Yet our elite still see it as another cyclical downturn.

Just like the 1970s, Establishment thinking is bankrupt.

The government's macro economic policy is wrong

And on it goes. Another £50 Billion of money is to be printed and shuffled between central banks and investment banks. This latest round of QE – or Quantitative Easing - is, they tell us, needed to rescue the economy and make us prosperous once again.

If it was so easy, why not print off £500 billion and make us even richer?

According to the Bank of England and Treasury “experts” who run our economic policy, all this extra funny money – along with low interest rates – will mean more credit. And more credit will produce economic growth. 

Except this orthodox Whitehall view – which ministers have done nothing to challenge – is being proved wrong, just like Treasury thinking turned out to be in the early 1970s.   

Those who believe that cheap credit is the economic cure-all have misdiagnosed the cause of our malaise. Seeing a shortage of credit, they believe that if only government was to ensure the supply of more credit, all would be well. It is the intellectual equivalent of using a prices and incomes policy to try to curb inflation. 

The truth is that the “credit crunch” was caused by the credit boom that preceded it. During the boom years, bogus credit – conjured up as deliberate policy - caused chronic malinvestment, which the Treasury mistook for growth. I sometimes fear if there can be a return to growth without that malinvestment unwinding first.

Simply pumping artificial money into the system is not going to prevent the inevitable contraction that will now follow. Fixing the price of credit artificially low will do nothing to allow the build up of real credit. Thus do we end up with low interest rates, little real credit and economic stagnation.

In the 1970s, government policy produced a condition known as stagflation – stagnation and inflation. Today government policy is giving us stagnation + low rates – or stagrates. 

Far from curing the patient, government’s macro economic policy is making the patient more ill.

In 1976, Jim Callaghan famously called time on the fiscal stimulus orthodoxy. Who, I wonder, will call time on the monetary stimulus approach and when?  A new generation of Conservative thinkers are feeling their way towards a post monetary stimulus approach.

The Chancellor's monetary stimulus won't work

In the 1970s, Anthony Barber, the then Chancellor, tested to destruction the idea that a fiscal stimulus could produce economic growth. 

In an interview with the Spectator tomorrow, the current Chancellor, George Osborne talks about using the “full fire power of monetary activism”.  

I fear that the Chancellor is merely testing to destruction the notion that monetary stimulus can produce growth.

A new generation of Conservative thinkers are beginning to appreciate that more cheap credit is not the answer.  We are going to need something more than stimulus economics.

Pot calls kettle black?

Nick Clegg has apparently "hit out at suggestions that Bob Diamond might receive substantial renumeration despite his resignation as boss of Barclays".

I can understand the attraction of banker-bashing populism if you happen to be the leader of the Lib Dems and on single figures in the opinion polls.  But is Nick's outburst wise?

Unlike Robert Mugabe's Zimbabwe, we have not yet reached a stage where political leaders can decide these things on a whim.  It is up to the those who own Barclays to decide the terms and conditions of employment of those who work for them. 

Perhaps some Lib Dems have never quite forgiven Barclays for not accepting state handouts back in October 2008?

Politicians might want to think hard before they go too far down the "let's take away their payoffs" path.  What is good for the goose - and all that ...

If Barclays and others are guilty of having occasionally manipulated lending rates, politicians and central bankers are guilty of fixing lending rates systematically.  Even today, the political class still insists that we fix the price of credit keeping interest rates articifically low.

If Barclays and others rigged rates to help them get through the early stages of the credit crunch, politicians ran a low interest rates racket for years, causing the crunch in the first place.  

The Leveson inquiry began as an investigation into the press - but ended up putting the political elite in the dock.  I suspect any investigation into what went on at Barclays will see the British oligarchy on trial, too.

Outside the EU? That doesn't mean we'd be like Norway

The Financial Times has a curious article in which it claims "Tory MPs are looking at Norway as a model for how Britain could thrive outside the EU".

We are?  That was news to me. 

I've yet to come across any colleagues advocating that we adopt the Norwegian model.  Nor does the FT article provide any examples of a Tory MP saying we should.

As the FT article helpfully points out, the Norwegian model is far from ideal.  It might be outside the EU, but it still has to adopt a lot of EU made rules and regulations - although nothing like as many as we do.

Europhiles often claim that if we quit the EU, we, too, would end up "like Norway" - having to transpose into law regulations over which we had no influence.

How about we adopt the Swiss approach instead? Outside the EU, without having to transpose EU rules into national law. 

Of course, Swiss firms wanting to trade with the EU still have to conform with EU rules.  But so do Chinese, Indian or Australian firms wanting to sell to the EU.

Switzerland does make bilateral deals with the EU.  At the same time she is free to cut trade deals with the world outside the EU where the growth is.

And free from all that energy-sapping red tape, Switzerland manages to do four and a half times more trade with the EU from outside than we do from within.  

Outside the EU, Britain would have to conform with EU rules when looking to sell things to Europe.  But we would not have to apply those EU regulations across every aspect of economic and commercial activity.  As a result we would become more competitive - and better able to sell to overseas customers.

It is central bankers who should be in the dock

Ed Miliband is calling for a Leveson-type inquiry into banking.  Should Conservative MPs join forces with him, and vote for it?

If by "Leveson-type inquiry" one means an inquest that takes as its starting point that a lack of regulation was the problem - and that more regulation must necessarily be the answer - I'd say its the last thing we need.

We ought instead to have an inquiry into the wider banking and credit system that landed us in this mess.  However serious the failings of investment banks, the real culprits are the central bankers. 

Barclays and others might have behaved outrageously in manipulating the libor rate on occasions.  But the Bank of England has been systematically manipulating lending rates for years. 

If the actions of investment banks cost punters many millions, the behaviour of the Bank of England has cost savers billions - and ultimately wiped several percentage points off our GDP.

The danger is that any inquiry into banking will be presided over by an Establishment worthy.  Yet another grandees who fails to see that it was cheap credit and the actions of central bankers that ultimately got us into this mess.

Hauling the senior management of Barclays up before the cameras might make an entertaining media circus.  A serious inquiry ought to instead begin by interviewing the Governor of the Bank of England, current and previous Chancellors and the top Treasury bods;

Why did they believe that cheap credit would make us rich?  Did they not realise that government guarantees of cheap credit was bound to bloat the banks? Did they not see that easy money would cause a boom, that could only end in a bust?  Have they not heard of the credit cycle?

Official thinking in Whitehall and Westminster still believes that it was "market failure" landed the banking system in this mess.  They fail to see that the markets called time on the central bank's candy floss credit approach.

Too many Conservatives ministers still don't get this.  And so amidst a policy vaccum, Ed Miliband's demand for an inquiry starts to sound credible .....

EU referendum campaign - gaining momentum

David Cameron has a significant piece in today's Telegraph.  He seems to accept that a referendum on the EU is on the cards. 

Inch by inch, we are getting there.

A record number of MPs have now signed up to the all party People's Pledge campaign - another couple in the past week.

Why not add your voice to this growing movement?  Sign up to the People's Pledge today and give the campaign your personal nudge.

Still they don't get it

Very good article by Fraser Nelson over on Coffee House.

Fraser points out an extraordinary truth;  More than four years after the credit crunch hit, many of the leading decision-makers in SW1, the Treasury and the Bank of England are still pretty clueless about what caused it.

The credit bust was a consequence of the credit bubble made by policy "experts" in the Treasury, Bank of England and government.  Years of cheap credit and artificially low interest rates caused chronic malinvestment, which we all mistook for growth.

If you are going to blame bankers, blame central bankers first.

Euro crisis solved. Tractor production rises

Who knew it could be so easy? After almost twenty summits to fix the Eurozone crisis, they've finally done it.

Germany has agreed to take on a bit more of someone else's debts. More Europe will try to solve a problem created by too much Europe to begin with.

And to cap it all, there's a plan for growth that'll make Europe prosperous.

Except it's all balls.

Shuffling the debt from the banks and basket cases who incurred it, and giving it to someone else, does not make it less of a debt. More Europe simply exports public policy failures from one Euro state to the next. The "growth plan" boils down to spending money Europe cannot afford. Europe, with an apparent per capita income of $30,000 - $40,000, can no longer produce the wealth to sustain this illusion of prosperity.

I wonder if it must have felt a bit like this in various eastern European states before the fall of communism? We know the political elite are talking twaddle. And they know that we know that their grand design has failed.

Something's going to have to give - and it won't be the German taxpayer indefinitely.

Where is the free market in banking?

They receive billion pound bailouts from the state.

They are handed large dollops of cheap credit by central bankers, which they then profitably lend on.

Barrier-to-entry regulations have prevented competitors challenging their market position.

Some, it has been alleged, have even manipulated the lending rate.

Surely our banks are the way they are not because of the free market, but as a consequence of crony corporatism? 

Ministers should blog

Twitter, says Grant Shapps, the housing minister, allows him to say what he - not his civil servants - want. It frees him from over dependence on the Whitehall machine.  Good.

Similarly, it frees humble back bencher MPs from reliance on the party press office - and those weird, identikit press releases they used to encourage me to send out.

When I was first elected in 2005, a tiny clique of editors, producers and party press officials tended to decide what was newsworthy. They decided what points of view - and which MPs - got heard. Not any more.

Instead of regurgitating a fatuous "line-to-take", MPs wanting to have a say have to say what they think. There's just not much of a media market for MPs who recycle party spin any more.

Ministers who blog would not only be free from Sir Humphrey.  They'd no longer have to chum up to media barons either.

Lord Leveson's inquiry is looking at the cozy ties between ministers and media people.  Instead of making the media answer to an IPSA-type regulator, the solution should be for ministers to blog.  They could get their message across without having to ingratiate themselves with the kind of people Lord Leveson has been cross examining.

Oh. And if ministers began to write a daily blog in their own words, we might start to see a little authenticity in our politics once again, too.

Follow Grant's example, minister. Get blogging!

It is not just the Budget that's changing

What do you notice about this year's Budget? 

Obviously quite a lot of it has changed.  Ever since George Osborne unveiled his 2012 Budget on March 21st, he has been forced to abandon bits of it.  First the pasty tax, then the caravan tax, then the church tax and the charity tax.  Now the 3p fuel increase has been shelved, too.

I can't help noticing that the bits of the Budget that have been ditched were all proposals to raise taxes.  Those measures the Chancellor unveiled to cut taxes - 50p rate or cuts in corporation tax - have survived unscathed.

Might we be seeing something rather interesting starting to happen?  Are we witnessing a revitalised Commons doing what it is supposed to do and holding the executive to account?  MPs starting to say "No, minister. You cannot have that money"?

I suspect that the government changed its mind about the 3p tax rise at the last minute because they realised at the last minute that they were heading for a Commons defeat.

Budget day speeches shouldn't simply be fait accompli announcements of what ministers are going to do with our money.  They ought instead have to haggled over it with the taxpayers' representatives. 

Since the 1930s, when the then Coalition government changed the rules to prevent MPs having any real say over tax and spend decisions, the Commons has tended to merely rubber-stamp what the Treasury decided.  Taxes went up.  Government got big.

A more assertive House of Commons will mean lower taxes and less government - whichever party happens to provide the Chancellor. 

Cut deficit with smaller government, not bigger tax bills

In August the government is planning to increase fuel duty by 3p per litre.

Why? Because, ministers tell us, we have to cut the deficit.

Indeed we must, but here’s a thought, guys:  

Try cutting the deficit by making government smaller, rather than by giving everyone a larger tax bill.

Here is a graph showing how much the 3p fuel duty will bring in over a year.  It does not look like much against all the money being spent by the Department for Culture, Media and Sport, DfID or BIS, does it? 

Each one of those departments could be rolled up into another Whitehall department – DCMS into the Home Office, DfID into the Foreign Office, BIS into the Treasury.  Their spending could be cut by far more than the 3p tax increase is expected to bring in.  

Do that, then I might support the 3p hike in fuel duty.

UPDATE:  The Treasury bods must have read this blog.  A few hours after I posted it, they announced that the 3p fuel tax hike is to be "postponed".  You heard it first on this blog.

The laws of maths V Treasury rhetoric

The maths is starting to spell out a truth that the rhetoric has been trying to hide: the government is still spending far too much money it does not have.

For all the talk about sorting out our public finances, according to the Office of National Statistics, government borrowing last month was significantly higher than it was a year ago. In May alone, the government borrowed £17.9 Billion, which was “higher than the £16-16.5 Billion that most analysts were expecting”.

Gordon Brown used to talk about “prudence”, while at the same time hosing money around.

The Coalition today talks about “fiscal responsibility”, while borrowing more in five years than Gordon managed in thirteen.

Underlying it all is a fundamental problem; the Treasury still adheres to the same basic Brownian assumptions about the ability of government to engineer growth through fiscal and monetary stimulus. This explains why they keep counting on low interest rates and QE. Why they have left the PFI taps running. Why they are so slow to bring in radical tax cuts on wealth creation. 

And if you run the economy the same way that Gordon Brown did, you end up with the sort of economic mess we ended up in under Gordon Brown.

It is time for a new free market economic strategy – not more Continuity Brown.

I am starting to admire Angela Merkel

I’m starting to admire Germany’s chancellor, Angela Merkel. 

On the international stage, she is often surrounded by lots of cocky men quick to tell her how Germany needs to bailout the Eurozone. She remains resolute, thus far refusing to be bullied into making the German taxpayer take on the debts of her feckless neighbours.

She keeps being given lectures on the need for a new “growth strategy” – usually by leaders of countries with little or no growth. She wisely ignores this code for spending money the German government does not have on some sort of wild, Keynesian stimulus. Meanwhile the German economy is growing. 

Germany’s economy – Rhineland capitalism - was once a by-word for inflexibility. On Merkel’s watch, Germany has begun a number of important supply-side reforms, notably to the labour market. While unemployment rises elsewhere, in Germany market liberalisation has created a “mini jobs” boom – and unemployment keeps falling.

Imagine if she was to offer her people a referendum on the EU? Now that would be leadership .... 

Isn't this what happens in Atlas Shrugged?

Many customers of state-owned RBS/NatWest have been unable to access their accounts for days following an IT fiasco.  Reading about it, I was reminded of what happens in Ayn Rand's classic novel, Atlas Shrugged.

A tale about big corporate railway companies colluding with big government, Rand's 1950s best-seller could have been written about banks today.

Instead of providing willing customers with a service, the railway operators discover that they can enrich themselves by doing deals with government. So that is what they start to do.

First they work with government to shut out the competition. Then to get their “fair share of credit”. Then they lobby government for bailouts.  Many are nationalised in order to socialise the risks, while keeping private massive, unearned profits.

Sound familiar? 

But with each handout the big corporate interests become less responsive to the needs of their customers. So the standard of customer service declines ever further.

Remind you of anything?

Replace the words “railroad company” with “bank”, and Atlas Shrugged is a pretty good description of the crony corporatist mess that our banking system is fast becoming.

Printing money won't make us rich

Low interest rates and easy money could be hampering recovery, suggests the Bank of International Settlements (BIS).

A report out by BIS directly challenges the government's print-money-and-pray approach. Monetary stimulus not only doesn’t work, it is making things worse.

Low rates mean less incentive to do anything about large debts. So rather than confront debts, they are left to fester. All that reliance on monetary stimulus means that policy-makers keep ducking out of having to make the necessary structural reforms to restore competitiveness.

The Coalition’s Continuity Brown macro economic strategy is not working. It is time for a coherent free market one instead.

The future is looking right

Last week, Labour’s Ed Miliband said that it is okay to want to end mass immigration. 

Today, David Cameron outlines more ideas to stop people living off welfare as a life-style choice.

Tomorrow, apparently, Lib Dem David Laws publishes a paper suggesting that the state has lived beyond the tax base for too long, and we need sharper cuts in tax and spending.

I can’t help noticing that these were precisely the sort of things that would once get you labelled by the BBC types and the Guardianistas as “right wing” and “extreme”. Seems that the SW1 people are starting to catch up with what much of the rest of the country has known for years.

Anyone else notice how the centre of political gravity in Britain seems to be shifting?

I suspect that this is in large part thanks to the internet.  

Opinion-forming used to be dominated by an elite clique of media pundits, who would sneer at the sort of opinions mentioned above.  As a consequence, it did not pay for politicians to articulate such views - so they rarely did. 

The internet has started to change all that. On a whole range of issues - including most notably an EU referendum - many professional pundits who had previously got it wrong, have had to quickly revise their views to avoid looking ridiculous.

Who should be the next Governor of the Bank of England?

Last week, Labour MP John McDonnell, did something rather sensible. He presented a Bill in Parliament insisting that the next Governor-designate of the Bank of England only get the job if MPs have voted specifically to approve the appointment.

There is growing cross party momentum behind the Bill, of which I am a sponsor. I think it might just happen.

For too long, we have left macro economic decision-making to an elite clique of experts. Look at the state of the economy to see what a mess they’ve made of it. The “experts” drove the economy into a ditch.

Mervyn King, the current head honcho at the Bank, is due to step down next year. Who might replace him?

It sounds to me as if a lot of behind-the-scenes manoeuvring is going on.  But why must it be done behind the scenes, for heaven’s sake? 

This is a public office. The next Governor is going to take decisions that will affect our lives for years to come. The least we can expect is that the candidates for the role give some straight answers, to some straight questions, in public.

For too long there has been a crony, corporatist relationship between central bankers and the real ones that they subsidise through mega bailouts and cheap credit.

If Paul Tucker or John Vickers, both former Bank officials, want the role of Governor of the Bank of England, great. But let them first explain what they did before the bust to prevent the bubble. 

Should Adair Turner, a former cheer leader for Britain’s Euro membership, wants the role, so be it. But he might at least tell us how, having got it so wrong on one of the great macro judgments of the past twenty years, he can now be relied upon to get things right. 

The financial crisis has shown that some of the great and the good are neither very great nor terribly good. We lesser mortals ought to be able to ask a few questions before handing over the keys to the Bank.

City regulators want more City regulation

Speaking at a conference in the City yesterday about financial service regulation, I shared a platform with various government officials and regulators. What I heard concerns me.

Officials in charge of drawing up City regulation clearly believe that the financial downturn that started in 2007 – 08 was a “market failure”. It simply has not occurred to them that far from “failing”, the markets called time on a cloud cuckoo bubble created by people like them. The bust was a consequence of the boom – and the boom was caused by central bankers and Treasury officials. 

When challenged about the blizzard of City regulation now emanating from Europe, one official gave an inadvertently revealing answer. “Don’t worry” they soothed “it isn’t Brussels telling us what to do. We have lots of influence and we are writing the new pan-European rules”.

Treasury officials might regard meetings in Brussels where they help draft new directives as a case of “we Brits” writing the rules. Elsewhere, it just looks like officials meeting in Brussels to write more rules.

Because the new rules are drawn up by people overly confident of their expertise, they believe that they can assemble in one place enough knowledge to know what is right. History suggests they will be wrong, and that their rules will have unintended consequences.

But then again, perhaps not all the consequences will be entirely unintended. 

If you are officialdom and you are broke, what better way of getting big financial institutions to lend to you cheaply than by insisting that they take on more of those IOU bonds you keep issuing, eh? It’d be prudent to ensure that fund managers hold government gilts, don’t you see. And coincidentally, Basel III would mean banks buy more bonds ...

Time running out for Rio 20+

Time is running out, warn climate change lobbyists meeting in Rio. 

Unless the Earth starts to warm up dramatically in the next few hours, it will have failed to do what the climate change lobby warned it was going to do all those years ago.

“This could be a complete disaster” warned one attendee. “Twenty years ago we insisted that unless we cut carbon emissions, the world would be much warmer in 2012. If anything, things seem to have gotten a little cooler”.

With no sign of runaway climate catastrophe, many lobbyists were urging one another to talk instead about sustainable development instead.

Since the 1992 Rio Earth Summit, millions of folk in China, Africa and India have enjoyed enormous increases in their living standards. Per capita consumption of food and energy have risen and there are about 30 percent more humans on the planet. But still no sign of eco meltdown.

“This is all very inconvenient. I keep on having to re-engineer my hockey stick graphs” warned another. “We get attention when we warn of disaster. The BBC and others lap it up. 

But just you try telling them that the world is getting cleaner, richer and better thanks to free market capitalism.  They're not interested".

Cheap credit to the rescue! Again

Apparently the Bank of England could soon “cut interest rates to just 0.25 percent in a desperate bid to revive Britain’s ailing economy”. Desperate is the word.  I can think of less polite ways to describe such a move. 

The idea behind low interest rates is that with credit so cheap, consumers will go out and spend money. Businesses will borrow to invest. And – hey, presto! – there will be growth.

The only trouble with this approach is that it is nonsense. The government is testing to destruction the idea that monetary stimulus can engineer growth.

Decades of low, low interest rates have not revived the Japanese economy. Nor have they led to recovery here.

Low interest rates are not some kind of magic elixir that produces prosperity. Central bankers belief that they were helped get us into this mess.

Whenever the economy seemed to be on the verge of contraction (post-1987 stock market crash, the failure of LTCM, dot com bubble, 9/11 etc), central bankers cut rates. It perked things up for a while. But low rates also caused asset prices (think house prices, think share prices) to rise.  Low rates encouraged over consumption and under investment in the West.

Worst of all, low rates led to chronic malinvestment, which we mistook for growth.

What happened in 2007 is that this enormous credit bubble began to contract – as it inevitably must.

Rather than recognise the credit crunch for what it was, Treasury officials and central bankers have behaved as if it was just another cyclical downturn. If only we could stimulate a bit of demand and lower rates, they thought, growth would resume.

The tragedy is that a centre right administration still does not seem to grasp this.

Barking Barroso blames America

Jose Manuel Barroso, European Commission president, has lashed out at America and Canada. Apparently the financial crisis gripping the Eurozone is all their fault.

It was, Barroso told the G20 summit, “unorthodox practices” that “originated in North America” that are to blame for Europe’s financial mess. Nothing to do with the Euro elite’s grand folly of monetary union, you understand.

Barroso was Prime Minister of Portugal at a time when the country started to run up enormous debts. So much so that she has since had to be bailed out.

The Portuguese state accumulated vast debts not simply because she was run by people like Mr Barroso. The Euro made it possible for such people to borrow on such a scale because Portugal was able to exchange IOU bonds for money from investors and banks.

Barroso went on to tell his audience that he is not going to take any lessons on democracy. Given that the European Commission president is unelected and has zero democratic legitimacy this is, you might think, a rather odd thing to say.

Set aside the absurdity of his comments, the European Commission President's outburst is actually very revealing.  As the grand plans of the Euro elite fall apart, they are growing delusional. 

The Eurozone crisis is an entirely man-made problem created on this side of the Atlantic. So long as people like Barroso are at the helm, things are only going to get worse.

Governed by mandarins

On election day, voters around the country elect MPs, who then debate and decide public policy.  

Except since being elected to Parliament, I have discovered that that is just not so.

What should we tax and by how much?  What should be the interest rate?  Do we need a new snooping law?  All these kinds of  public policy questions tend to be decided by officialdom with surprisingly little reference to those you voted for.

Too often MPs simply rubber stamp decision made in Whitehall (think caravan tax). Too often ministers end up as little more than a departmental mouth-piece.  Newly appointed ministers are expected to acclimatise to departmental thinking, rather than change established Whitehall assumptions.

Tomorrow the government is due to make public plans for civil service reform.  I had hoped that these reforms would make the Whitehall mandarinate answerable outwardly to the people, through Parliament; confirmation hearings before Sir Humphrey gets the job. Fixed terms contracts for senior civil servants.

Instead, I suspect we will get lots of internal managerialist blah blah – after which Sir Humphrey’s will be able to carry on in Whitehall as before.

The fact that the permanent officials have managed to hijack attempts to make permanent officials accountable to the rest of us, tells us who calls the shots.

Government of the mandarins, by the mandarins, for the mandarins .... 

Paper promises and our Treasury team

"If the answer to our economic problems is to hold interest rates near zero, and for governments to spend for more that they take in taxes, mankind would surely have discovered this solution long ago" - Philip Coggan, Paper Promises.

Yet low rates and high spending pretty much sums up the response from our Treasury team.  

Osbrown economics won't work

And so it goes on.  The Chancellor, George Osborne, speaking at Mansion House has promised to keep giving the economy more of what made it ill;  a multi billion pound injection of cheap credit. High doses of low interest rates.  More print-money-and-pray.  Abstinence from any serious supply side reform.

Far from bold and different, this is essentially the same approach taken by his predecessor, Gordon Brown.

After two years of “continuity Brown” attempts to engineer growth, Britain is back in a double dip recession.  Manufacturing output is falling.  The old remedies do not work.  Stronger doses of the same stimulus medicine will not either.

It is time for a fundamentally different approach.

Back in 1976, Labour Prime Minister, Jim Callaghan, famously came to recognise that the old Keynesian orthodoxy was dead. "We used to think that you could spend your way out of a recession" he declared. But "that option no longer exists."

Callaghan could see not only that fiscal stimulus did not work. It made things worse.  Britain today needs a Chancellor who can recognise not only that the fiscal stimulus approach does not work.  The monetary stimulus won't, either.

To heal a sick patient, first do no harm.

For all the talk about responsibility, the government is, in everything but name, running a massive fiscal stimulus - a throw-back to the pre-Callaghan era. Ed Balls may not agree, but there is no other way to describe a situation in which the government spends £100 billion more than it takes in taxes every year to prop up economic output.  As a consequence, the Coalition will be borrowing more in five years than Gordon Brown managed in thirteen.

You do not help "deleverage" a debt crisis by doubling the size of public debts.  The government needs to actually live within the tax base.

Secondly, the government should stop sloshing easy credit around in the belief that it can make us rich. It needs to tighten monetary policy instead.

If you fix the price of any product artificially low, you might have a short term glut, but eventually the supply dries up.  By setting the price of credit - interest rates - so low, that is what has happened to credit.  We today have a shortage of real credit in the system because for years there has been so little incentive to save.

When the government promises billions of pounds “to support the flow of credit”, they are in effect rationing something that their own policies have put in short supply.

Pumping government-backed credit into them will do nothing to sort out the zombie banks.  It will instead make them more reliant on crony corporatism and state subsidy. Which part of the economy did that ever fix?

“But reining in excessive government spending and raising interest rates would clobber demand!” you say. “And as all the Treasury experts know, if demand falls there would be a downturn”.

By “experts”, perhaps you mean those same people who failed to see the crunch coming?  Maybe like in the late 1970s, the experts' orthodoxy is wrong?

Years of easy credit has caused a chronic problem of malinvestment, which all those “experts” mistook for growth.  Much of the Brown era growth turns out to be froth. No amount of faux credit will make it real.

Post-Brown, we are in a world of least worst options.  Either we can accept that after years of reckless credit boom there must inevitably follow a short, painful contraction - only after which can there be a return to prosperity.  Or alternatively we can opt for a period of stagnation stretching on indefinitely for years - perhaps decades.

Easy credit has masked Britain’s decline in underlying competitiveness for years.  Too much taxation, red tape and too many restrictive practices are holding back wealth creation .

Rather than dishing out more debt, George Osborne ought to focus on a deregulation revolution.  Smaller businesses should be exempt from whole swathes of rules and compliance regulation.  Wealth creators should no longer have to seek permission to produce wealth from parasitical state quangos.

A few years ago, Germany quietly deregulated part time work, allowing people to take on “mini jobs” without having to pay so many taxes.  German unemployment keeps falling and her economy growing.

“But Britain is competitive” you insist “ we still do rather well in some of those international league tables”.

Alas, such measures of competitiveness gauge the economy that we have, not the economic activity we no longer have thanks to years of monetary mismanagement.  Our economy is pretty efficiently geared to allowing you to go on a credit-fuelled shopping spree.  It is less geared towards producing things.  Perhaps the way we have managed the money might help explain why we seem to have built a lot more shopping malls, rather than factories?

“Credibility” George Osborne said at Mansion House “is hard won and easily lost”.  Indeed.

In the late 1980s, without a credible free market approach to money and credit, we drifted away from high monetarism – the idea that government should control the money supply – and into the Exchange Rate Mechanism.  Remember how that turned out?

Without a coherent free market view today, we will continue to treat the end of a long term credit bubble as though it were just another cyclical downturn.

The value of the Single Market

Being part of the Single Market is one of the clear advantages of EU membership, right? 

But what does being in the Single Market actually mean? 

Like many folk, I used to assume it meant being able to trade freely with millions of people throughout the EU.  Except it turns out that the Single Market is not really about free trade at all.

If the Single Market meant free trade, then a producer able to sell in the UK would be free to do so across the EU, too. The Single Market instead means that a UK producer can only produce if they do so in compliance with a common set of rules – even if they are not looking to sell to the EU at all. 

The Single Market was supposed to extend economic freedom. Too often in practice it means wealth creators needing the permission of officialdom in order to produce wealth. No wonder the Single Market block is growing so slowly compared to the rest of the world.

Only about 10 percent of overall economic output in Britain is tied to trade with the EU*. Yet Single Market rules and regulations apply to 100 percent of all economic and commercial activity. Businesses that have nothing to do with pan-EU trade of any kind still find that they must comply with rules brought in under the auspices of the Single Market.

It is very much in Britain’s interest that we are able to trade openly with our neighbours. Given that we buy more from the EU that the EU does from us, it is clearly in their interests of have open trade too. But must we remain in the Single Market?

Businesses in Japan, China or Australia have to comply with EU rules in order to sell their products inside the EU. But they do not need to be part of the Single Market in order to do so.

Switzerland manages to do four and a half times more trade with the EU from outside than we do from the inside. Makes you think .....

*- Yes, you read that right. Depending on how you calculate it, between thirty and forty percent of trade might be linked to the EU, but that equates of about a tenth of overall economic output.

Saved! We've been saved!

Phew! We've be saved! The government is going to give billions of pounds to the banks. Who will then lend it on to businesses. And this extra debt will make us all rich, apparently.

The experts in the Treasury say so, so it must be true.

It will sort out the zombie banks, this giving them more handouts. Like it did in 2008.

Who knew that the answer to the credit crunch was so easy? If only Gordon Brown had thought of handing money to the banks as a way of saving the world!

Who knew that the way to deleverage from a debt crisis was to increase public debt and government-backed lending?

As Fannie Mae showed, what could possibly go wrong with a billion pound state-backed lending scheme?

David Davis in Frinton

David Davis MP came to Frinton yesterday to speak at our Jubilee Supper.  About 140 people were there to welcome him, and it was a great evening.

Lots of interesting questions and great fun!

If any local readers of this blog would like to come to some of our open policy discussion groups, do get in touch.

I have kept today's blog on the short side because I would quite like to keep readers attention focused on the one below ....

What should the Chancellor say at Mansion House?

"We used to think that you could spend your way out of a recession ..." Jim Callaghan told the Labour party conference in 1976. "I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion by injecting a bigger dose of inflation into the economy".

The speech marked the moment when the Westminster Establishment finally grasped that fiscal stimulus wasn't working. The old medicine was making the patient ill. It was time for a new approach.

Tomorrow at Mansion House, I hope the Chancellor, George Osborne says something like this:

"We used to think that you could use cheap credit to get out of a recession. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion by masking our underlying decline in competitiveness and causing chronic malinvestment, which we mistook for growth."

"Fiscal stimulus and monetary stimulus are different sides of the same bankrupt orthodoxy, one which holds that governments can engineer growth. Which presumes that an economy grows when demand increases. I believe instead that demand rises when you have growth"

"Instead of stimulus economics, we need to deal with the underlying problem of competitiveness. We will deal with the zombie banks. We will ditch the crony capitalist model we now have, and introduce the free market model we urgently need".

Like in the 1970s, the economic outlook is dire. Just like then, the old remedies no longer seem to work. It is time to abandon the money manipulation orthodoxy and try a new free market economic approach instead.

I shall listen to the Mansion House speech with interest.....

Monetary stimulus isn't working

Another day, another set of figures to show that monetary stimulus isn’t working.

UK manufacturing output fell in April by 0.7 percent – even with all the advantages that come from having a floating exchange rate.

Our economy is in poor shape because our underlying competitiveness has deteriorated. Too much taxation, red tape and too many restrictive practices are holding back wealth creation. 

For years, this decline in competitiveness was concealed by easy credit. Monetary expansion masked the malaise, and made us feel our economy was fitter than turns out to be the case.

The Treasury still does not recognise this. They still behave as if the underlying problem is a lack of demand. They still seem to believe that another fix of cheap credit will fix things. It won’t.

While the Coalition is printing money and handing it to the banks (monetary stimulus and QE), Labour wants to print money and hand it to people (fiscal stimulus). 

Guess which policy is starting to prove more popular?

This is not just bad economics. It is bad politics, too.

España no es Uganda

Spain is not Uganda, observed the Spanish Prime Minister, Rajoy, on learning that his country's banks were in line for a $100 billion bailout.

Indeed, on that at least, he is right.

According to the World Bank, while Spain’s economy (red line on graph) contracted over the past few years with 0.9 percent, -3.7 percent and 0.1 percent growth, Uganda (blue line on graph) cruised along at a merry 9 percent, 7.2, then 5.2. 

They might be having a little inflationary problem with their paper currency over in Uganda. But it does not seem to be in immediate danger of collapsing alongside the banks.

Not long ago, the letters IMF meant rescuing the so-called developing world. Today, it has become synonymous with saving indebted Westerners from the consequences of their bloated addiction to Big Government. 

Methinks the days of Western conceit are coming to an end .....

The Treasury script is out of date

It is not just me.  Fraser Nelson, Spectator editor, and Alex Brummer in today's Daily Mail also suggest that the Chancellor needs to stop blaming the Eurozone for the dreadful state of the economy.  

Britain is growing slowly because we have an underlying problem of competitiveness.  For years, a glut of cheap credit concealed this problem, while the previous Labour administration and EU regulations, made it gradually worse.

Rather than dealing with this underlying problem of competitiveness, the current government is still trying to mask it with yet more monetary stimulus. As a result, we have both a deteriorating competitiveness problem and chronic malinvestment. Not to mention a doubing of public debt.

Not good. Not primarily to do with the Eurozone.   

We don't just need to quit blaming in on the Eurozone. The Treasury needs to stop rehashing Gordon Brown era ideas about monetary stimulus, and produce an alternative, coherent free market approach to the economy. 

The Chancellor has it 180 degrees wrong

The Chancellor has an article in today's Telegraph designed to reassure us about the government's approach to the economy and the Eurozone crisis.  It manages to do the precise opposite.

The Chancellor begins by going on about the UK's "safe haven status". Because the government is dealing with Britain's debts, he tells us, the government is able to borrow at record lows. 

Gulp.  The government is dealing with public debt by increasing it.  The Coalition is set to borrow more in the five years of this Parliament than Gordon Brown managed in thirteen.  The cost of borrowing is low not so much because investors are putting their money into the UK, but because of the three card trick known as “Quantitative Easing”.  The government is in effect printing money, handing it to banks, and buying up government bonds with it. Spot the potential flaw?  

Even more misplaced is the Chancellor's insistence that the Eurozone is to blame for our dire economic performance.  Switzerland, which does more than four times more trade with the Eurozone than we manage, is growing.  Her economy expanded at a healthy 2 percent year-on-year in the first part of 2012.  The idea that it is all the fault of the Eurozone is demonstrably wrong.

It is not the Eurozone crisis that we should blame for our awful economic performance, but the almost total absence of domestic economic reform, coupled with the Treasury's absurd belief that monetary stimulus can engineer growth.  The longer our economy stagnates, the clearer it becomes that monetary stimulus is no more effective at generating prosperity today than fiscal stimulus was in the 1970s.

The Chancellor tells us that he wants our trading partners in the Eurozone to prosper.  Indeed, we all do. 

So why on earth is the Chancellor doing all he can to encourage them to remain trapped in a recessionary mechanism?  If the Chancellor does believe the Euro to be a burning building with no exits, why not help the neighbours escape?

The sooner that our trading partners leave the Euro, the sooner they can return to prosperity.

The Chancellor concludes by saying that thanks to the government’s "referendum lock" more power cannot be passed to Brussels.  I can think of many occasions over the past two years when I have had to vote in the House of Commons to try to prevent the government making precisely such power transfers.  The referendum "lock" somehow did not seem to apply.

On some of the major issues of the day the Coalition government has simply got it wrong. They are recycling old Gordon Brown-era Whitehall thinking. Old remedies are used to treat new circumstances. It is not working.

Government of the mandarins, by the mandarins, for the mandarins ....

Several months before the last General Election, this blog began to warn that one of the biggest problems a future Conservative government would face would be the Whitehall civil service.

In an excellent article on ConHome, it seems that Paul Goodman is coming to more or less the same conclusion.

Technocratic, self-serving, centralisers, the Whitehall mandarinate was never going to warm to the new model Tories, with their ideas for dispersing power outward and downward.  For all the lipservice to localism, they would never stand for making the executive more accountable. 

In short, they would do all that they could to prevent the vision David Cameron outlined in Milton Keynes, almost three years ago to the day, from becoming a reality.

And sure enough.  Many of the promised changes have not happened.  The man who wrote the speech has left Downing Street.