STAFF NEWS & ANALYSIS
Tories' George Osborne Unveils New Economic Model for UK
By Staff News & Analysis - September 16, 2009

Mr. Osborne (pictured left), who unveiled the "Conservative Strategy for Recovery" at a conference organized by The Spectator magazine, claimed a triumph over Gordon Brown on the argument of continued public spending. Mr. Osborne said that Mr. Brown's announcement of public spending cuts at the TUC Conference amounted to "complete capitulation".

He said that within two months of an election the Tories would "effect nothing less than a new British economic model" that "will require fundamental change across the whole spectrum of economic policy, including taxation, infrastructure, skills, housing and financial regulation". – Telegraph

Dominant Social Theme: New thinking arrives.

Free-Market Analysis: O boy, the Tories are coming. Osborne is celebrating because Prime Minister Brown, in announcing budget cuts has "capitulated" to the Tory perspective. Sensing victory in upcoming elections over the hapless, meretricious and thoroughly discredited Brown, Osborne and the rest are scribbling away these days to put the finishing touches on the economic plan they intend to implement for Britain once they are back in power. Here's some more from the article:

The Tory policies are:

Monetary activism. The shadow chancellor said as strategies for recovery, both public spending and the VAT cuts were wrong. Instead he argued that keeping interest rates low – for public finances, businesses and individuals – would be the "main focus" of economic policy. He added that the so-called "monetary policy transmission mechanism" – making sure interest rate cuts are passed on as lower borrowing costs for households and businesses – was key.

High-capitalized banks to ensure that costs were not simply absorbed by "zombie banks" but passed onto businesses and individuals. He said: "Monitoring bank margins and the extent to which lower interest rates are passed through to consumers should be a key focus."

Bank competition – including promoting new entrants, expansion of existing smaller players or divestments of "dominant groups".

Bankers' pay that is pro-competition but not paid for by the taxpayer. Mr. Osborne stopped short of specific pay policies but gave warning: "The profits that the banks are making are not simply the results of success, they are subsidized profits … We are underwriting these profits for a purpose – to help recapitalize the banks and support the broader economy, not so that they can be paid out as huge bonuses or distributed as excess returns to shareholders."

Fiscal responsibility. Mr. Osborne promised a "credible commitment to cut spending and get to grips with our record budget deficit". He warned that "the consequences of a loss of international confidence for a debt-laden economy like the UK would be truly devastating". He said that while the Bank of England is buying more debt than the Government is issuing, the problem will be disguised, but when this stops – we will have to rely on international investors to fund our borrowing. At that point we will start to discover the true market appetite for UK government debt.

Supply-side reform. Mr. Osborne said the Tories would introduce a range of policies designed to boost the economy without public spending. These would include lower corporation tax rates and a simpler tax system; radical school reform, welfare reform and better skills; more private investment in infrastructure and other long term productive assets such as high speed rail and smart energy networks; and the transition to a low carbon economy.

Regulatory reform – designed to "create a financial system that serves the long-term interests of the economy, not its own short-term interests".

Well, some of these sound OK, such as supply-side reform and fiscal responsibility. But Osborne sort of loses us when it comes to regulatory reform and monetary activism. So Osborne wants to keep rates low. We thought that was what got the Western world in trouble to begin with. In fact, as we pointed out the other day, politicians and bankers ALWAYS keep rates too low, in our opinion.

When the economy is going well, the pressure is on to keep rates stable and low so as not to disrupt the good times. When the economy is going badly, the pressure is on to keep rates low so as to stimulate a recovery. As a result, economies are in a constant state of hyper-stimulation – a state of affairs that would never occur in a market-based gold and silver economy, or even a government-run gold standard. Anything is preferable to this hyper-frenetic monetary environment.

But this is what the Tories expect to give England, along of course with a regulatory regime that serves long-term not short term interests, whatever that means. Actually it means nothing much. None of it means much with an activist monetary policy. Think of, say, Zimbabwe. We do not mean to compare Britain – or America – to Zimbabwe … yet. But imagine Zimbabwe officials prattling on about banking competition and regulatory reform. The currency has diminished to nothing there and citizens are eating grass. The issue of a sound currency is paramount. In Britain, too. And yet the Tories have just announced that their policies will resurrect those monetary actions that drove the world into the financial crisis in the first place.

After Thoughts

The Tories are just as hopeless as Labour in our opinion. Just like the Republicans and Democrats, in America, the British parties are fairly indistinguishable at this point. The idea that a main platform of the Tory approach is an activist monetary policy says it all in our opinion. The British have no Ron Paul to point out the hopelessness of central banking and its destructive effects on the larger society. So they shall blunder on, ruining even more of what is left of their manufacturing sector while wealth and power concentrates in ever fewer hands. This is the inevitable result of fiat money which eventually destroys the middle class that utilizes it.

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