Inflation, recession and the Bank of England

 

               The political classes in the UK have for most of my active life in politics been gripped by a destructive  wish to find an “independent” discipline to run the economy to take it out of the hands of politicians. Some will say this shows a great wisdom and a certain humility about their own skills in this area. I wish to make an alternative case.

               In a democracy the ultimate power rests with the people. They can pressurise and lobby their elected government, or they can remove it if it fails to deliver what enough people want.  Mortgage and savings rates, the number of jobs and the advance or retreat of prosperity are often the dominant preoccupations. Whether economic policy has been subcontracted or not the voters will hold the elected government responsible for the outturn. The buck rests with the PM and Chancellor, whatever the details may say about who controls banks, money and interest rates.

                  In the last 30 years there have been two experiments with delegating the crucial powers. The first was the Establishment decision to join the Exchange Rate Mechanism. A Conservative government did it and carried the can for it, but all major political parties and the principal lobby groups all wanted it.  The second was the Labour idea of a so called “independent” Bank of England. This was also widely welcomed by the other political parties and by the main interest groups.  Both these approaches resulted in wild swings from boom to bust. We need to ask why.

                 Both policy approaches have been heavily influenced by Germany. The UK establishment was impressed by the long period of post war low inflation and growth achieved in Germany in the period from 1950 to 1980. The decision to tie the UK’s fortunes to the DM by putting the pound into the Exchange Rate Mechanism was designed to import Germany’s excellence at controlling inflation. If the DM was a low inflation currency, surely they argued we could hitch a ride to low inflation by linking our fortunes to it?

               I remember how lonely it was opposing this view in the later 1980s. A handful of us did so. I even took the large company I was chairing out of CBI membership partly  in protest at their support for joining the ERM.  I published a pamphlet in April 1989, before we entered the ERM, explaining how it would be destabilising. I argued that  in the short term, because the markets wanted to push the pound up, it would be inflationary. The Bank of England would create more pounds to sell across the exchanges to try to keep the rate down. This would become high powered money in the banking system leading to a surge of credit.

               The Uk joined and this was exactly what happened. A credit boom was unleashed by the bizarre monetary policy forced on the Bank by the need to keep the pound down. This in turn drove up prices. In  due course the reverse happened. Foreigners wanted to sell sterling. The Bank had to buy up pounds to try to keep the rate up. The credit bubble was burst by the  monetary contraction and by the need for much higher interest rates to try to keep the hot money in the UK. The UK lurched from a bad inflationary bubble created by excess money and credit, to an even worse recession, caused by too little money and credit. Both were the direct result of the independent system which all its supporters had said would lead to greater price stability and underpin smooth growth.

                        Few now would defend the ERM or are even prepared to remember their misplaced enthusiasm for it. The British Establishment has moved on, and has told itself the Conservatives lost in 1997 for other reasons. In truth the Conservatives lost in 1997 because the public were sore at the ultra high interest rates and the plunging activity levels created by ERM membership. A domestic policy could have been smoother and better for the UK.

                      Tomorrow I will look at the experiment with a so called independent Bank of England.

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38 Comments

  1. lifelogic
    Posted November 14, 2010 at 7:42 am | Permalink

    Largely I agree – the BoE is only nominally independent anyway the government still has much informal influence. The problem with the 5 year election cycle is however that politicians will manipulate interest rates like everything else for political ends. Labour tending to destroy the economy by diverting money from the productive to the feckless, to labour areas and pointless activity. Labour even has an incentive, if they think they will loose, to leave as large a mess as possible. This so the next government gets the blame and thus may not stay in power long as we may well see this time.

    You state “In a democracy the ultimate power rests with the people” it therefore follows that the UK is clearly no longer a democracy in any real sense. Unfortunately in the UK/EU power largely rests with EU officials the political class and parties. The people may vote but as we have seen (this last election in particular) the politicians will not do as they have promised. In the case of the EU areas they are actually often unable to do so even if they actually wanted to.

    There is a huge diversion of powers to the EU, where as you say government will still get the blame but it is largely powerless to change things. This gives the EU officials powers to make or break the Westminster government. What real democracy is thus actually left in the UK?

    Perhaps more importantly how could any ever be reclaimed from this sad position?

  2. norman
    Posted November 14, 2010 at 8:34 am | Permalink

    I wasn’t even a teenager in the 80’s so it’s nice to get an insiders view on how this happened.

    Off topic of ERM but related to the first paragraph – politicians taking responsibility for the economy.

    There was a programme on Channel 4 this week, a decent showcase of basic conservative thinking (which was nice to see on the national stage) but one part that struck me was when the presenter interviewed ‘random MP’s’ on the national debt / deficit.

    We may not have seen the 200 ‘random MP’s’ he interviewed that gave correct answers as that wouldn’t make good TV, so the following may be unfair, but the ones he did show were absolutely clueless. They had no idea what the actual debt was, not just a bit off, they had absolutely no idea – it could have been a million pounds or a trillion; confused debt and deficit and generally had no idea about the state of the country’s finances.

    The Lib Dem’s excuse was that he wasn’t an economist so things like debt and deficit were completely alien to him and you got the impression that he didn’t want to muddy his hands with such mundane matters.

    The Labour MP’s excuse was that she paid attention during debates but couldn’t actually recall any figures (she must have the memory of a goldfish, it’s been all over the papers, and one presumes Parliament, for months).

    Then they interviewed Alan Johnston (and I’m sure that he knows the state of affairs) and his advice was that we’re dealing in such large numbers that it would just confuse everyone so it’s best not to talk about it.

    These are the people who are voting on how to spend mine and yours (and our children and grandchildren’s) money! I’d rather have 650 random names from the London phone book.

    • chris southern
      Posted November 14, 2010 at 12:07 pm | Permalink

      They aren’t spending “our” money, they are just forcing the current as well as future generations to pay off their debts.

  3. Mick Anderson
    Posted November 14, 2010 at 8:35 am | Permalink

    I have always assumed that the “independent” members of the BofE were chosen by Mr Brown because their views were largely aligned with his own. As such, they were left to do what he would have probably done anyway, just with Mr Brown being better able to wash his hands of responsibility, making the whole “independence” thing a sham.

    However, having political advisers to guide Ministers to make changes to the interest rates amounts to the same thing. They are more likely to appoint and keep advisers who agree with them. In practice, although we could theoretically kick out a Minister who made bad choices, the party system of Government makes this a practical impossibility. Perhaps having a recall system would help, but I could not personally contribute to the removal of (for example) Mr Osborne because he is not associated with the constituency in which I live.

    As with Police Chiefs, the only way to have them truely accountable to the public is to elect them directly. The problem is that to make everything that should be properly accountable in this way, there would be too many elections for an ever-extending list of posts.

    Perhaps the solution is to have a Minister not only to appoint these posts, but to actually take responsibility (and pay a penalty) for the bad decisions that the holders of these posts make.

  4. alan jutson
    Posted November 14, 2010 at 8:38 am | Permalink

    Your opening paragraph says it all really.

    Politicians seem to have an obsession with wanting to get involved with the economy, either through Independent means or otherwise.

    Why do they not realise that if THEY chose the Independent means, its not really independent.

    The only true independent means is for them to get out of the way, and let individual businesses look after themselves, but this will never happen whilst they introduce more and more regulations, mess about with the Tax System every year, introduce ever more complicated employment law, and in general introduce so many cost additions, that we can never be competitive in the real World.

    The more the Government want to control, the worse the economy has performed.

    100 years ago when Government spent 10% of GDP we were buzzing, now they spend 50%, and are very near stagnant. We have been falling behind for decades, in fact its a wonder the economy still continues to grow at all, given the low rewards for risk.

    Personal tax at up to 50% plus National Insurance, 28% tax on Company profits plus National Insurance, soon to be 20% tax on spending, 20% tax on investment income. 40% tax on Inheritance, But if you make a loss, 100% of it is down to you.

    Meanwhile if you choose not work at all (exception ill health) then you can claim a whole host of payments for life, and the workers pay for it.

    Strange World we have created.

  5. Alte Fritz
    Posted November 14, 2010 at 8:56 am | Permalink

    A quick read of your post before leaving for Church suggests that I should pray harder than usual for wise counsel in those who govern us.

    I hope that you will find some space to discuss why our governing class seems to have so little faith in its own ability. That theme runs through the sorry tale of ERM and our relationsip with the EU.

    Certainly, Labour rightly used the memory of 15% interest rates to damn the Tories until they ran into their own sot of bother.

  6. Acorn
    Posted November 14, 2010 at 9:33 am | Permalink

    Somebody has to decide what is the job of a Central Bank. There is a case for it to be in the “liquidity” business. To LEND cash at the time of a bank run or similar situation; lend freely at high interest, as the Austrian School would say.

    I say, there is not a case for it to be in the “solvency” business. That is, buying up bad debts of financial institutions. Solvency rescues are the job of the elected Government, not the Central Bank. Buying up government debt should be done in an open market; the market will decide the terms of the deals.

    The US FED has decided that it will take over both functions, regardless of the US Congress. Fortunately, they have some politicians who understand what is going on and make a lot of noise about it. Some even want the FED abolished. In the UK, I suspect the BoE is doing the same thing. I only know one Westminster MP who actually understands; his face is up the page. I look forward to JR leading a Back Bench Committee debate on the role of the BoE.

    • Stuart Fairney
      Posted November 14, 2010 at 3:48 pm | Permalink

      Alternatively, the government could stay out of the solvency/rescue business completely and not issue any bonds at all thereby making the point moot by spending only what they raise in taxation and not a penny more.

      How freely we accept their inflationary profligacy.

    • lola
      Posted November 14, 2010 at 9:44 pm | Permalink

      The point is that the is ,no function for a ‘central bank’. It’s redundant, and largely responsible for the economic decline of the UK

  7. Nick
    Posted November 14, 2010 at 9:42 am | Permalink

    In a democracy the ultimate power rests with the people.

    =======================================

    Without wishing – well I do – go into a tirade of swearing I haven’t heard a bigger lie come out of a politicians mouth or typewriter in a while.

    Where do the people get to make a decision? When? You won’t let us. We just get to decide in a few cases the choice between party selected hacks who then act like lobby fodder and troop like cows to milking.

    Reply: There is a wide range of choice in many elections. If you could do better then stand yourself.

    • lifelogic
      Posted November 14, 2010 at 11:43 am | Permalink

      Clearly to have a chance of winning a Westminster seat you almost certainly need to be a candidate for one of the the major parties in a safe or at least marginal seat. It is the parties who thus select the MPs not really the electorate. They are in, marginals only, given a Hobson’s choice between two party place men, (who will not rock the boat, will not say their true beliefs, even if they have any, and will not do what they promise anyway) . This electoral process is like MEPs just to rubber stamp the process with a very expensive and fake democratic veneer.

      At EU level it is even worse in many respects.

      The electorate have more say in TV game shows than how they are actually governed.

    • Matt
      Posted November 14, 2010 at 12:56 pm | Permalink

      The British people have been so infantalised and so deceived by decades of statism and welfarism, they wouldn’t recognize the truth of our predicament unless it smashed them in the face.

      This is precisely what is going to happen.

      The Dollar system IS going to collapse. It is unavoidable.

      Seeing as the dollar IS the global reserve currency, the consequences are going to worldwide and terrible beyond imagination.

      Democracy will not survive in the UK because the people cannot take responsibility for their own lives anymore.

    • electro-kevin
      Posted November 14, 2010 at 9:07 pm | Permalink

      I feel compelled to defend Mr Redwood’s integrity here. He’s one of the good guys.

      I doubt that Nick (through his evident lack of diplomacy) would ever claim to being more able than some politicians – but that is rather different to saying that he probably wouldn’t be any worse either.

      • waramess
        Posted November 16, 2010 at 10:10 am | Permalink

        Even the good guys can get it wrong sometimes

    • APL
      Posted November 15, 2010 at 1:36 pm | Permalink

      Nick: “Without wishing – well I do – go into a tirade of swearing I haven’t heard a bigger lie come out of a politicians mouth or typewriter in a while. ”

      Exactly.

      The worst error britian made was paying Politicians a wage. They should have been paid part time like the TA.

      Salaried Politicians directly leads to a Political class isolated and insulated from the population they are supposedly representing.

      What happens to a politician that loses an election? Why, he’s popped upstairs to the Lords e.g.; Kinnock, Martin and so on. Who puts him there? Why, other members of the political class! When in the Lords he or she goes on and on living the high life at our expense without any estimation of his or her effectiveness or indeed usefulness.

      Now Redwood tells us we have plenty of choice, yet is the first to squeal when the people do not vote according to his direction. It is our fault Cameron is a Europhile – but we should vote for Cameron’s ( possessive) Tory party because according to Redwood, that is the only way to achieve independence from the cursed European Union. That sentiment is worthy of the USSR.

      Not only do we not have ‘plenty of choice’ even the miserable fare we are offered, are selected by party central orginisations, for their ability to clamber up the greasy pole.

  8. Johnny Norfolk
    Posted November 14, 2010 at 10:00 am | Permalink

    Could not agree with you more. You put it into words far better than I could

  9. waramess
    Posted November 14, 2010 at 10:52 am | Permalink

    Such a breathtaking desire to re-write history I am left puffing.
    The electorate are not free to do anything of the kind. The establishment have so completely distorted democracy that the electorate do not even elect their MP. Sometimes in those far flung reaches the selection committee will still do so but often the selction is done from the centre. So, if we are of the tribal variety, we will vote for whoever the party tells us to vote for and then we are foisted with whoever the party has told us will be the leader.
    So corrupt has our system become that we, the electorate really have little to do with the process. Labour gets in for ten years or so and spends itself silly , then the Conservatives get in and try to sort things out, usually very unsuccessfully, which is why we are now taxed at 53 percent of our income.
    Handing it all over to the Europeans was never more than an idealogical reflex and handing over monetary policy to the Bank of England always an obvious sleight of hand played by the then Chancellor who never did have the intention of doing anything of the sort.
    Politicians will bluster for ever more in order to keep control over their fraudulent manipulation of the money supply but the only answer to their deceit is the gold standard.
    I own not one ounce of gold but I do have a moral indignation over the way in which our politicians insist on debasing our currency, most latterly through zero interest rates and so called QE.
    Who are the most disadvantaged? The retired and soon to be retired who have no means of replacing their meager store of wealth and the winners? Well so far the Government and the young with debt but otherwise certainly not the economy nor the currency

  10. Stuart Fairney
    Posted November 14, 2010 at 11:08 am | Permalink

    They could always leave the economy to run itself, but the need to meddle runs deep in all of ’em I fear.

    • Steve Tierney
      Posted November 14, 2010 at 6:45 pm | Permalink

      Leave the economy to run itself? You mean a – gasp – free market? You radical! Somebody call the thought police. ; )

  11. Robert Eve
    Posted November 14, 2010 at 11:59 am | Permalink

    My take on why the Conservatives lost in 1997 is that after 18 years the (woeful) electorate decided it was Labour’s turn. How we have suffered from that decision.

  12. Demetrius
    Posted November 14, 2010 at 12:45 pm | Permalink

    A couple of days ago on my blog I cried woe about the British need to go galloping around the world to seek the answers to our problems. I called this either The Holy Grail Syndrome or the Magic Potion Solution and suggested it is time for our politicians to rub our noses in our own dirt. Unluckily this is neither popular nor media friendly.

  13. Matt
    Posted November 14, 2010 at 12:50 pm | Permalink

    Why do even have a central bank?

    Why is all money in existence created as interest bearing debt that can NEVER be repaid.

    Ron Paul, the famously anti-central bank congressman is expected to head up the Congressional sub comittee on banking and he is expected to attempt to subpoena Ben Bernanke to ‘produce the books’ and audit the activities of the Federal Reserve.

    It’s high time something similar happened here.

    The Bank of England seems to operate beyond any proper scrutiny by successive governments or the people. Much of its regulatory framework seems to be controlled by the Bank of International Settlements (BIS) in Basel, Switzerland. What oversight does the British Parliament have over the activities of the BIS? NONE!

    We have 3 choices right now

    1. Keep the BoE and suffer the consequences……….perpetual debt slavery and eventual serfdom

    2. The government says TO HELL WITH YOU (central bankers) and it issues a greater proportion of the nation’s money as interest free fiat currency to service the needs of the economy and the people.

    3. We at least partially back our money with our depleted reserves of gold or silver

    Unfortunately, the rot in this nation is so deep, it is questionable whether any political party will save the people from certain economic collapse. The people will have to deliver themselves from the tyranny of debt based money. There is no other alternative.

    We need a British Tea Party movement, grassroots powered, and we need it immediately.

  14. FaustiesBlog
    Posted November 14, 2010 at 12:58 pm | Permalink

    The people have far less power to lobby the government than do corporations. Perversely, multi-national corporations have more power over national governments than local, which means that the globalist agenda marches forward, while the democratic deficit increases.

    The populace hardly gets the opportunity to “throw the bums out”, when manifesto pledges are worthless and can be ignored at will, and when all parties subscribe to the same policies, regardless of whether the electorate supports such policies.

    Notable mention: EU referendum.

    Again, I ask why we pay interest on money created out of thin air. Were the government to issue its own currency, independent of any bank, no interest would need to be paid to any banks and the money supply could be controlled by [elected] Parliament – not the executive.

    Why on earth do we not do this?

  15. Matt
    Posted November 14, 2010 at 1:12 pm | Permalink

    Ron Paul on the Fed and central banking

    Listen to this man.

  16. Mark
    Posted November 14, 2010 at 1:31 pm | Permalink

    “Give me control of a nation’s money and I care not who makes her laws.” Mayer Amschel Rothschild

    Few politicians begin to grasp the workings of an economy. How many of the PPE graduates even studied economics beyond the first year introductory course? The lags between policy and consequence are usually sufficient to ensure that they are never held accountable for their failures, whilst their successes go unrewarded. Even among the politicians who understand, few are prepared to explain, especially in the modern era of spin and lobby politics, which values politicians who don’t understand but who can recite a script unthinkingly and unfailingly. Acting is not in general a well paid profession, so it is little wonder that politics is following by reducing pay.

    The ERM was a “damned close thing” that nearly saw us surrender our sovereignty. The oddity is that we didn’t formally join it until October 1990 when the bust was already under way – the damage had been caused by our shadow membership. At the time I considered the tactic was simply to be able to blame the Germans when pear shapes appeared – a point I recall making to Alan Walters at the time. Like an elephant mating, it took a little more than 18 months to produce results.

    The house price boom in the late 1980s was fuelled by the well telegraphed plan to withdraw double MIRAS relief for couples. Some of the instability also resulted from the letting off of steam caused by the “Big Bang” in the City. Sharply reduced energy prices also fired up economic activity that more than offset the loss of North Sea taxation revenue. The idea that the ERM should be a straightjacket that would cure these influences seems a little mad: but then straightjackets are usually used on those whose sanity is in doubt.

    Parliament is currently busy surrendering control of our money again. At least you had the honesty to vote against that.

  17. Neil Craig
    Posted November 14, 2010 at 2:09 pm | Permalink

    The independent discipline which works is the market because it, alone, has a negative feedback system which reduces the size of & if necessary eventualy bankrupts parts of the system run badly. That is the one the political classes should be handing power to.

    As regard John’s remark “in democracy the ultimate power rests with the people. They can pressurise and lobby their elected government, or they can remove it if it fails to deliver” – if that is so Britain is, at best, quite far from a full democracy. What pressure can we put on elected governments that is strong enough even to make them keep their most solemn promises even when there is no financial incentive on them to do otherwise (eg the Lisbon referendum promise)? Under what circumstances then can we exert pressure for something where they do have an incentive? With our openly corrupt electoral system how can we remove all 3 parties at once rather than merely assisting them to move round? How can we even know which part of what we are told & on which we must choose where to vote if the overwhelming part of our media is (highly spun and dustorts the reality ed) in any way. Democracy requires both free media & a voting system whereby you can successfully elect the opposition. We have neither.

  18. Mr. Mxyzptlk
    Posted November 14, 2010 at 6:43 pm | Permalink

    The political classes in the UK want power but not responsibility so they
    seek always and everywhere to delegate responsibility to others so they
    can when things go all pete tong remain in office and in power.

    Best of luck in arguing for them to take both the power and the responsibility
    but i am afraid we do not have Democratic leaders with the moral authority
    and leadership in the past perhaps…………

    we are unlikely to see their kind again

  19. FaustiesBlog
    Posted November 14, 2010 at 10:09 pm | Permalink

    JR, I challenge you to publish my comment, which was posted long before those already published.

    What are you afraid of?

  20. English Pensioner
    Posted November 14, 2010 at 11:50 pm | Permalink

    It’s surely a matter of choosing the lesser of two evils.
    Your arguments are quite logical, and indeed correct if we could rely on the on the integrity of our politicians and believe that they had the best interests of the country at heart.
    Unfortunately, far too many put their party (and hence their jobs) before the country. The last senior politician who, in my view, did not put himself first was Winston Churchill, who was prepared to go into the political wilderness all through the thirties because he believed that he was right.

  21. Martin
    Posted November 15, 2010 at 12:16 am | Permalink

    Some of our present inflation is caused by excessive spending in the public sector and lack of private sector investment caused by the present useless planning “system”. Tweaking Interest rates won’t change this.

    As for expecting interest rates to be the sole mechanism for keeping the economy on the near straight and level well they don’t control asset price bubbles. The UK housing market price inflation has been allowed (even encouraged) to rampage like crazy. Difficulties in the supply of housing are ignored.

  22. Julian White
    Posted November 15, 2010 at 12:47 am | Permalink

    This is rewriting history, with respect. How could a credit boom be released by joining the ERM, when it was the aim, and achievement of the ERM, to reduce inflation? The British economy was in recession before we joined the ERM, and it was in recovery before we left it.

    And high interest rates because of the ERM? Whilst in the ERM interest rates were reduced from 15% to under 10%.

    Considering you were a member of a Government who was led, in my view brilliantly, by John Major, who had referred to reducing inflation as being essential throughout his whole career, and then delivered that in a way that Thatcher, Heath, Wilson and so on, all failed to achieve, isn’t this a rather unfair version of history?

    Reply: Not so. We shadowed the DM and the pound wanted to go up, so the government printed money to sell pounds. We joined the ERM and the pound still wanted to go up, so they created and sold more pounds. This built a credit bubble. Then the markets worried about the inflation the policy was causing, so they started selling pounds. The process then went into reverse and we had the bust.

    • Julian White
      Posted November 16, 2010 at 11:05 pm | Permalink

      But the economy was surely in a credit boom of our own making due to the expansionary policies of the late 1980s and the boom in consumer credit. If we go back to the time when we joined the ERM, history usually showed that inflation could be brought down for a short period, then it went back up again, with the devastating effect that had on the economy.

      The ERM might not have been a long-term solution, and Major seems to have been very aware that our membership was a means to an end and not the end itself, but that mechanism aimed to get inflation down, and it did, with the clear indication to the markets of the Government’s intentions. I can’t see what other mechanism would have allowed wage and price inflation to be restrained in such a way, and the economic figures suggest to me that the economy was starting to grow again when in the ERM at the same time as constraining inflationary pressures.

      Indeed to try and compare the situation we’d otherwise have had, without those constraints now, inflation is now higher than at any time under Major’s administration from when the ERM began to take effect in the early 1990s.

      Although I don’t dispute your logic in principle about the Bank of England having decisions over interest rates, I don’t agree that was the main cause of the boom and bust we’ve seen. That appears to me to be poor economic management by the Government in a range of areas.

      If we assume that Major would have continued after 1997, I find it quite likely that he would have restrained the credit market from growing as it did, refrained from lightening the FSA role, and I would have thought it quite possible he would have used the tax system to limit the number of houses that individuals could buy on buy-to-let schemes, to limit house price inflation (and indeed for social reasons of wanting a society where more people could own their own home).

      On that logic, Major would have put Britain in a much better position to avoid the recession caught so heavily from the US, and likely seen a much more stable economy than we’ve had. There appears to me to be a very valid argument that the interventions that you comment on as being bad for the economy were actually necessary, or didn’t really affect the state of the economy.

  23. Ross J Warren
    Posted November 15, 2010 at 10:11 am | Permalink

    Firstly John I owe you an apology of sorts, as I now get the very big gap between the Coalitions claim of cuts and the realty of rising government spending. Of course some of this is due to inflation, and the massive cost of our dependent population.

    I wonder if this desire of government to outsource the running our economy is really an admission that the vast majority of MP’s are hopelessly out of their depth ?
    In which case its a brave thing to admit the fact and find people who really do understand economics ( if they exist at all) . Clearly actuaries can earn far more working for large corporations than they could working as MP’s. The old saying ” you pay peanuts, you get monkeys” is true right up to the very top of the tree.

    Frankly if Economics is beyond the comprehension of our ruling elite then it makes absolute sense to give this very important job to a body than can cope with it.
    Mismanagement reduced this nation from near the top in international terms to a nation outside of the top ten, dispute being one of the larger economies. Rather than carrying on with incompetent ministries we would be better served by expert groups taking control of our finances. That way we might get the low tax and high reward culture that we exported to Hong Kong and the rest of the tiger economies, blossoming here.

    Weal politicians have fudged our balance of payments for far to long, isn’t it now time to turn the Job over to professional economists rather than the political stand ups who only rarely have the skills that are needed?

    • alan jutson
      Posted November 15, 2010 at 5:27 pm | Permalink

      Ross J Warren

      The problem with your suggestion is that you expect Politicians to recognise an “expert”

      Given that we have had decades of so called experts, all who have been appointed by Ministers in the past to advise them on a whole range of subjects, we have still found it has put us on the present disaster track.

      The problem is the Quality of MPs. Many have never run anything in their lives before, indeed I would be surprised if the majority have even done and been responsible for the household shopping. So how do you expect them to sort out and recognise a financial, economic expert.

      The nearest financial and economic expert we have in the Conservative Party writes this web site, and even he seems to have been sidelined by the present leadership. So what hope.

    • Mark
      Posted November 15, 2010 at 9:55 pm | Permalink

      I agree with your sentiments: to have MPs who are truly able as representatives we need candidates who are worth substantially more to come forward. We probably need to have a set of minimum standards that should apply in terms of understanding economics and statistics, law, and several other subjects. Selection should encourage diversity of abilities.

  24. sm
    Posted November 15, 2010 at 10:48 am | Permalink

    I query:
    1) The independence of the BOE? I’m not convinced. Could not the pay,rewards and pensions paid to the BOE employees be linked to its success in meeting its given targets. (Pay increases linked to its target). A formal removal process of members if its targets are not met say 1 member a month.)
    2) Democracy in the UK- Yes to an extent but them our elected representatives do not exercise it which relects the national will. We need some constitutional methods of recall of MP’s on these points and bringing the wishes of the electorate to bear. We also need constitutional laws to limit or slow potential abuse. e.g referendums.
    3) No taxation without representation?

    Waiting for the collapse of the EU as and when Germany has had enough. £80 bn may do the trick.

  25. Conrad Jones
    Posted November 15, 2010 at 4:05 pm | Permalink

    Mr Redwood, as always – an excellent article on this subject. Thank you.

    “In a democracy the ultimate power rests with the people.”

    I will dispute this line with you. I believe you meant:

    “In a democracy the ultimate power SHOULD rest with the people.”

    Unfortunately, there are far too few Politicians in the House of Commons like yourself, to make this a true democracy.

    It seems that yuor views fell on deaf ears and we are all the worse for that.

    Gordon Browns arrogance over the Gold Sales – after being advised not to sell off half the UKs Gold, displays the complete disregard for what is right for the Country.

    You mention Lobbyists – unfortunately the most Powerful Lobbyists originate from the City of London, who are the biggest beneficiaries of Quantitative Easing with Savers and Fixed Waged workers being the losers.

  26. tomsmith
    Posted November 16, 2010 at 9:46 am | Permalink

    “In a democracy the ultimate power rests with the people.”

    Not true. In a democracy ultimate power rests with some people and not with some other people. Usually the first group are a minority of the population, and even if they are the majority, mob rule is still wrong. The market does not suffer from this defect because it is based upon voluntary exchange rather than the use of force.

    What we need is fewer leaders, decision makers, and general do gooders making rules and spending our money. Obviously we are unlikely to get this in a system where we are only allowed to elect leaders to make our decisions for us.

    Recognising the sham of democracy for what it is, it is time for us to have some pride. We should not vote and we should not give legitimacy to the current system of voluntary servitude.

  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, and graduated from Magdalen College Oxford. He is a Distinguished fellow of All Souls, Oxford. A businessman by background, he has set up an investment management business, was both executive and non executive chairman of a quoted industrial PLC, and chaired a manufacturing company with factories in Birmingham, Chicago, India and China. He is the MP for Wokingham, first elected in 1987.

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