Sunday 1 September 2013

A Twelve-point Manifesto for Economic Recovery along with Fairness

I first came across the Hon* Christopher Layton on a refresher course for economics teachers at the University of Bath in the late 60s.  He astounded us by pointing our that the peak years for the order books of BSA, which made machine tools as well as airguns and Bantam motor-bikes, were 1951, 1955, 1959 and 1964.

To understand the significance of this you need to know about the economic "accelerator,"  by which a change in consumer demand has a magnified effect on investment demand (eg machine tools).  Now those dates were the years of General Elections, so here was evidence that our governments were stimulating consumer demand in election years - in other words, abusing  Keynesian demand management by using it to create a "feel good factor" to  win elections rather than steer the economy on a steady course to maintain full employment, growth, stable prices and balanced external payments.

It is a testimony to the innocence of those days that we were surprised by this: nowadays of course it is a commonplace.

Chris Layton has come to my attention again through an article on the coalition's economic policies, "Hurting not Working,"  in issue 358 of the Liberal magazine, Liberator. In this Layton:

  • praises Vince Cable for "urging public bond issues to fund a house building programme, rejecting a further round of spending cuts, and arguing that future efforts to close the deficit should be split 50-50 between tax increases and spending cuts;
  • points out the obvious, that "less public spending means less consumer or investment spending and a lower tax take;
  •  acknowledges that, after 2008 "deficit financing  by Gordon Brown, the US and other countries  successfully prevented worse (collapse.)"
Layton calls for "fresh thinking" and gives detailed proposals for a "practical and ethical vision" as follows:

  1. Public investment in infrastructure, financed by long term  infrastructure bonds, along with the removal of the cap on local authority borrowing to finance house building.  If the markets were supportive further bond issues could finance building programmes for hospitals and schools.
  2. Royal bank of Scotland to be fully nationalised, stripped of its bad debts and turned into a public investment bank, and the capital of the Green Investment Bank  increased from £3 -10bn over two years.
  3. A Europe-wide Tobin or financial transactions task.  True the "turkeys in the City don't like Christmas but it makes sense  for the public purse to tax a share of the gigantic flows of parasitic  money that rush round markets..."  A more modest step would be a levy on banks' balance sheets  as proposed by the Economist.
  4. Taxing capital gains at the same level as income tax.
  5. A tax on land, including agricultural land.  This would have to be introduced gradually, but the coalition should "immediately" tax unused land with planning permission,  which developers sit on.
  6.  Bonuses to be limited to no more than twice annual salary (though he notes an MIT study which shows that whilst bonuses encourage output and performance among the lowest earners, they are counter-productive  when applied to higher earners.)
  7. The 50% tax rate to be restored, and annual incomes above £500 000 to be subject to a super-tax of 80% or more.  This "would help create a sense of justice and do no harm to management performance."
  8. Clamp down on tax avoidance, tax havens, and the non-domestic status which turns the UK itself into a tax haven.
  9. Regulatory carbon pricing, carbon taxation and a revived European carbon market.
  10. Abolishing national Insurance contributions for the under 25s and reducing them for the lower-paid.
  11. Increasing capital allowances.
  12. Restoring cuts in funding for renewable energy.
Well, there's plenty meat there for Liberal Democrat manifesto writers to get their teeth into, and it comes not from some wild impractical youth but from one of the party's most sagacious and respected elder-statesmen.

*Christopher Layton is an Hon because he's a younger son of the late great Walter Layton, among other things sometime editor of the Economist and three times parliamentary Liberal candidate, alas unsuccessful, who was given a peerage in 1947.  Walter Layton was part-author with Keynes of the famous  Yellow Book  of 1928 which set out Liberal proposals to climb out of depression and "conquer unemployment."  Hence by setting out the above proposals the Hon Christopher is following in his distinguished father's footsteps.

 Let's hope that this time the parties and electorate  take more notice.

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