Following my recent needling of Mr Allister Heath at City AM in response to his article calling for a new Ronald Reagan, he has kindly responded thus:
I agree with you that monetary policy was too loose in the US and in the UK (disastrously so under Lord Lawson in particular). However, I was focusing on Reagan's fiscal policies and didn't mention his monetary policy in my piece. While the latter was bad, it was no worse than what we have seen later and still see today - so I don't think it's an especially anti-Reagan point (we also saw far worse prior to him; in fact, the history of modern monetary policy has been one of failure in almost all economies). In fact, it is simply wrong for you to claim that monetary over-expansion started in the 1980s - we have been plagued by it ever since fiat money (and even before, for example when gold was brought back in large quantities to Europe by Latin American explorers).
As to the statistical dispersion of post-tax incomes you refer to, I agree that it has increased since the 1980s - but I do not believe inequality of outcomes as a goal, evidently unlike you. I do not believe that this kind of inequality causes crime. I'm much more worried bythe fact that some groups and individuals in society lack opportunity, for example because of poor state schools or because of perverse incentives created by the benefits system. But I think that low marginal tax rates maximise opportunities and economic growth, and hence welcome what Reagan did on that front.
To which I have framed a reply, as follows:
Dear Mr Heath
Thank you for responding. I am sorry to reply late but must plead pressure of work. May I perhaps take up a couple of your points?
1. I accept that Reagan's successors tended to permit the same disastrous over-expansion (I said "acceleration") of the money supply that, I must insist, did indeed begin on his watch. I shan't bore you with the graphs but the facts are undeniable. Yes, the money supply has had previous bursts - e.g. in the lead up to the 1929 debacle (and I'm familiar with the gold-supply-boosted inflation of the 16th century) - but 1980-ish was definitely a watershed in the postwar era. It's reaching a bit too far back to make tu quoque an excuse. However, I certainly don't exonerate his successors, either.
2. I also accept that when tax rates are high, tax cutting does help increase tax revenue as well as stimulating enterprise. But I'm not sure how much more tax rates should be cut from the 15% or so that effectively the American rich are currently paying. At the other end, I seem to recall research by - was it the IFS? - that shows the poorer sort are paying proportionately nearly as much tax as the middle class (something like 40%), thanks to indirect taxation.
3. You don't have to be a socialist - and I am certainly not - to query how (for example) the top ten US hedge fund managers can now be averaging $1.75 billion earnings p.a. This sort of thing is hardly the only alternative to "equality of outcome", a phrase whose implications are somewhat mischievously deployed by you in a discussion that ought really to be rather more nuanced.
4. Fiscal policy that focuses solely on State spending and debt is what has led us to this pretty pass. The Flow of Funds data shows that US local and national government debt declined from 52% of total credit market debt in 1952, to under 15% in 2007. That is not what has blown up the economy. Australian economist Steve Keen maintains, plausibly in my view, that what we have seen is a private debt crisis, not a public one. And this was stoked by the ability of banks to inflate asset prices through reckless lending; as well as government interference in the housing market, on both sides of the Atlantic. The failure to control the egregious greed of bankers must be laid at the door of governments, who doubtless saw votes for themselves in an overstimulated financial environment.
5. As the late Sir James Goldsmith (no slapstick socialist he, either) observed as long ago as 1993 when GATT was under way, it is globalisation that is destroying opportunities for those sectors of society for which you express some concern. Indeed he foresaw the breakdown of social cohesion in the West which we are now beginning to witness, and which the extremely high and growing disparities of wealth and income are doing nothing to heal. Certain clever and unscrupulous individuals have exploited the massively enriching (to themselves) opportunities latent in this situation, so I think it's fair to suggest that there is a causal relation between the prosperity of the super-wealthy in the modern financialized economies, and the impoverishment and social decay in the same.
6. You say that poverty does not cause crime (though recent UK statistics are showing a significant increase in burglaries). I would suggest that the underclass has, to some extent, been bought off by the payment of various kinds of social benefits, although there has been a concomitant deterioration in morale and behaviour, the effects of which are becoming increasingly difficult to manage and which is breeding a growing number of angry and confused children. Schools are doing what they can, but people must have hope of a better life and the prospects of meaningful employment and self-determination. This is unlikely to be achieved when our government exploits economic migration to hold down wage rates. More exam passes (inflated grades or no) may merely create a class of Eliza Doolittles with attitude.
INVESTMENT DISCLOSURE: None. Still in cash, and missing all those day-trading opportunities.
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