This is a quick response on Willetts’ talk in the Imagine 2027 series at Anglia Ruskin University last night.
It is remarkable that the liberal wing of the Conservative is being forced to respond to the Labour Party’s progressive economic turn.
Willetts’ considers that intergenerational equality is driven by birth rates, a largely Malthusian idea. It assumes that birth rate causes economic conditions, whereas the relationship is probably reciprocal i.e. birth rate is as much influenced by economic conditions as vice versa.
Willetts is insistent on fiscal conservatism, that means taxation must be greater than or equal to public spending. Based on the accounting fact that all surpluses and deficits within an economy must sum to zero, if fiscal conservatism is pursued with an overseas trade deficit, debts in the private sector continue to accumulate. At the same time, investors become reluctant to invest in the ‘productive’ economy. Fiscal conservatism leads to inflated asset prices (like property) a rent-seeking economy and growing wealth inequality.
These are the economic conditions that we have been in since the mid-1970s and has been the source of much of what we describe as intergenerational inequality.
The solution is fiscal policy (spending in the public sector, regional investment and industrial strategy). This will encourage investment in the productive economy, create worthwhile and sustainable jobs, improve our trade deficit, lower inflated house prices and counter rent-seeking speculative investments. This should be accompanied by progressive taxation, but I don’t believe that taxation should be punitive but should support fair distribution of wealth (no, I am not that nasty socialist that wants to go after the rich that Willetts portrays). Moreover, it will reduce the demand for government bonds (national debt) because investment in the economy would be less risky, bonds become less appealing.
Willetts and the Resolution Foundation’s plan proposes increased taxation to pay for public services (fiscal conservatism is not negotiable, ergo neither are inflated asset prices nor is the rentier/ private debt economy). In some cases, the taxation is hypothecated. On the whole, the proposal for paying for public services and redressing intergenerational inequality is through taxation (in some cases hypothecated and overall regressive).
Sadly it won’t work.
Willetts is a charming and an engaging speaker and speaks with authority, but he is trying to sell snake oil and it is not to be trusted. He is trying to make a plausible case for the continuation of debt/ rentier capitalism mitigated by regressive taxation. A fool’s errand.