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How to rebuild the economy after COVID-19

Frederic Bastiat (1801-1850), the great French economist, famously said that “government is the great fiction, through which everybody endeavours to live at the expense of everybody else.” In the United Kingdom, we have endured restrictions on economic and personal liberty that we have not known for generations. Therefore, one might expect that we would be breathing a sigh of relief as COVID-19 vaccines come into view and the carrot of normality is dangled before us.

However, we need enormous vigilance on the road to economic recovery. The population has been largely cowered into an acceptance of government intervention, excessive spending, extreme levels of sovereign debt, regulation, and control as normal modes of economic policy. Bastiat’s warning reminds us of the enormous cost that will ensue if we go down this road.

COVID-19 has devastated the British economy, we are told. It might be more accurate to say that the restrictions imposed by government in response to COVID-19 have wrecked the economy.

  • Government borrowing for 2021-22 is currently running at £215 billion, compared to £161 billion in the same period last year. The level is expected to reach £372 billion by the end of the financial year. Net debt has now exceeded £2 trillion and is more than 100% of GDP. The problem is not just that we are borrowing more than we spend, but that we owe more than our entire national income.
  • Gross domestic product has fallen 8.2% since February 2020. As spending rises, our national income falls.
  • In September 2020, unemployment in the UK was 4.8%, compared to 3.9% in the previous year. Jobs collapse, government revenue falls, and still government spending rises.

These statistics from the UK’s Office of National Statistics represent merely the tip of the iceberg in relation to the true cost of COVID-19. Beyond these bare economic indicators, we have seen great damage to the nation’s mental health, to family relationships, to the role of the police, and to trust in the scientific establishment.

These statistics reveal not only an economic disaster but also a moral one. We have lost sight of the moral questions raised by economic catastrophe, because we have become immune to the impact of government spending and excess debt. What then are these moral quandaries?

The danger of high levels of sovereign debt. We appear to have lost sight of the principle of prudence, the balancing of budgets, and the impact that excessive debt used to fund present consumption has on future generations. Returning to balanced budgets, reducing the debt, restoring normal interest rates that encourage prudent savers, and reining in the government spending would all contribute to a more morally coherent economic policy.

The presumption of a centrally directed fiscal and monetary policy. Government by Keynesian economists inevitably leads to the idea that government can stimulate demand (perhaps by building a pointless bridge or another piece of infrastructure). Where have all the monetarists gone, the supply-siders who understand that the answer to economic problems lies more in the real economy than with government intervention? Is no one else tired of endless government meddling and regulation? Is no one else tired of the latest big spending announcements, demands for public sector pay rises (uncoupled from increased productivity), and the unwillingness to recognise the failures of the public sector? There is nothing especially moral about a government spending more British pounds or U.S. dollars; in fact, one might argue that that pound or dollar is put to better moral use in a family or a private business.

The moral peril of a resurgence of inflation. Certainly, in the UK nobody talks about inflation any more. Excessive spending and increases in the money supply (now disguised by the euphemism “quantitative easing”) pose an enormous risk of a resurgence of inflation. Some of us remember the former times. In 1975, inflation in the UK exceeded 24%, and in the decade 1972-1982, inflation never fell below 8.2% per annum. The value of money was destroyed. Savings were destroyed. The danger of a resurgence of inflation is a deeply moral question.

What might a policy for economic renewal after COVID-19 actually look like? I am writing from a British perspective, but the principles are entirely transferable to other nations. Here are a few ideas.

Encourage entrepreneurship. We need to rekindle the entrepreneurial spirit – the one endowed by God – with all the innovation, creativity, and ingenuity it entails. There is in the UK an overemphasis on “employed” status, in which the state designates rights to the employee and excessively burdensome responsibilities to the employer. In the recent COVID-19 crisis, the self-employed bore much of the brunt of the economic hit. We need a rebalancing, which permits much more fluid movement between employment concepts. Or maybe it is time to abolish “employment” status and designate everyone as an independent contractor?

Deregulate. Governments love to regulate. We have certainly seen that in the COVID-19 crisis. And once governments have acquired the taste, unlike with COVID-19 itself, they never lose it. Those who voted for our exit from the EU, which regulated everything including the size and shape of vegetables, in the hopes of less regulation should not hold their breath. We should integrate systems, establishing one registration for all business taxes. For every regulation a department of state proposes, it should be required to remove three others. And regulations need to be a simplified across health, safety, and employment sectors.

Reduce taxation. Although it is tempting to argue that “taxation is theft,” mature reflection suggests otherwise. There is a proper role for government and a proper place for taxation to fund appropriately limited public services. The problem lies in the assumption that government has the answer, so taxation can be raised by whim; that profit and innovation are drags on the economy rather than its engine; that government has acquired the right to redistribute the income of individuals and families.

Restrict government spending and debt. None of the other steps can take hold without getting control of central government spending. A household might borrow for a capital item (say a house), provided that it can fund the loan out of current income; otherwise, it will go bankrupt and face poverty. Precisely the same principle applies to the nation. In fact, one could argue that it is fundamentally immoral for a nation’s expenditures to exceed its income in anything other than a temporary way. But where will reductions in government expenditure be achieved? The current row in the UK is over overseas aid, development aid, which, bizarrely, is fixed by law at 0.7% of national income. The bishops, the development organisations, and nonprofits are all lining up to prevent a reduction. This program does not help the poorest countries, because it fundamentally misunderstands that development comes through entrepreneurship and innovation, not intergovernmental aid. Perhaps it could all go, save maybe for an emergency disaster fund. There are numerous other examples (welfare, for example). It is time, morally, to cut government expenditure by significant amounts.

COVID-19 has exposed the fact that we have become so wedded to government control and intervention that we cannot conceive of any other solution. That is fundamentally a moral problem. The answer lies not only in a different set of policies but also in reimagining economic policy in moral terms. That begins by understanding that government is not necessarily the answer, and that bigger government is certainly not the answer. Moral action begins with the individual and percolates upward. We must rearticulate the argument and win the intellectual war.

(Photo credit: R. Miller. This photo has been cropped. CC BY 2.0.)

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Rev. Dr. Richard Turnbull is the director of the Centre for Enterprise, Markets and Ethics and a trustee of the Christian Institute. He holds a degree in Economics and Accounting and spent over eight years as a Chartered Accountant with Ernst and Young and served as the youngest ever member of the Press Council. Richard also holds a first class honours degree in Theology and PhD in Theology from the University of Durham. He was ordained into the ministry of the Church of England in 1994.

Richard served in the pastoral ministry for over 10 years. He was also for 7 years the Principal of Wycliffe Hall, Oxford. He has authored several books, is a Fellow of the Royal Historical Society and a visiting Professor at St Mary’s University, Twickenham.