The real reason Britain is not growing

 

Why is Britain growing more slowly than other developed nations? Why have we been outperformed over the past 12 months by every EU state except Greece, Ireland, Portugal and Romania?

Let's start by dismissing the Labour-Guardian-BBC explanation: the idea that the economy is shrinking because of 'the cuts'. As this blog never tires of pointing out, net government expenditure is higher now than it was under Gordon Brown. We are set to borrow at least £122 billion this year. Spending is above 50 per cent of GDP. How much more 'stimulus' do critics want?

What the international league tables show is that the countries which decreed the biggest bailouts experienced the sharpest contractions. Far from 'stimulating' the economy, these various programmes have taken money out of the productive sector. If stimulus spending worked, the Soviet Union would have won the Cold War.

Which is why it so depressing to see ministers responding to their blockhead critics by trying to show that they're happy to intervene in the economy after all. How did a government committed to sound finances end up spending £1.4 billion in 1970s-style grants to favoured corporations? How did we end up with Nick Clegg boasting of the pork-barrel subsidies he had secured for his local steel plant? (Not that much of the money will end up boosting steel production, of course; it will be dissipated on armies of consultants, like all government grants). Why are taxpayers now being asked to intervene in the mortgage market? Such spending was the cause of the crisis, for Heaven's sake; it won't be the solution.

Ministers like to boast that, despite a Greek-level deficit, we have German-level interest rates. Might this not be precisely the problem? The prime minister was spot on yesterday when he described debt as 'a drag on growth'. Our debt level is, indeed, the single biggest reason why we are lagging behind our competitors. Surely, then, the dual policies of ultra-low interest rates and quantitative easing are guaranteed to magnify the problem. If debt is a drag on growth, why encourage it?

The truth is that nothing can prevent the correction that comes at the end of a credit bubble. Ludwig von Mises knew it. Murray Rothbard knew it. And, in opposition, the Conservatives knew it. In office, though, they find themselves importuned on all sides to 'do something' – that is, to spend more. The danger is that, for the sake of appearing active, they end up prolonging the downturn. As the greatest of all US presidents used to tell his officials: 'Don't just do something – stand there!'

http://blogs.telegraph.co.uk/news/danielhannan/100118899/the-real-reason-britain-is-not-growing/