Guernsey Press

‘All progress depends on the unreasonable man'

Andy Sloan offers his thoughts on Kwasi Kwarteng’s mini-budget.

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Chancellor Kwasi Kwarteng (31314024)

KAMIKWASI? I don’t think so.

At the Credit Suisse golf dinner on Saturday night I got asked what I thought about Kwasi Kwarteng’s fiscal measures last Friday. We’re an erudite bunch, us golfers.

After a bit of mulling I decided I loved it. Yes, parity with the dollar is looming large but sterling will come back in time, as it did in 1985, once the markets get it. The deficit numbers are on a static comparison basis. Deliberately dumbed down analysis. And do people really not think spending cuts are on the way too?

But why do I love it? Two reasons.

First because it signals a break finally with the nonsensomics of economic and monetary policy of the last 15 years. I’ve written many times, sometimes quite hysterically, about the madness of free money, permanent near-zero rates, bloated central bank balance sheets and quantitative easing. Kwasi has forced the Bank of England’s hand and it will clearly now have to raise rates faster and to higher levels than it originally planned. It will cause a purge of non-productive output, which will hurt, but that’s been long overdue.

Second because it signals a welcome return to a focus on traditional economic values.

‘For too long in this country, we have indulged in a fight over redistribution. Now we need to focus on growth, not just on how we tax and spend.’

Kwasi’s words signal that we now have a UK government that is willing to challenge the global tax agenda of French economists Thomas Piketty and Gabriel Zucman of the last decade that now dominates EU and OECD thinking. To date, it’s gone unchallenged in the UK and even permeates the US Democratic Party too.

Kwasi, Kwasi he’s our man, if he can’t do it no one can!

Everything you’ve just read (other than that last, obviously tongue-in-cheek, sentence) was posted on LinkedIn first thing Monday morning. I reproduce them here because I feel those words and opinion deserved a Guernsey Press audience. Actually, I felt they deserved any audience, because after more than 7,500 impressions in a just few hours, it was removed by Linkedin moderators on the grounds of misinformation.

I don’t see it myself. You might disagree with my opinion, but surely it’s recognised as such. I’ve appealed and asked why. And just before filing this piece, late Tuesday night, I’ve just received the response from LinkedIn and it’s back up. But two days of being cancelled. Disturbing.

It’s disturbing times. Sir Andrew Bailey seemed a man under pressure to me at the beginning of the week, doing an impression of a lemon and refusing to increase rates. I seriously wondered if he’s long for this world.

And just as I go to file this column, there’s another development. Aagh! The IMF have just felt moved to comment on UK policy. Interestingly, rather than sticking to the macroeconomics as is their purview, they felt the need to have their two penneth on the impact on inequality of removing the 45% rate. Pinch me, what have domestic distributional aspects of Kwasi’s fiscal approach got to do with the IMF? Is this what Sir Andrew meant when he said meddling with the Bank of England’s independence would harm Britain’s international standing? Disturbing.

It all has echoes of Ursula von der Leyen in New York last week warning Giorgia Meloni [set to become Italy’s prime minister] not to get too carried away with her democratic mandate. ‘If things go in a difficult direction,’ von der Leyen said in response to journalist questions, ‘we [the EU] have tools.’ Disturbing.

I am serious about the read across of Kwasi’s words to the global tax agenda. There’s a lazy policy consensus that needs challenging. The International Sustainability Institute Channel Islands’ first paper on fiscal sustainability will be published in the autumn and it will include a good dollop of myth busting. There’s a real need for it.

Flabby, consensual policy thinking is pretty de rigueur in 2022. Someone has to challenge the consensus. Remember the names of the 364 economists that wrote to The Times to condemn Margaret Thatcher’s economic policies in 1981? No? I didn’t think so.

Changing tack, and putting to bed conspiracy theories for now, I do believe this is the first occasion that publication of this column coincides with the (what used to be) monthly States meeting. It could well be nothing substantive has been decided by the time of publication on Thursday, but I’d hope an amendment or two must have been voted on by the time you read this.

The first big debate up is disability legislation. I’ll be frank, like most of the population I’ve given up following the details of the debate of this one. Which is rather shame on me.

Another I’d lost track of was the discussion about whether to participate in future UK free trade agreements. I see that’s popped in there this month too. Slipped in at the top of the policy letter agenda just before the Children’s Law. I assume in the hope that it can be nodded through quickly without too much debate.

That’s a shame, as it’s a bit of a case study in consensus think. And I don’t like consensus think, as you might have fathomed. As General Patton said, if everyone’s thinking alike, someone’s not thinking. The main argument presented in favour of participation in future trade agreements is that the ‘Trade Policy Forum’ is in favour. No details why are provided. This body is made up of ‘leading business representatives for Guernsey’ and other stakeholders. Invite only, I assume.

But for reassurance, and presented as the telling second opinion, there is Frontier Economics and another unpublished report. A report we are reassured ‘conducted much “detailed” research’. Too much detail for publication apparently. Fortunately, its conclusions are whittled down to four bullet points by the States in its report. All qualitative reasons. ‘Showing that Guernsey is an integral part of the “British family”’ is number three. Spiffing. I hope the taxpayer paid full sticker price for that detailed research.

There’s no reference to estimates of increased trade, economic activity, or any such similar. Stuff you might expect when trying to sell participation in trade agreements. But for balance, there’s no attempt to estimate the costs of complying with the terms of any future agreements either. Just a long report summarising the consensus thinking on the topic. Disturbing? Er... maybe. Disappointing? Definitely.

Not bothering with estimates of costs or benefits of policies seems to be par for the course nowadays. The States is keeping good company with the EU. Last week the International Sustainability Institute Channel Islands hosted a fringe event for Guernsey’s Sustainable Finance Week at the Chamber. The topic? Our cost estimates of implementing the EU’s Sustainable Finance Regulations. The cost? 2.5 trillion euros.

But the real scandal, as we pointed out, was that no one at the European Commission was ever moved to try and do the maths. Disturbing – they’ve had years to have a go. I was interviewed by the Financial Times about the report and the journalist didn’t flinch at the cost, suggesting that if it achieved its objectives (of increasing capital flows to green projects) it was a price worth paying. Never mind I’d spent the best part of half an hour explaining it wouldn’t make a blind bit of difference, they didn’t question whether there was a better, more cost-effective route. No challenge. Consensus policy making at its worst.

‘The reasonable man adapts himself to the world; the unreasonable one persists in trying to adapt the world to himself. Therefore all progress depends on the unreasonable man.’ George Bernard Shaw. It’s my life motto. Give me Kamikwasi to the global consensus any day.