UKIP Alienates Only Sane Constituency in the City of London
Apparently we were not the only members of the small but stalwart band of sound-money enthusiasts in the City who, ignoring the less exciting stuff like company and market news, flicked eagerly to the City AM forum page on seeing the paper’s front-page banner headline advertising Nigel Farage’s guest column on UKIP Economics. Indeed, the letters page has been full of responses. Unfortunately, they have generally drawn attention to the important and sadly unarguable point that this article is somewhat diappointing.
Mr Farage, for reasons defying our comprehension, argues that the Bank of England, which has printed hundreds of billions of ‘pounds’ and monetised literally unimaginable amounts of government debt, is obviously being far too cautious about inflation. Therefore, it should be given the task of horsing around with some other economic indicators instead: “driving employment, growth and confidence”. It is genuinely difficult to know where to begin with what is wrong with this approach.
Since he brings it up explicitly in the article, perhaps we would first address the argument on which he should be on his home turf, i.e., the shortcomings of the Eurozone construct and the European Central Bank. He compares the ECB (and also the Bank of England) unfavourably with the US Federal Reserve, whose mandate includes not just price stability but other factors like employment and growth.
Never mind that it is the ex-Bundesbankers at the ECB whose monetary conservatism is its one redeeming feature: more importantly, even after their restraining influence is taken into account, it is precisely the ECB’s looser mandate which brought us to this sorry pass in the first place. The ECB’s statutory parameters are hardly a secret: “Without prejudice of the objective of price stability, [the ECB] shall support the general economic policies of the Community” [our emphasis]. It was the Bundesbank, not the ECB, for which Währungssicherheit or price stability was the only mandate. In other words, it was the old Bundesbank which looked only to the inflation of the money supply, and it is the ECB which has spent 15 years looking at the dog’s breakfast of assorted economic indicators like wage rates, consumer confidence, output and so forth which Mr Farage wants the Bank of England to adopt, too. Readers may judge for themselves which model has the strongest record on its side.
However, it is important to move beyond simple empirical observation like this, which in economics is often mere quixotry, to that deductive understanding which is economics’ true function. In this spirit, the very idea of giving an ever wider remit to our monopolistic money-creators (viz.- central banks) is terrifying. The role of artificial credit creation in the misallocation of resources and hence the business cycle is well understood, and the more immediate problem of how central banks extricate themselves from quantitative easing without panicking markets is becoming better understood every day: they can’t, because they have painted themselves in to a corner. This means that inflation is ever more likely to start creeping upwards, but in a context in which monetary tightening to counteract it will be even more difficult, because so much existing economic activity depends on rock-bottom rates, which in turn depend on constant new-money injections. As a result, central bank intervention in the monetary system must remain so pervasive that there is literally no such thing as a ‘market price’ any more – including a real market price for risk, which therefore makes a repetition of the financial crisis more rather than less likely.
And yet Mr Farage apparently wants to “take back the commanding height of the economy – the bank”. We very nearly hurled the paper in the general direction of the Confidential Waste bin at this point, but a more measured refutation would be this: if he is unwilling to acknowledge that the problem is the very fact that the economy has a some Olympian ‘commanding height’ in the first place, and especially that this position is occupied by an inherently inflationist central bank, then it entirely unclear what distinguishes his party from the others – what, in other words, his party is for.
Perhaps UKIP is developing its own equivalent of the Liberal Democrat Dilemma: by trying to win Tory votes in the South and Labour votes in the North, the LibDems became a national party at the expense of anything even approaching a coherent political platform. We used to hope that UKIP might develop into something like the Liberal Unionists – a party with Disraeli’s patriotism but Gladstone’s belief in a nation of sovereign individuals whose lives were not putty to be moulded by some great political sculptor. However, recent by-elections seem to have convinced UKIP that there are untapped electoral resources to be harvested by appealing to Old Labour prejudices: by advocating not just the continuation of such a thing as ‘monetary policy’, but also the broadening of its remit, Mr Farage is calling for a larger government role in what we spend or invest, buy or sell, save or hoard: those mundane every-day choices which are cumulatively the most important decisions we make in our lives.
We do not need another advocate of economic leadership of this or that particular kind. Clegg, Cameron and that other fellow have that base covered. The gap in our political market is for a person or party who believes, like Bastiat, that “each individual man is practically an excellent economist, producing or exchanging according as he finds it more to his interest to produce or exchange. Each, by experience, educates himself in this science; or, rather, the science itself is only the same experience accurately observed and methodically explained.”
We can not think of a better conclusion than to echo Mr Paul Ransom’s letter to the editor:
“Now we know UKIP will also kick the can down the road by failing to reconcile government’s tax revenue and spending through monetary sleight of hand. UKIP had my vote in the next election. Now I’ll just stay at home. Perhaps there really is nowhere left to go.”
Prove us wrong, Nigel – don’t kill our last hope. We are generous enough to assume that you did not write this garbage yourself – this time.