Ivor Tiefenbrun: Trust the People

Over-centralised command, planning and control structures are at odds with maximising the personal and corporate freedoms that are absolutely essential for the wealth creation process. The fact that our societies are now so dominated by big government, tax, welfare and regulation, means that we now have a form of state capitalism more similar to that which existed in the communist world than the free enterprise that transformed our world for the better. The secular stagnation that currently plagues world economies is the result of low base rates and Central Bank quantitative easing that was alleged to be a temporary cost free measure, but which has instead added to our vast debts.

The root cause of this unprecedented government interference is the ludicrous modern notion that economics is a science like physics, and that economies can be modelled and run like machines. Power-grabbing politicians soon seized on this absurd fantasy as an opportunity to vastly increase their power. The new “scientific” economics also led to the notion that demand management was the key to wealth creation. Governments decided that they can borrow from future generations to invest today, and claim that creates wealth. They also think that if they print enough money that will stimulate purchasing power and “demand” to ensure that the economy will blossom. This is like a man trying to pull himself up by his own bootlaces. He will inevitably fall over.

Government borrowing, and spending of fifty per cent in excess of tax revenues, is now called austerity. The money borrowed is spent on current welfare and excessive state salaries and pensions, free public services, subsidies, interest on debts, and lots of other things that destroy rather than create wealth.

The history of economics is no longer taught, and the lessons of classical economics first enunciated in Scotland by Adam Smith have been dismissed. The now more popular Keynes did suggest that governments should spend more money to reduce the impact of cyclical economic downturns, but only out of reserves, and then when the economy recovered, spending should be reduced to replenish those vital reserves. He did not advocate that governments should borrow, buy their own bonds, or try to spend their way out of recession, let alone print and drop borrowed money from helicopters. Of course governments do not now like that old-fashioned idea of spending less than income. Using Keynes as their cover, they borrow and spend on downturns, and borrow and spend even more on upturns. To fund their excessive borrowing, and to make the cost of their debt more affordable, they need artificially low interest rates, and to set arbitrary target levels for inflation which allows them to cheat their creditors and diminish the wealth of their fellow citizens.

Adam Smith taught the world that wealth is created by increasing productivity, and accumulated by avoiding waste and wealth destruction. Wealth redistribution and costly oversized and wasteful governments and confiscatory taxes are the major causes of wealth destruction. That is why small government is essential, and why it was once understood that its scope should be restricted to the essentials of defending the realm, maintaining the independence of the judiciary, and engaging in necessary enterprise that is beyond any individual or group of private individuals, but only when the benefit is truly universal, rather than sectarian. However, the desire to bribe large target groups of voters with other voters’ money has led to an unsustainable increase in government interference, waste, fraud and societal division. Prolonged artificially low interest rates have discouraged savers, encouraged borrowers, unsustainably inflated financial assets and markets, and destabilised and undermined the most prudent and hardest working, and so damaged long-term private investment. All this has led to the inevitable loss of productivity which we are now experiencing. The solution is not more government, or to replace national governments with unelected super-national centralising bureaucrats or Central Bankers, but to have smaller government taxing, doing and spending less, and making individuals more responsible, in order to encourage them to save and invest for their own future, rather than to borrow and spend.

The only sustainable way to increase wealth and distribute prosperity is through encouraging free enterprising individuals who accept personal responsibility for improving their own productivity in agriculture, mineral extraction, limited essential services, and above all manufacturing, upon which everything ultimately relies.

This process works because wealth creation depends upon productivity improvement, and that requires creativity. Creativity comes from freedom, responsibility, necessity, innovation and learning, and learning comes from doing things. People doing a job generally know more about it than anyone else, and certainly more than remote unengaged government planners, civil servants, Treasury officials, or as we now know, Central Bankers. Innovative people, focussed on their own output and self-interest, will seek to make it easier for themselves and others to do a better job. Free responsible human beings who have pride in their work will blossom and flower if they are left alone in the right environment to invest the proceeds of their labour in their own future. A highly centralised government and its agencies can never compete with free private enterprise, and the more distant and disconnected the control, the more damaging it becomes. This is one of the many fundamental reasons why big government and Central Bankers and the EU, just like the USSR, are doomed to fail.

Instead we should let Britain flourish. Does that sound familiar? It once worked for Glasgow.

Ivor Tiefenbrun is a Scottish manufacturer