Growth and Censorship don’t Mix.

Editor’s note: As we grapple with a world reshaped by its COVID response and try to understand how it happened, a pertinent question is “who or what orchestrated the events of the past few years? someone or no-one, was this a conspiracy or a cock-up?” Both views have subscribers, merits and demerits. Mark Shaw analyses COVID history from a “cock-up” perspective. In an anti-censorship spirit and as a conduit to constructive debate towards the truth of the matter, we publish his latest piece.

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When the Government entered lockdown in early 2020 I asked myself, “have they really thought this one through?” As lockdown continued and Covid testing and the furlough scheme were introduced I decided to carry out my own cost/benefit analysis.

I researched major health hazards leading to premature death and/or severe illness, including other viral or bacterial diseases, pollution, smoking, road-traffic accidents etc. It was clear fairly early on in 2020 that Covid was very harmful to the very elderly and severely medically vulnerable who comprised a tiny fraction of the other causes listed above.

At the time, I didn’t know that the lockdown measures were to cost the UK economy over £400 billion and that the Government had not even configured and published a cost/benefit analysis of their own. This is aside from the now clear evidence of physical and mental health and social costs resulting from lockdowns, mask wearing and vaccine mandates.

Crucially, my analysis also took into account potential future emergencies that might arise, such as other flu-like infections (possibly more deadly, more infectious and/or affecting a younger demographic), general or specific economic shocks, and defence threats requiring military intervention. Any money directed at Covid, I thought, might impact on our ability to tackle much more serious future threats with potentially serious ramifications.

So, when Liz Truss addressed the recent Tory Party Conference with a plan to tackle the energy crisis, the cost of living crisis, and the Ukraine/Russia crisis uttering the three words “growth, growth, growth”, alarm bells began to ring. Was this another sign that the Government had focused only on one way to tackle a problem without looking at the big picture and without properly assessing the situation?

Had the time Liz Truss spent censoring contrarian Covid experts whilst in Cabinet also led her into censoring the views of anyone who supported Rishi Sunak in the leadership contest?

Might this have contributed to a failure to be advised on the economic naivety and potential negative implications of the chancellor’s proposed growth plan?

One doesn’t have to be a financial wizard to understand why world markets and the Bank of England (BoE) have reacted to the growth plan in the way we are witnessing now. Liz Truss could have learned, from the shambles of Covid policy a number of ‘dont’s’:

• Don’t panic;

• Don’t just listen to a select narrow panel of experts (SAGE/BoE) – take advice from as many experts with contrasting or even completely opposing views as possible.

• Avoid censorship at all costs;
• Don’t think you can simply throw money at a problem;
• Don’t believe technology is the answer to everything;
• Don’t ignore the available evidence and past experience to determine how to advance and;
• Don’t be inflexible and doggedly stick to a policy that may be doing more harm than good; admit that you may have got things wrong (rather than being forced into this!).

Two fundamental economic mistakes have been made under Liz Truss: The first cardinal sin was to underestimate the significance of economic sentiment in world financial markets by not detailing their Medium-Term Fiscal Plan at the earliest opportunity; uncertainty and political tension discourage investment and impede growth.

The second big mistake was similar to the one in which preparedness for a flu-like pandemic was neglected; a failure to invest in an NHS reserve emergency task force equipped with isolation wards, can be compared to a failure to unwind QE (money printing that has the potential to distort the financial system) after the 2008 banking crash and a failure to increase interest rates (by BoE) in a globally co-ordinated manner — gradually but more swiftly back to normalcy to counter the threat of hyperinflation further down the line.

In short, interest rates were left too low for far too long.

Economic growth involves multiple interdependent factors and is not a one-way ticket to prosperity or election victory. Economic growth has costs as well as benefits and at certain times and places can be very difficult to achieve. The two main ways to achieve it are through demand and supply.

Increased demand may arise via: a lowering of interest rates, rising real wages, a decreasing value of sterling (so increasing domestic demand), increased global growth (allows other countries to buy our goods and services) and rising wealth (e.g. house prices). However, one can see here that not all of these ways can be influenced by (a single) government and some demand stimuli do have negative consequences, e.g. a weak pound or lowered interest rate making imports more expensive and driving up inflation in an economy that is not export driven.

Increased supply can arise via new technological development, management of a more productive workforce, greater skills and qualifications, more flexible work practices, increased retirement age (to boost labour supply), greater net migration, greater public sector investment and so on.

But, one should also be able to see here a number of serious issues. For example, in certain sectors we may have too many unsuitably over-qualified or under-qualified staff; having reached capacity in terms of immigration and retirement extension, we may have insufficient infrastructure and exhausted flexible work practices.

Government can make a difference more specifically in three ways:

• Expansionary fiscal policy (as the Government had announced, whilst Truss led the way, in aiming to cut taxes and encourage spending). Would this have been sustainable?
• Expansionary monetary policy (by cutting interest rates) — this is almost impossible to do safely now.
• Create stability, now blown almost to pieces now as explained above and as demonstrated in the bond/gilt (debt) markets when the growth plans were first announced.

Economic growth has to be sustainable otherwise a temporary boom may lead to a bust. There is then a risk of an increasing current account deficit, environmental, social and health costs and income inequality.

If a thorough cost/benefit analysis of economic growth targeting is not carried out carefully and is not moderated in context sufficiently, the final element of economic stability is lost.

An example of unsustainable economic growth might be the supply-side policies of 1980s under Nigel Lawson. Supply-side policies need substantial time to increase productivity but the Government’s economic growth plan didn’t seem to allow for this in attempting to tackle the crises above. There is typically more scope for rapid growth in a more developing economy.

Most productivity is actually determined by the private sector and I can see the rationale for lowering taxes, but how much have businesses (especially the all-important UK SMEs) been affected by the uncertainties introduced through lockdowns and Covid mandates, the threat of which have not yet been removed?

How many small businesses have gone to the wall as a result of Covid policy? Many business owners may simply be trying to tread water before looking for a quick exit or taking early retirement. Budding entrepreneurs may no longer be able to trust the Government enough in a new era of censorship and airborne virus totalitarianism.

If there is one thing I have learnt over the years, it is to never forget the basic economic principles that are similar to the principle of ‘first do no (or the least) harm’ in my profession. Some might say, “put all your eggs in one basket and WATCH that basket,” but a wise person looks towards the long term and diversifies as much as possible.

So I say “No, Government, don’t put all those eggs in the one growth basket. Remember how you dealt with Covid and what it has led to now….and don’t think that, by just blaming Russia and carrying on regardless, you can hide a trail of economic destruction through “censorship, censorship and more censorship.”