Managing an economy is not easy but there is one single simple principle that should guide those who make policy. The only policies that will work are those that make an entrepreneur more willing to invest and employ. Everything else is nonsense and irrelevant. You must do things that make employers more willing to employ and investors more willing to invest.
Where are such policies? Name a single change that has been brought on through economic policy that has made life easier for an entrepreneur, for those who run businesses. If you listen to those characters in Treasury who were brought up on C+I+G and don’t know any better, you will continue to manipulate the level of aggregate demand or fiddle with interest rates. These are more than useless; they are actually harmful. They make you worse off.
Here’s what to do. Invent in your mind a representative entrepreneur. Conceptualise someone running a business of any size with employees of any number. Then try to work out the kinds of conditions that would have to change if they are to increase production. And if you think what they need is an increase in demand, you have already failed the test since an increase in demand can only follow from an increase in value adding production.
Here’s the program.
You must cut business taxes, not personal taxes, or at least not yet.
You must diminish the regulatory burden on business.
You must minimise union interference in business decision making.
You must allow labour costs to adjust to the existing level of business productivity.
You must reduce government spending since such spending only competes with business for the community’s small stock of savings.
You must balance the budget as a matter of priority.
You must leave interest rate determination to the market for funds.
You must be able to distinguish between public spending which is genuinely value adding and public spending on welfare.
You must encourage competition to the fullest extent possible.
Not easy, but that’s what you need to do. Remember 1996-2004. That’s what we did then. Why don’t we try it again?