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Dr Rowan Williams said that taxation should not be seen as a way of stifling business or redistributing wealth but helping to make the world a better place in which to live. He called for new levies to be introduced on financial transactions and carbon emissions, and an end to the idea that unlimited economic growth is desirable.

The above quote from The Telegraph should shock me, but it doesn’t. Dr Williams, the most senior cleric in the Church of England and a self-confessed “hairy lefty”, is just the latest in a series of barmey bishops making moralising judgements over economics.

I’m reminded however by that quote from Margaret Thatcher: “No one would remember the Good Samaritan if he’d only had good intentions - he had money too.”

Quite how a World without economic growth and with excessive taxation would be better I cannot understand - unless envy is your primary emotional influence - and evidently I am not alone. People vote with their feet, and the C of E hardly needs crowd control. Perhaps they should stick to their job and be a Church rather than a leftist economics think tank.

First we talked about whether there would be a recession.

Then we talked about who was to blame.

Then we talked about what to do about it.

There then followed a not so brief interlude during which ice creams and refreshments (including Hobnobs and dog food) were served whilst we discussed duck islands, the intricacies of moat maintenance, the impact of OCD upon breakfast habits and the finer points of astrology.

That over, we talked about how bad the recession would be…

…And now we’re talking about what letter of the alphabet its shape will be on the graph!

The British public discourse has had some strange moments of late, but this really takes the biscuit (but then if it’s Chris Huhne’s Hobnob biscuit we paid for it anyway)…

What is it with economists, have they all gone mad and decided to describe every possible outcome as the shape of a letter or did it just come to them one day at lunch over a bowl of Alphabetti Spaghetti? Perhaps we are now getting economic news from Sesame Street?

The deluded think it’ll be a V-shaped recession; sharp drop, sharp bounce back. V.

Some expect a U-shaped recession; a sharp drop with a sharp rebound like the V but after a period of flatness between the two. U.

My bet is on W; in effect a second U-shaped (or V-shaped if you go German and call W ‘double-V’) recession after a small rebound from the first. W.

Rather alarming is the L-shaped recession, a sudden fall then flat-lining; and the Y, a U or V shaped recession followed by a second possibly sharper drop. L and Y.

I suppose we could have N, M, J, Y, and I as well. Maybe a lowercase ‘r’ and ‘h’?

The Great Depression gave us the game of Monopoly, the recession of 08/09/10 looks set to give us Economic Scrabble.

The BBC reported last night that the government is likely to introduce an incentive scheme at the budget (22 April) for car owners to scrap old vehicles in exchange for new ones. The move would probably involve a payment of £2,000 to trade in cars that are a certain number of years old.

A rather telling line is “car scrappage schemes are seen as targeting the root cause of the industry’s woes - a lack of demand for its products”. Of course the real root cause is not a lack of demand but an excess of supply; even in the boom Ford calculated that worldwide car over-production was around 24 million per year.

Instead of encouraging firms to adapt to the new “post-boom” world by producing less cars and making them cheaper by reducing costs (thus boosting real demand), they are subsidising people with taxpayers’ money to scrap perfectly good cars to buy new cars they didn’t want (or can’t really afford).

Not only is this just taking money from one taxpayer to subsidise another (robbing Peter to pay Paul the car salesman), it is just delaying the fact car firms need reform to survive at our expense (and the expense of whoever we’d have spent that money with had it not been taken as tax, as well as whoever the car buyer would have spent their money with instead - say a small shop - had they not been bribed to buy a car).

What’s more, most cars we buy are foreign made - so we are paying our taxes to boost sales of foreign cars. Even the motor industry accepts this, claiming that 25% of the purchase price is in the UK based sales industry as an argument - as if paying our taxes to boost sales of foreign cars and subsidise car salesmen is so much better!

The policy is of course being spun as “green”. Old cars pollute more than new ones - true - but the amount of pollution in the manufacture of the new car, to replace a perfectly good old car, isn’t counted but is vast. Some of the “greenest” cars ever made are the 1950s Land Rovers still being used now.

So with taxpayers losing out, local businesses losing out as people buy cars instead of other goods, and even the motor industry gaining little (not that it should be an excuse for subsidy even if it gained a lot) - why is the government still planning this rubbish? Oh wait, there’s an election coming and the swing seats in the Midlands are auto industry heavy…

At least Arthur Daley will be happy.

Britain is facing – depending who you ask – a crisis of variously dire proportions. The worst recession since WW2, a potential depression, a return to the 1970s, a rerun of 1990s Japan; all of these are predictions made by journalists over the last year who have been darting through history like aspiring Doctor Whos in the search for an easy comparison ideal for a simplistic background graphic laden with nostalgic archive footage.

And with them has gone the Government in the search for an easy answer and suitably simplistic sound bite to parrot on Newsnight. And as ever there isn’t an easy answer, but someone will offer one – it just won’t work. Of course that answer is from John Maynard Keynes, a man who once dismissed fears about the future debt levels on the basis that “in the long run we are all dead.” How reassuring, no wonder he chose economics rather than medicine.

So debt is back on the menu, and back big time. It’s like the Spam sketch – you can have anything as long as it comes with spam debt. “VAT cuts with spam debt, capital projects with debt, postponed taxes with debt, debt with debt, debt on debt, fried debt, scrambled debt, hidden debt, debt surprise…” But wasn’t excess debt part of how we got into this mess?

The Government is borrowing to boost demand, but the public sector crowds out the private; there is only so much credit out there and the more the government Hoovers up, the less there is for everyone else to borrow and the higher the real interest rate goes. And is boosting demand in this artificial way the right thing to do? We have got to face facts. The old levels of spending were built on unsustainable levels of debt and “easy credit” that aren’t coming back, we have got to once more adapt to survive.

Now I am not an expert, but I do know that most businesses facing difficulty are in trouble because of a lack of previously available credit, that the housing market is dire because of a lack of credit in the form of mortgages, and that consumer spending is falling because of a lack of credit. It is a largely credit related issue, hence the term “Credit Crunch”. Therefore the government gobbling up what limited credit is out there is a terrible idea – we need less credit crowding, not more, and this means reducing the current operational deficit as well as the ‘extra deficit’ being created for the stimulus. We need to make huge savings, and fast.

As even if the fiscal stimulus does boost demand it’s temporary. Therefore priority – other than reducing the government defect to ease credit demand – should be for tax cuts and measures that help businesses stay afloat on the new sadly lower levels of demand.

I imagine it as a treadmill, let’s call it the cost treadmill. The burden of debt and other costs has been speeding it up more and more; the runner has been running at an unsustainable rate, is now out of breath and can’t go on much more. Brown’s answer is a fiscal stimulus to artificially boost demand – an injection of some dodgy performance enhancing drug or adrenalin. It may restore the old turbo speed for a while but sooner or later will wear off, leaving us with the nasty side effect of a faster treadmill in the form of higher taxes. And what if natural demand doesn’t return, another dose? Surely the better answer is to slow the treadmill and get our breath back at a sustainable speed?

Cutting or abolishing Business Rates and Employer NIC would reduce the costs of running a business so far more could survive on the new lower “post-easy credit” levels of demand. It would slow the cost treadmills faced by businesses. So too would cutting regulation, red tape and other costs created by government.

Over time individuals, firms and the government would then sort out their finances by repaying debts, with credit become freer and spending begin to rise again – natural spending, rather than artificial; sustainable growth, rather than debt growth.

And to speed these individual recoveries the government can help individuals sort out their finances by giving them lump sum rebates (if affordable, and they sadly aren’t). Rather than VAT cuts purely to boost demand, this would let families utilise the money in the way that best suits them. Some would save it, but what is the problem with this? Banks need greater reserves to lend, and having savings with boost the individuals own confidence, in turn leading to spending. Some would repay debts, aiding banks again and reducing their monthly outgoings, leading to their recovery and return to spending; and others may spend immediately, boosting demand (although as I said, I believe supply-side measures of debt reduction and individual financial recovery the key).

In short what we need is to look again at this crisis and – instead of believing we can stop the recession, keep spending unsustainably and beat the markets – work to minimise the damage, minimise the time span and position ourselves for the strongest recovery possible. And come to think of it, didn’t a previous Prime Minister have doubts about “all sorts of curious notions, like the more you spend, the richer you get”.

“Two nations between whom there is no intercourse and no sympathy; who are as ignorant of each other’s habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets. The rich and the poor.”
- Benjamin Disraeli, Sybil (1845)

“Two nations between whom there is no intercourse and no sympathy; who are as ignorant of each other’s habits, thoughts, and feelings, as if they were dwellers in different zones, or inhabitants of different planets. The public sector and the private.”
- Taxpayers (2009)

The recent failure of the government to sell its gilts, thereby failing to borrow the amount it planned, has already started discussion on the possibility of a wider “guilt strike”. What if the government can’t fund its spending commitments?

As any failing business knows, no one wants to lend to a loss making firm with no realistic plans to stop losing money. This firm is UK Plc; Sterling has collapsed by 30%, there’s a 3.8% contraction predicted this year - the worst since comparable measures began in 1949 - and ourbudget deficit of 10% of GDP is higher than any other G20 country, indeed it’s 6th worst Worldwide (and they’ve mostly called the IMF). To add insult to injury the foolish bailouts and quasi-nationalisation of the banks means we are two large banks (near bankrupt ones) with a medium sized government attached, which isn’t an attractive punt.

The government has been buying up government bonds alongside investors with printed money for some time, so called “quantatitive easing”, but what if it needs more. Currently it plans to do £75bln of QEing, although the Governor has been saying he might not spend all the £75 billion, but the government deficit looks set to be over £150bln this year. What if they can’t raise the other ~£75bln? Will Brown throw caution to the wind and go nuclear, monetising the debt wholesale?

The only options besides this would be major tax hikes or major spending cuts, or a combination of both. To put £150bln into perspective, it’s roughly the combined cost of Health, Education and International Development. Total Government Expenditure is £557bln, so about 27%. Alternatively if you doubled Corporation Tax, Fuel Duties, Council Tax, Business Rates, Inheritance Tax, Stamp Duty and Tobacco Duty, without this tax hike affecting revenue (as it would) - you’d still be a £100m short! It’s just not possible.

So if the bond market doesn’t improve next month, what then?

The risk is the ever growing incentive for Brown allowing inflation to increase thus reducing the debt burden or the need to raise taxes or cut spending. With debt monetisation, government debt disappears and inflation takes its place. That £150bln seems a lot now, but not if a banana costs three million. While we complain at the high inflation and savers are ruined, the government escapes responsibility and the sort of cuts that caused the 1978 Winter of Discontent.

It’s not going to be nice.

Dan Hannan - in the words of Tim Montgomerie of ConservativeHome - “monsters” Gordon Brown in the European Parliament…

…then becomes global star via YouTube…

Then FOX News..,

…and is declared leader by Guido.

N.B. Hannan is the top video today in the UK on YouTube I’m told, and top politics video worldwide. As of 8:19 he has 818,271 views…it was about 600,000 this morning! The UK media have yet to take notice except The Daily Politics and R4’s Today, but the pressure is mounting as Hannan approaches 1,000,000 views.

I often feel that good economists make bad investors, and the reverse example of Keynes proves this. His economic policy caused disaster, but Keynes made a killing of 13% a year on average during the Depression investing for King’s College, Cambridge, whilst the stock market as a whole dropped lower each year. And thinking about it, if I was a great investor I’d probably not waste time writing economics books.

If only more shared my view, as I am really starting to get a headache - a Keynsian headache.

It’s all the fault of Polly Toynbee, who’s articles should never be read. Well actually it’s not just her fault, but her article triggered it.

She accuses David Cameron - and everyone who agrees with economic policies that work “with the grain of human instinct” and a “government liv[ing] within [its] means” - of being “economically illiterate”.

Far better to follow Keynesianism she says, a theory Keynes himself said is counter-intuitive. He wrote about the problem of the “thrift paradox” - if people try to increase their saving, there will be a decrease in spending, and supposedly a fall in employment and production.

Indeed if everyone saved everything and spent nothing this would indeed occur, as would starvation. But the problem is we need money available to borrow for new businesses and business expansion, overdrafts, mortgages etc; and for banks to lend out money, savers have to put it in.

The fundamentalist following of the “paradox of thrift” Keynesian dogma by daft governments lead saving to be discouraged (it’s taxed at 20%, pensions too are taxed), the savings rate dropping to near zero, and banks to become dependent on money borrowed short term from international investors (mainly the Chinese).

But that money was only ever a limited resource - there is only so much money - and only available whilst investors thought they were making a good investment. But the mortgage backed securities they bought were based on ever booming house prices, something bound to end sooner or later, as they knew many “sub-prime” borrowers were, well, sub-prime and libel to default.

When it appeared these mortgages were losing money, the investors stopped lending, called money back, and Northern Rock went bust. No one lends money to a business that’s losing money and has no realistic plan to stop losing money, which neatly explains why the government failed to borrow at yesterday’s bond auction.

So why can’t they realise we need savers?

But of course Mr Keynes isn’t just responsible for the crazy notion of saver hating. No, among other pearls of wisdom dished out by the supposedly “great” economist - why does he always get called “great” on TV? It’s a peer pressure thing if you ask me!- is the concept of borrowing your way out of debt. Got a huge credit card bill, struggling to repay your mortgage, in negative equity? What you need is more debt!

When challenged about the sanity of such a policy in the long run he famously answered: “In the long run we are all dead.” He should know all about that, he died in 1946, conveniently before the dire results of his crackpot theories fully reached their zenith in the 1970s.

It’s really time to return Mr Keynes to the crypt.

NatWest is offering a money advice service called ‘Money Sense’.

Rather ironic from a bank that all but went bankrupt and got itself over half-nationalised.

The Pound is down to a record low against the Euro for the fifth day in a row. The Pound now buys just less than 1.12 Euros on the FX Markets, although most High Street currency exchangers are offering rates not far from parity. It is only a matter of time before the Pound is worth less than a Euro.

The weak Pound is bad news for consumers and businesses which use imported goods, contrary to what that previous Pound-devaluing disaster of a Labour PM Harold Wilson said, the Pound in our pockets really isn’t worth what it was. Going abroad is dearer, as are many products. Take the popular Nintendo WiiFit, which was around £70 in September and is now roughly £130. But then a Pound once bought over 200 Japanese Yen, 215 at its peak, but is now buying just 134 Yen. Exporters will do well - assuming they don’t need too many imported parts - but this too will push up domestic prices. Inflation could well soon be back on the agenda once the current deflationary pull of declining energy prices ends.

The weak Pound has lead some to talk about Euro membership. I say the opposite, thank goodness we aren’t in the Euro!

Currencies move for a reason, that reason being the changing economic strength of one country compared to another. Movements are a safety valve and the currencies find their own true equilibrium balance as changing economic conditions affect different countries differently. We are being affected hardest by the recession so our currency falls, cushioning the crash by boosting exports and reducing imports - thereby saving jobs! If we couldn’t revalue the Pound, the economic changes would be all the harder. Conversely during a boom the currency strengthens, boosting imports that help contain inflation. We can also set interest rates to suit us, rather than a European average that is in fact like nobody (remember the average family has 2.2 children, unlike any family I know, and European averages are the same)!

Setting an exchange rate in concrete forever, like with joining the Euro, removes all of that flexibility. It’s madness, plain and simple.