Economic policy

The dystopian truth about a universal basic income

philmullan Economic policy, Employment, state, technology, Welfarism

Proposals for a universal basic income (UBI) are rarely out of the news. UBI is regularly championed, but rarely criticised. If it’s true that it’s an idea whose time has come, as some suggest, we should be very worried indeed.

The basic idea of a UBI is that the state would make a regular guaranteed payment to every citizen, regardless of their means and employment status. It would be set at a level sufficient to cover the ‘basic’ necessities of life: food, shelter and clothing. Its advocates, from the left and from parts of the free-market right, claim that this would simplify the welfare system, tackle poverty and improve recipients’ mental health.

The enthusiasm with which UBI is now being advocated by certain sections of society tells us a lot about how these left-leaning think-tankers, academics, journalists and even some free-marketeers view work, individual autonomy and the potential of automation.

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The inflation trap

philmullan Economic policy, Inflation, Productivity, Zombie economy

Governments and central banks across most advanced economies are battling to put a lid on consumer price inflation. When at the beginning of the year, UK prime minister Rishi Sunak outlined his five key priorities – halving inflation was at the top. With UK inflation still far above the Bank of England’s two per cent target, its Monetary Policy Committee (MPC) once again decided last week to increase short-term interest rates by a further quarter of a per cent.

The focus on tackling inflation makes sense on the surface. After all, high consumer inflation – say, above five per cent per year – is always a problem for people struggling to pay their bills. However, whatever the immediate trigger, higher inflation is invariably a symptom of deeper problems in the economy and in society. A narrow focus on inflation levels can be a distraction from the real cause of people’s hardships – namely, protracted and anaemic growth in the UK and much of the rest of the West.

The key factor behind today’s economic problems is the post-2008 productivity slump. This was the cause of the wage stagnation during the 2010s. It also underlies the economic fragility that has made it much harder for Britain to cope with the supply disruptions of the past three years, caused first by the pandemic lockdowns and then the war in Ukraine. Indeed, the lockdown-related interruptions to imported supplies were what initially set off the jump in consumer prices in Western countries.

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This is a financial crisis waiting to happen

philmullan Debt, Economic policy, State intervention, Zombie economy

The collapse of Silicon Valley Bank and Credit Suisse this month ought to be a wake-up call. The fall of these two very different banks points to a deeper underlying malaise in the world’s advanced economies.

Some have blamed the West’s leading central banks, especially the US Fed, for SVB and Credit Suisse’s demise. They claim that central bankers’ decision to delay interest rate rises, only to rise them aggressively as inflation began to spiral last year, made things very tough for the likes of SVB. But blaming these banks’ collapse on an interest-rate hike ignores the deeper problem. The truth is that Western economies have been held afloat artificially since the 2008 financial crisis, courtesy of super-easy monetary policies. And now we’re starting to pay the price.

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The problem with Hunt’s ‘back to work’ budget

philmullan Economic growth, Economic policy, Employment, Investment, Productivity

In January, prime minister Rishi Sunak announced his five key priorities for 2023. Conveniently for him, his first priority was something that is very likely to happen regardless of what his government does. Sunak’s top pledge to ‘halve inflation’ came a few days after just about every new-year economic prediction said that inflation would fall by at least half during 2023. Chancellor Jeremy Hunt adopted a similar hollow ploy in his budget statement yesterday, setting himself up to take credit for something that is already happening anyway.

Alongside all the familiar, disingenuous boasts about promoting growth and business investment, Hunt also placed a distinct emphasis on this being a ‘back to work’ budget. He highlighted the importance of ‘tackling labour shortages that stop [businesses] recruiting… by breaking down barriers that stop people working’. Yet ever since the threat of further pandemic shutdowns lifted last year, people have already been returning to work, pretty much as normal. So why the focus on getting people back to work now?

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How not to grow the economy

philmullan Creative destruction, Economic growth, Economic policy, State intervention, Zombie economy

Despite the many legitimate criticisms of the short-lived Liz Truss administration, it did leave one exceptional legacy. It put the question of economic growth, and the importance of raising productivity, back on the mainstream political agenda.

It took an extraordinary triple whammy – the pandemic lockdowns, the post-lockdown disruptions to global supply chains, and the war in Ukraine – to finally force the British political class, in the shape of the Truss administration, to acknowledge the dire state of the economy.

Hence, over recent months, Conservative and Labour front benches have been talking about the importance of growing the economy. In January, prime minister Rishi Sunak announced five key pledges to address people’s ‘priorities’. The following month, Labour leader Keir Starmer countered with his ‘five missions for a better Britain’. A commitment to economic growth was at the centre of both parties’ five-point plans.

Both plans have been criticised for vagueness. But there is a deeper problem with Labour’s and the Tories’ approach to the productivity slump. While both parties have bought into the new economic consensus – that is, the belief that low business investment is at the root of lacklustre growth – they also share the belief that businesses need more state financial support. In today’s circumstances, though, this would mostly act to entrench the low-growth quagmire.

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