Preliminary
Listening to – and sometimes taking – advice from years ago is surely a sign of maturity.
Economics for the last 80 years or so has both become a “science” and been dominated by two basic theories: Keysian and Monetarist. But both have basic agreement on the importance of contolling money.
The present Monetarist has succumbed to the “Taylor Rule” of controlling all by use of the interest rate. But both Taylor himself and his great advocate Friedman have been honest enough to accept that they might well be – at least partially – wrong. Their “particular proposal” should not be regarded as “a be-all and end-all of monetary management, as a rule to be somehow to be written in tablets of stone and enshrined for all future time”
So maybe the time has come to go back to another, much older system which we term “Josephian”. That is basically to use tax to control public finances in good times as well as bad.
Josephian theory dates back some 3,500 years to the time when Joseph was appointed chief minister in Egypt. He ensured that in the “fat” years foodstuffs (surely the basic money) were not just squandered but also judiciously put into reserve. When the “lean” years came there was then sufficient food in reserve to feed the people. Or the Xuande emperor reduced the inflation caused by his predecessor, the Yongle emperor by introducing a shop franchise tax. The tax had to be paid in paper money “and he then burnt the money”. (see “Money and Freedom: How Greece and Rome changed the world” when it is published orwww.civilization.org.uk/china/ming)
The (then) Governor of the Bank of England alluded to this in his Mansion House speech in June 2011.
Sir Mervyn said: “The world economy is adjusting. In more biblical language, failure to tackle the imbalances during the seven years of plenty before 2007 threatens seven lean years thereafter for at least part of the world economy.”
By the 2020s this had proved to be all too true!
Now how does – should – this system work? Basically the in first years of this millennium when the economy was roaring ahead the British government appeared interested in one main economic subject: inflation. However to avoid what appears ultimately unpopularity in taking harsh decisions they handed over the control of this to the Bank of England: but (and this is important) the latter were given only one tool with which to tackle the problem: variance of interest rates. Many governments in the world applauded and followed suit.
Now the morality of such a tool must be subject to consideration. Why should those who have to borrow money – for house purchase etc – have to suffer increased costs whilst the beneficiaries are not the state (putting funds into escrow) but those who for whatever reason can afford to lend the money? However the whole matter of the ethical use of interest rates is subject to separate discussion.
So: be that as it may. But why should government have abrogated not only it’s responsibility but also failed to undertake the task of putting funds into reserve? After all, most households try to put some money into escrow not only for pensions – on the statistical probability that retirement age will be achieved – or into savings against accident, ill health or whatever.
The objection will of course be made: governments know taxpayers are greedy: they object at all times to paying tax and would rather vote for those who give lower tax rates now rather than accept that a prudent government is better than a spendthrift one. For, it is said, governments are both less responsible for dealing with money than are the taxpaying individuals and are inherently untrustworthy.
There is some truth in this. After all, where has there been sustained teaching or popular discussion on the concept of ethics or morality within the collection and usage of tax revenues – amongst other matters?