• Watch the full interview with Douglas Carswell here.
Let a thousand currencies bloom, says Douglas Carswell. Competition will resolve problems that frustrate the planners.
I met Douglas Carswell, our only Ukip MP, at rather an exciting time. Greece had just voted in its referendum. We were all wondering what would happen next. Carswell reckoned Greece had taken a valuable first step in defaulting on its debt, then decoupling from the euro – which will “allow that reshuffling of the economic pack that Greece desperately needs to do”. He sees that process as all but inevitable. Why? Because while Greece has a primary budget surplus (unlike the UK…) it still has to pay the interest on all its debt. That puts it in a nasty position – and also suggests it should be allowed to default.
“One of the great advances in the creation of civilised societies” has been individual debt forgiveness (legal bankruptcy), so “that if someone gets themselves into a hideous position they can prevent themselves becoming a slave to their creditors. They can make their debts the creditor’s problem.” That’s good for people; it’s “got to be good for countries too”. In Greece’s case it makes sense for the debt to become the creditors’ problem – they should never have lent this amount in the first place, given how obvious it was that it wouldn’t be repaid.
As for the bailouts so far, Carswell reckons they have done “something really quite sinister… transferred the debt losses of private banking institutions onto the balance sheet of public authorities in Europe”. That kind of behaviour “gives capitalism a bad name”. It has “saved foolish bankers from… their own investment stupidity”, leaving the “German taxpayer with huge liabilities” and giving those taxpayers the right to be as cross with their own government as they are with the Greeks.
There has been a lot of talk of how the bailouts represent European solidarity, but they’ve “actually been a form of theft”. Whether people recognise the complexities of all this or not, it looks to Carswell as though the events in Greece spell “game over” for the idea that you can organise the affairs of millions of culturally different people and economies “by grand design, by project EU”. You can’t have a monetary union without political and fiscal union, and Europe just doesn’t have that: if we did, the Greeks would be “grateful euro citizens”, not the doubters they have shown themselves to be.
Without fiscal union (in which rich regions transfer cash to poorer ones, as in the US and UK), monetary union, for all the reasons the sceptics give, “is unworkable”. Think of monetary policy as a gear lever, says Carswell. “If you are driving different cars around a racetrack at different speeds, you need to adjust the gears differently… you need a different monetary policy, a different gear in Greece compared to Germany… to France… to Italy.” If you don’t, you create problems everywhere.
Take Italy. It has “some fantastic, first-class, medium-sized businesses with world-class brands” being held back by “inappropriate monetary policy” and the wrong exchange rate. Germany is one of the few countries it works for – for them the exchange rate isn’t too high but too low, making their exports ultra competitive. It is an “unsustainable model”.
Let’s have regional currencies
So what might replace it? Carswell wonders if we haven’t got the whole currency thing “the wrong way around”. We shouldn’t aim to have just one operating in all countries, but lots operating in all. Think “currency competition”. Digital payments mean no administration for users of different currencies: “at Westminster station this morning there were people getting ready to get on buses using digital payment without even having to change the original currency. It’s so seamless.”
The idea of internally competing currencies sounds odd, but 40 years ago so did the idea of competing airlines: everyone “agreed you have to have a national airline” enjoying “preferential treatment and state favours. Maybe in 40 years… we’ll look back and say, ‘Wasn’t it odd that we thought you had to use a particular currency?’ There will be no grand monetary plans of the type we have now.” The monetary world of the future will be shaped by “technology and the free market”.
We return to the UK. Greece, as Carswell notes, won’t be the only Western country to “discover that you can’t live forever beyond your means and that no amount of votes, legislature or referendum can change the laws of mathematics”. The UK, which in the past 36 years has only had six annual budget surpluses, will one day learn the same lesson – that we can’t use inflation and borrowing to make up the difference between what we spend and what we take in tax indefinitely.
How would he balance the books? The Department for Culture, Media and Sport could go, says Carswell. And the Department for International Development. “Even if you believe we should be spending the amount on aid that we are spending… it would be wiser if that department were part of the Foreign Office.” Then there is welfare spending. Now might be the time to let people in their 40s and 50s know that retirement benefits may have to be means tested.
Then we “need to get serious” about housing benefit. It distorts prices – “you actually use state subsidy to push up rents, and create a vicious circle of spiralling rents”. This should be part of a full review of the impact of in-work benefits. After all, “if you pay people to do low-paid work, you get more people in low-paid work”. Big business might like this – “it’s a state subsidy for them to pay ridiculously low wages” – but it doesn’t help with the benefits bill”.*
Carswell also suspects (as do we) that “you can’t really understand the productivity puzzle without doing some serious empirical research on the impact of in-work benefits”. In an economy with normal incentives, we would be seeing far more of a shift towards automation than we are. But when the state is paying for a near-endless supply of cheap labour, firms don’t have to bother with that kind of investment. State intervention here was well intentioned (as most is), but it looks like it has had very much the wrong effect.
Energy doesn’t need central planning
That leads to the other thing that Carswell is sure holds the UK back – energy policy. “The Tweedledee Tweedledum parties are signed up to this idea of renewable targets” and that’s “a fundamental problem to wealth creation”. Look to the US – “capital and technology have come together wonderfully to create extraordinary solutions to the energy problems they face”, so much so that the US is reindustrialising, aluminium smelters and fertiliser factories are reopening. This kind of know-how is “hypermobile” and the laws of physics are no different in Lancashire than in the US, so it makes no sense that we keep rejecting fracking. We have to learn to love new technology.
Carswell is not rejecting renewables. Far from it. He isn’t much of a believer in wind, but has huge faith in solar. “In 20 or 30 years, every house in this country, every window, every car, will come with solar panelling fitted. You won’t even notice it. I suspect many homes will have a battery under the stairs that is so hyper-efficient they’ll recharge on gorgeous days and power your fridge and your washing machine at night. And I don’t think you need subsidies to do that.”
The key point here is the same as he makes on monetary policy. Established parties are wedded to the idea that ministers can and should have a grand plan for our energy mix. They can’t and they shouldn’t.
Ukip now the third party
I like a lot of Carswell’s ideas. But he has, I point out, a problem. He refers to “my party” a lot. But he is the only one that has made it into parliament. Is anyone still listening? They are, says Carswell. The Ukip manifesto was “thoughtful, it was coherent, it was free market and it was sensible”. Ukip is also “clearly the third party. We got four million votes. The Labour party got 9.5 million. We are behind the Labour party in a lot of seats. We came second in 120 seats. I think we’re well placed to displace Labour”.
On parliament I ask one more question – prompted by my recent interview with Dambisa Moyo. Moyo is more of a believer in planning than Carswell. She reckons that, given the long-term nature of our problems, politicians need longer terms (eight to nine years) to implement solutions. Would he agree? “Absolutely not. Your question rests on a conceit, which is that solutions to our challenges are best engineered by design.
If it was the case it would make sense to give the planners time to develop their grand schemes but complex systems are best evolved, by trial and error. That suggests to me that you shouldn’t give big space and time to grand planners. If you want to create sophisticated public policy solutions to energy, welfare, trade, the answer is to give the grand planners less scope and allow innovation and trial and error. That’s how to evolve the right public policy solutions.”
To those who say we need long-term plans and official bodies to find our solutions, Carswell says: “Absolute nonsense. The way to find complex answers is through constant innovation and change. If you put mandarins in charge of things, they wreck a country. As the Ming Chinese discovered and as Europe is discovering under the rule of the Brussels mandarinate.”
We leave it there. But I am left with a burning desire to get Moyo and Carswell to talk this out on the MoneyWeek sofa. Watch this space.
* This interview was conducted just before George Osborne’s summer Budget.
Who is Douglas Carswell?
Douglas Carswell, 44, was elected to parliament in 2005 as the Conservative MP for Harwich. In 2010 he stood and won in the constituency of Clacton. In 2014 he defected to Ukip, and resigned his seat, triggering a by-election. He won, becoming Ukip’s first, and so far only, elected MP. Before entering politics (he stood in 2001 in Sedgefield against Tony Blair), he worked in both television and fund management, and studied history at the University of East Anglia and King’s College London.
A long-time eurosceptic, he blamed his defection on top-level Conservatives not being “serious about the change that Britain so desperately needs”. His 2012 book, The End of Politics and the Birth of iDemocracy, argues for radical political reform that harnesses the power of the internet to improve democractic accountability.