Trump getting worse. EU irrational. Good luck Philip Hammond
Philip Hammond exudes safety. In current circumstances, that is exactly what is needed. It is true that the British economy has many strengths. The unemployment and growth figures have both been encouraging, so it would be fair to convict the Remainers of excessive pessimism. They underestimated the UK’s resilience. But that is not an argument for complacency. Although the economy may be strong-ish, Government borrowing is still unhealthily high and it would be healthier if growth were less dependent on consumer spending. Moreover, the world is beset by uncertainties.
Can we be sure that the overhanging debt mountain will not turn into a landslide? On the subject of instability, Mr Trump seems to be getting worse. By comparison with him and his White House, Gordon Brown’s Downing street was Periclean. There appears to be a crucial battle for the President’s ear on the subject of trade. The sensible people do not dispute the importance of free trade. They know about the 1930s. (It is to be hoped that Mr Trump is blissfully ignorant about that period. He might be attracted by all the wrong things.) In the name of competition and sound trade, it is justified to take action against low-wage economies where large-scale government subsidies are a further distorting factor: in other words, China. But necessary protective measures should not be confused with protection.
Does Donald Trump understand this? That raises a number of questions. On current evidence, there is a fear that he is an extreme mercantilist who believes that any country which has a trade surplus with the US is committing theft. If that becomes the basis for US trade policy, let us pray for his impeachment.
For once, Brussels would appear to be more rational than Washington. But that may be deceptive. In a sensible world, Brexit should not be anything like an insuperable problem. Our neighbours might express regret. But they could console themselves with the thought that de Gaulle was right. Because of the Channel, that supreme example of frontiers turning geography into history, we never really belonged in the EU. Post-Brexit, it should be easier to establish good relations. There are so many areas in which it is in everyone’s interests to cooperate, especially trade. “Do not worry” we Brits could say, “over the foreseeable future, you are bound to enjoy a trade surplus with us.”
There is only one small problem. All that is based on the assumption that the EU is rational. If that were the case, there would not be a single currency. The Euro-nomenklatura may talk in highfalutin language. All the staff who bring round the morning coffee are probably more articulate than the US president. But grasp of economic reality: why do we assume that Michel Barnier is more sensible than Donald Trump?
The EU is in a mess of its own making. Nor is it clear that there is a solution. Those who have been in charge of European monetary policy may credit themselves with a remarkable intellectual achievement. They have created a problem which is the political equivalent of the square root of minus one and appears to be beyond the power of the human mind to solve. They can neither go forwards, nor backwards, nor stay the same. Euro-humankind cannot bear very much reality. Rather than face up to the damage they have done and are continuing to do, those responsible would prefer to blame the British. Some of them talk about punishing us. Martin Schulz has even had the nerve to lecture us about Churchill. In his case, German political self-knowledge has nothing to do with knowledge and is all about self – yet the polls give him a good chance of becoming Chancellor of Germany this autumn. It seems that enough voters are growing bored with Mutti Merkel.
Whatever the German outcome, there seems to be little hope of a rational solution to Brexit based on mutual self-interest. Apart from those who are happy to cut off their noses to spite our face, the difficulty of coordinating an agreement among 27 countries seems insuperable. For the UK, matters might improve if there were a crisis in the Euro-zone, which could be provoked by an Italian banking crisis, or by uncontrollable rioting in France. That latter degringolade might also elect Marine Le Pen, which would certainly kick over the Euro card-table, enabling us to snaffle a couple of aces. But as well as wishing politique du pire on the French, we would be advised to base our plans on a worst-case analysis, as the Chancellor is doing. Although he may never be able to generate excitement, Philip Hammond does have one important political asset. He can make people feel confident even when he is telling them bad news. Had he been a bank manager, his customers would have gone away with an enhanced respect for him, even after he had turned down their request for a larger overdraft.
On Wednesday, in that spirit, he is unlikely to take any political risks. Yet this is unfortunate. When the leader of the Opposition is Jeremy Corbyn, it would be foolish not to exploit his weakness, and there are points that ought to be made. The failure to do so goes back to David Cameron. Probably because he did not want to be seen as the heir to Blair, Mr Cameron refused to learn one of the very few lessons which Mr Blair could have taught him: the importance of coming up with a good phrase and repeating it endlessly. Suppose most of the public knew that the richest one percent of the population pay nearly thirty percent of all taxes. Suppose they also knew that the government spends almost £50,000 a year on a family of four. If those two facts had been dinned into the voters’ consciousness, think how much easier life would be for Tory politicians. When newspapers, abetted by the BBC, try to persuade them that every public service is on the point of collapse because of financial neglect by a cabinet of Scrooges and skinflints, might not voters think: “£12,000 a head for every man, woman and child in the country: surely that should be enough for schools, hospitals, policemen and defence? Instead of demanding more money, is it not time that the public sector learned about efficiency?”
Equally, when the same organs try to claim that the rich are an amoral and under-milked cash cow, the 1:30 ratio should be an adequate refutation. People might recall Margaret Thatcher’s dictum: that a society in which no-one is allowed to grow rich is one in which everybody is condemned to be poor.
It is time for the Tories to start putting those arguments, and there would be a symbolic way to begin. Tories believe that the purpose of taxation is to raise revenue, not to appease the politics of envy, which is an impossible task. They should also be aware of the Laffer Curve, by which Professor Arthur Laffer demonstrated that within reason, lower tax rates can generate higher tax revenues. Although full-scale Lafferism may be impossible at present, it should pain every Tory to think that at 45 percent, the top rate of income tax is now higher than it was during Labour’s thirteen years. This week, Philip Hammond ought to startle us all by abolishing it, which would probably cost nothing, As it would be a stimulus to the animal spirits of the 1:30ers, it might well raise money. It would certainly send all the right signals and infuriate all the right people. What a pity that it is unlikely to happen.