Recession? You Need Free Market Principles.

The many strands of recession

This post comes as a direct response to a ‘conversation’ I had with another person regarding recession, current economic climate and political solutions to Government debt and failings.

My intention is not to appear biased in favour of UK political preferences or experiences. I just want to raise the topics that were initially put to me, and answer with my thought on them. So, here is the basis of the initial conversation:

‘Free Market Principles (*description located at the bottom of the post) will save the US from falling into the same problems as Europe and the UK now face’.

I have been wondering just how many of these principles, and in what measure, are actually already adopted in countries all over the globe? Could it be that countries already going through recession ignored these principles and therefore floundered? Could these principles alone be the answer to and solution for future recessions? Are a set of inflexible principles capable of such a feat? Are reasons for recession so ‘cut and dry’?

Well, the person who argued the merits of Free Market Principles used certain failings as a measuring tool to highlight what had brought about recession; unemployment, Government debt, taxing the rich, ‘big Government’ as opposed to limited Government, and the over reliance on grand scale public welfare or social welfare policies classed as the ‘Nanny State’.

Now there are issues which can be debated.

Those of you, who may read my blog, you might be already familiar with my take on the UK Government and welfare system – NHS and state benefits. See below for further links:
Poverty In The UK
The UK Welfare State
The Declining Health Of The NHS

These systems are not perfect, and I will be the first to admit that, but like anything there is more to the issues than may initially appear. That is why no issues which any country or Government face at the moment can be so easily deemed a failure or because of recession. The background information for that failure should be first discussed first.

Let me also add, no country is perfect and neither are ANY Governments. There are many mistakes made, and many issues then created as a result of bad policies or decisions.

On to my thoughts:

I am not going to break down exactly how Free Market Principles apply or should apply. As I mentioned earlier I want to see behind the reasons for failures, to talk about the ‘tools’ used as a measure of failure.

Government Debt:

Initially I question the sweeping generalisation of Government debt as a simple cause for recession. Some nations like the UK for example have had to have debt to survive 2 world wars. Without debt the country would never have scraped through such detrimental hardships brought about by the wars.

Factors that lead to any Government debt are a ‘chicken and an egg’ scenario; many issues, like those the UK faced in the war eras have been running on since that time without being fixed. Deep flaws in policies and decisions have occurred as Government has grown and changed its form over the years. The welfare State for example has its very origins in the aftermath of the 2nd World War, and since then it has out grown its initial remit, but this change has never been fully represented in the entity it has now become (I will discuss this later). Hence, issues linking to failure.

In most countries there will be hidden issues, plastered over cracks that once recession hits them, they become highlighted and exasperated; these cracks then become huge holes, for example issues with unemployment. These issues may have been left lingering until a recession hits; when a country or Government is under the most scrutiny, then the issues have to be seen to be dealt with, then they gain attention.

Factors for unemployment do include going through a recession:

Yes, but other factors can lead to the final breaking point. Rapid changes in technology, disability, changes in business, changes in supply and demand, attitude towards employers, willingness to work, immigration, climate change, migration, perception of employees, employee values, discriminating factors in the place of work (may include discrimination on the basis of age, class, ethnicity, colour and race) and ability to look for employment all effect the figures initially before any recession begins.

Taxation is never a favourable topic:

Raising taxes is not especially popular either, and when the wealthy of the country are going to be effected, then that is seen as damn right outrageous. I will bring in France here: French Prime Minister has said there will be a 75% tax rate for people earning more than 1m Euros.

Now I don’t necessarily agree with the tax level France is opting for, but people should be taxed according to what they earn. Wealthier people shouldn’t have a free pass just because they bring ‘wealth’ into the country, because so does everyone who works and contributes to the economy of the country. It is merely that the wealthy have more money to be taxed or contribute to a country with, but they are part of the country too. The ordinary working person is affected more by fluctuations in tax during recession; on their salary and goods, and it is them who are generally Struggling To Make Ends Meet

Perhaps France opted for this tax increase for the wealthy as they didn’t wish to impose harsh cuts on public services that would affect the whole country. Look at the UK and the ‘Geddes Axe’; recommended slashing government spending in precisely the way today’s believers in ‘expansionary austerity’ recommend in time of rescission. Did it work for the UK in the 1920’s, no and consequently this spiralled UK’s debt levels. Pre First World War debt levels weren’t attained again until 1990. So cutting Government public spending isn’t always the answer.

Public services are a drain in times of recession though:

Well they have been a drain for years and why, well there are complex reasons. Let me concentrate on the UK’s NHS. This system has evolved over the years; peoples changing lifestyles, higher populations, larger catchment areas, more diagnoses of illnesses before unrecognised, Doctors running National Health and Private surgeries which clash, not enough medical staff, privatisation of the 1980’s, rising wages, Primary Care Trusts and the amount of ‘pen pushing’ bureaucrats hampering Government money being spent where it needs to be. In the UK ‘big Government’ as opposed to the limited version is not to blame for the failings, but rather that Government hasn’t enough of a hold and control over proceedings. They haven’t a clue what is going, and therefore the whole system has become lax, un-scrutinized and out of control. It is a lack of grasping the changes and implementing a policy that reflects this that causes the trouble, not recession.

The NHS is not perfect, but again neither is for example the US system, and the US isn’t in a recession like the UK. People in the US can’t afford insurance (30 million of them to be precise). So, how can limited Government eradicate any of these issues for any country?

OK let’s talk about who likes Free Market Principles.

Well, the conservatives who claim to have a profound love of them have no use for them; professing fealty to the markets is only a rhetorical strategy. Some would say they favour policies that distort the market in such a way that income and wealth flows to those at the top, but given that most people who cast votes in elections are not among that rarefied few, they have no desire to defend those policies on their merits. So, do they have a place in a society where the majority struggle to live??

But big Government ruins the countries wealth:

I feel a Government needs to know what is going on in their country, not be blind to it (I argue they are blind enough). It is a Governments duty to ensure its citizens when in need, receive help in the form of public services. They are there to respond to needs or why else do we elect them? What is the need for Government per se if they have no role in the country they govern?

I think everyone should be ensured they have a slice of the cake in the 21st century, even if it is a small slice, better than starving to death under the premise of ‘we can’t intervene we are a limited Government’.

People should not be allowed to flounder and disappear just like dust under a carpet; just because they aren’t a member of the ‘select committee’ (the wealthy) in society.

Boom and bust is worse under principles advocating intervention:

Well maybe, but then under a limited Government where there is no intervention is anything truly invested in; anything other than protecting and encouraging wealth? Pursuit of wealth above public needs can be detrimental to a flourishing society, as it reflects and encourages only a certain percentage of people and people’s lives. Not everyone can be wealthy, not everyone’s lives run smoothly.
I for one don’t want a return to a Dickensian way of life, I think I prefer intervention.

*Free Market Principles:
Individual Rights, Limited Government, Equal Justice Under Law, Spontaneous Order, Private Ownership, Subsidiary and the Golden Rule of honesty. Yet I am not going to focus on whether or not these principles, word for word, do impact and can solve recession. Instead I am going to think about reasons