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Thursday, September 18, 2008

HOW TO GET OUT OF THE RECESSION

1) Recognise we are not in recession. We have had one quarter of zero growth not 2 quarters of negative growth. National wealth is therefore not declining it is merely bumping along.

2) Recognise that the thing that started all this talk about worldwide recession - the oil price rising to $145 - has ended. It has sunk to just over $90 & looks likely to fall further as the Americans allow themselves to drill. If anything this should lead to a boom.

3) Recognise that technology is improving all the time, that Moore's Law continues & that there is no technological reason why growth cannot continue.

4) That what we are seeing is the fallout from a bubble of house prices rising faster than the RPI or even people's incomes which, by definition, was going to stop sometime. This bubble was caused by government regulation which prevented the building of new houses to meet demand & hence much of the financial industry plus estate agents & conventional builders were a house of cards built on a foundation established by regulatory fiat.

5) This means we should expect a healthy economy to involve a considerable shrinkage in the financial industry (& in estate agencies which nobody cares about because they don't have the power to knock the pillars out from under the rest of us).

6) Government should not try to save the banks but should try to make sure that essential services of storing & moving customer's money about continue. Government has no duty to help shareholders & little to help employees. Thus takeovers or even purchases in bankruptcy are not to be prevented & may well shake the bad debts out of the system, but government should provide funds to continue trading in administration (or almost in administration). Government taking on bad debt wholesale, as the US seems to be doing, runs the risk of spreading the bad debt throughout the healthy & productive economy.

7) What is really needed is for investors to believe that their investments can be safe & preferably profitable. For that government should demonstrate that it will support investment in the area where it should be most effectively used - capital in productive industries.

9) Therefore cut corporation taxes. Probably only a token cut is currently feasible but make a firm promise that the rate will be further cut if growth takes place & the Laffer curve works so that the total tax take from such tax will not be allowed to rise.

10) Cut the outrageous morass of regulations that increase expenses (the Forth Bridge costing 13 times what the last one did) & make new sorts of ventures (such as GM) effectively impossible.

11) Energy. We are heading for blackouts & already have some of the world's most expensive electricity. Ultimately without electricity we do not have industry & it doesn't matter how effectively the financial services industry makes everybody rich by selling pieces of paper to each other, without stuff being produced we have no wealth

Previously I have said that all that is required is to allow builders of nuclear power stations to build & we will have unlimited energy & all get rich. I now think, to re-establish confidence it would be better for the government to sweep away almost all of the regulations & to hire the builders. Introduce immediate licencing of French & Canadian reactor designs & licence current & previous sites as being suitable for reactor building.

British nuclear is already, in practice, nationalised. Formalise it & set it up as a public company with a remit to start 6gw of new capacity each year (12 in the first year) which should take 4 years to complete. This would increase our capacity by 10% annually. Most current reactors are about 1gw but if 4 new 1.5 gw ones were started each year, using off the shelf designs & mass production method it would produce considerably cheaper electricity than even France's 1.3p a unit.

I have discussed this before. Assume each reactor costs about £1 billion which is actually higher than some & takes no account of the long production runs (mind you it also takes no account of having to pay nuclear engineers who we drove out of the country years ago, enough to come back - perhaps as much as a merchant banker). Half can be paid from the decommissioning fund by not disassembling old reactors at current sites but merely leaving them for 50 years till they were safe & a quarter by selling 10% of the shares &/or borrowing against future electricity. Having 10% in private hands & putting day to day management in their hands should keep it free of political action. This would therefore cost the Exchequer about 4 x 1/4 x £1 billion annually which is much less than we now waste on windmills.



We have had years of the political elite telling us we must make do without growth & introducing ridiculous, usually "environmental", regulations to enforce it. Well that is what we have got & it looks like nobody actually likes it. We can & should try the opposite.

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