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DOUGLAS MURRAY

Inflation is out of control and will further hammer hard-working Brits but there is a way we can fix it – ask Uncle Sam

IT’S beginning to feel a lot like the 1970s.

Here we are with unions holding the Government to ransom and the nation gridlocked by a completely unjustifiable strike.

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The answer to the 1970s problem was what became known as ReagonomicsCredit: Getty
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The leadership of Margaret Thatcher here and Ronald Reagan in the US pulled the two nations out of the economic and political doldrumsCredit: AP:Associated Press

On top of that we have terrible inflation — now at a staggering 9.1 per cent — and a rising cost of living.

And then there are the tax rises. For anyone old enough to remember the Seventies, it is all horribly familiar.

But back then there was an answer. After the stagnation and much, much more, we had the 1980s.

In the Eighties the leadership of Margaret Thatcher here and Ronald Reagan in the US pulled the two nations out of the economic and political doldrums we were in.

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The Labour Party in Britain and the Democrat party in America had wrecked their respective economies.

For a lot of people it seemed as though things would just continue for ever like that.

The reasons they did not is a reminder that all it requires to turn around a country is a few remarkable people.

Who is going to do that today, though?

Where are our Thatcher or Reagan for the 2020s?

In America, Joe Biden likes to say the soaring living costs and tripling gas prices are all the fault of Vladimir Putin for invading Ukraine.

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Certainly, Mad Vlad has not helped matters, but America’s economic problems are Biden’s own doing — the fault of a government that continually throws money it doesn’t have at problems that cannot be bribed away.

In the UK, it is a similar story. It often seems as though the Government does not know what to do with the huge challenges it faces.

Bucked every rule

The Labour Party and others like to say that they want to talk about the soaring cost of living. But I’m not sure about that.

Because so far they have had nothing serious to say about it.

That is a shame because somebody has to present a different way to this Government. It is not clear that they are going to find it on their own.

But as it happens, the answer is right in front of them. They just have to go back to the last time we went through something like this.

The answer to the 1970s problem was what became known as Reagonomics.

It was a set of policies President Reagan put in place and which bucked almost every rule of the time.

Until 1981, most economists thought the best way to get inflation under control was to reduce the supply of money.

But a number of smart individuals noticed something important. Which was that the money was not really in the government’s control.

People — investors — were in control of the money and government actions had to encourage them to go in the best possible directions.

So, for example, however much money government threw around, it was being wasted, because the American people were using it to buy things that did not really help the economy.

What Reagan’s advisers saw was that if the government had a tighter control of the money and also lowered taxes, then much of that money would be put into more useful places.

Reaganomics

For instance, Americans would start to invest in the stock market, as millions did. Once they saw that there would be a real return on their investments, they put their money into stocks.

It had the desired effect. For a decade the stock market had been stuck and unmovable. Suddenly it took off — and it kept roaring for the next two decades.

Unemployment fell, interest rates dropped and inflation went away for decades.

The insight of Reagan and his team was that if people were encouraged to put their money to good use then the economy as a whole would benefit.

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The insight of Reagan and his team was that if people were encouraged to put their money to good use then the economy as a whole would benefitCredit: Wikipedia

The money supply is not the deciding factor. The deciding factor is what people choose to do with the money they have.

If they see investment opportunities then they will invest and the economy will benefit.

If they see no such opportunities then you get the stagnation that this country, among others, is now staring at.

We are facing rising prices everywhere. In real terms we are all becoming poorer month on month.

With worries starting to escalate, people are tightening their belts.

And that ends up increasing the problem.

As investment opportunities look like a thing of the past, they become a thing of the past. The doldrum sets in and stagnation starts to rear its head.

And that is a situation which can disable a country for decades.
Here at home, we had our own practice of Reagonomics.

The great reforming ChancellorNigel Lawson saw to it in the 1980s that taxes fell for the first time in years.

And in the process the tax yield rose. Opportunities were there again. And people in every walk of life benefited.

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Will we learn the lessons? I don’t know.

But if the Government wants to look forwards to a better future, it should first take the time to look back — and learn.

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