Death by policy

 Having just read the back page Bill Boner article in this week's Moneyweek - he opened my eyes to a truism. 

He said "Policy has no competition".  

He's right - no amount of new government policy can create real economic growth and there are no concurrent competing policies.  Any competing policy comes from other political parties and requires a change of government for them to come into effect.

Policy can definitely create bubbles, inefficiencies, bureaucracy, red-tape etc.  Policies on stimulus rarely create sustained growth - once the stimulus is removed it usually collapses - in the meantime there's usually opportunity for a bubble to be created since stimulus policy usually means subsidy.

Then there's anti-policy or "regulation". This usually stifles growth or contracts a market.  Current landlord policy is causing the rental housing market to contract - landlords are selling up and leaving the market. The side-effect of this government policy is rising homelessness and rising rents for tenants competing over a reduced pool of houses.  The "policy" is having the reverse effect of what was intended. It's creating scarcity and therefore rents are rising as a direct result.

The problem is there is no competing policy in favour of landlords.  At least not in this country.  There are other countries with alternative policies.

Starmer is allegedly  a lawyer (although the only habit of a lawyer he seems to exhibit is more rules and regulations).   Therefore he's one for policy - more rules. He loves rules and if the rule doesnt achieve what he wants then he will introduce more rules - workarounds on top of workarounds.

In order to stimulate growth and create a competitive market we need less policy.  Take our once wonderful Stock market.  It was the powerhouse of the UK economy now the UK financial markets are a feeble shadow of what they once were.  

Banks are overloaded with regulation and red tape following the financial crash.  Sure there needs to be controls and measures in place to stop bad actors and bad behaviour in the financial markets but do we really need as much red tape as we have?   Take MIFID 2 which is a key regulation - it's  30,000 pages long when all referenced regulations are included.  Really?  I was once speaking with the CTO of a large bank and he told me they had 2,000 people whose sole job was to read and analyse all these regulations - not to implement them - just to understand the impact and consequences.  

Taxation is another area riddled with government policy.  UK tax law is 18,000 pages (amazingly less than MIFID 2) whereas Hong Kong law is just 350 pages.  Admittedly Hong Kong tax law was just 214 pages in 2014 so it seems China is doing it's bit to increase bureaucracy.

I am watching what Javier Miliei is doing in Argentina. He's slashed regulations, rules, policies.  He's fired thousands of government employees.  Generally it seems to be working.  Inflation has plummeted from 140% to 30%.  He slashed regulations on rental properties - suddenly landlords were open to renting again so there was surge in property availability and rents fell. Overall it looks good but he's made enemies doing this and those who made money out of the old ways are plotting his downfall. 

So if we want to have a vibrant thriving economy we need our own Milei to have a bonfire of regulations, rules, policy and laws in order to take the brake off the economy.  Free market competition is needed.  But who will be plotting and lobbying to stop making things better?  Who has a vested interest in all this red tape and bureaucracy?