Friday, 27 February 2009

The Fallacies of Deflation

It seems every authoritative figure has begun warning about the dangers of deflation. With Britain's Monetary committee making a case for printing money, we are told that this is to ward off the 'dangers' of a falling money supply, and we need to inject more cash into the system to get the economy moving again. The Keynesian's, the governments economic cheerleaders, are proposing that inflation is needed in order to combat deflation and the new money can ensure increased consumption in order to drive the economy forward. Deflation is one of the most misconceived economic terms, used as a scapegoat by the above institutions portrayed that it can somehow cripple an economy. Yet Deflation should always be embraced as it is a sign of a healthy free market economy. If our economic system was truly free, we would never get inflation. We would always have deflation in the modern sense of falling prices. However Banks and Governments always prosper with inflation. Throughout history this has been demonstrated with the costs borne by the rest of us. I felt this post was needed as I have become weary of these statements that deflation is some how a terrible event that should be avoided at all costs, used to try and justify printing money. Nothing can ever justify printing money or inflation and this post attempts to tackle these common misconceptions that have been indoctrinated onto the public, either by officials and economists that prosper from such policies or are incompetent to see what is happening.

Credit Expansion, Banks and Governments

Governments worship inflation. It funds their expensive welfare programs. It funds their wasteful consumption. It funds their political ideologies, their Utopian society they promise the public who elect them. Permanent inflation, like the one we have in our monetary system would never occur in a stable and free market monetary system. It can only occur by the continual expansion of our money supply. Markets always reduce the costs of goods ensuring greater productivity efficiencies as capital is used to enhance the way we make products. The debasement occurs with the co-operation between the banks and the state, similar to what we are seeing now. There is no conspiracy behind this as there is a long history of governments encouraging reckless credit expansion from the banks. A credit boom, like the one we have just come out of, creates huge amounts of credit which is spent during the boom. Most of this money does not exist as fractional reserve lending allows banks to lend far more money than they hold on deposit (money that actually exists). The government allows this privilege to banks as it inflates the currency, expanding the amount of money in the system. Despite the huge deflation we have had over the past 10 years in, computers, mobile phones, holidays, with all these items coming down in price, we have still had continual inflation. That inflation was a credit boom created by the private banks orchestrated by the central banks who prop up this credit expansion process, ensuring it goes on for far longer then would occur in a free market system.

At some point this process breaks down (a credit crunch), usually by previous investments turning bad (sub prime was the trigger recently) thus wiping out what little reserves the banks have. The banks reach a point where they can no longer inflate and central banks become the lender of last resort propping up these banks, and essentially printing money to replace the credit being destroyed. This is the current time frame we find ourselves in. Deflation, as in a contracting money supply is happening, thus the government and institutions step in to inflate. Since the credit crunch began true deflation has not actually occurred. Instead the money supply (Broad Money, M3, M4) is still growing as the governments resort to running huge budget deficits, that will be paid by printing money. We are told that this is necessary, as our economy needs the credit in order for it to operate. This however is not the case.

It doesn't matter how much money you have in the economy, so long as it is stable and divisible enough to price goods and services. Zimbabwe has huge amounts of money, yet they are no better off than traditional hard money countries such as Switzerland. In other words our prosperity does not depend on how much money there is, only that it be a commodity that can retain its value. If we allowed our money supply to drop, as markets are currently indicating, prices would just fall to a new equilibrium. If our money supply fell 50% then prices would generally fall 50%. This is the way to get out of the economic hardship we find ourselves in. This ensures a healthy liquidation process runs its course and cleans out these excessive speculative debts, those of the wasteful businesses and individuals. It would also stop government spending, and these unpayable deficits that we now see. It would be painful, depending on your circumstances, but it was brought about by the excessive credit expansion of the previous boom. The market is simply trying to get rid of these excesses. The worst thing we can do is try to re-inflate like we are currently doing. History has always shown this, and economic theory proves it.

Deflation is Compatible with Economic Growth

The recent credit bubble has now morphed into a violent contraction as the credit expansion process has turned into a credit contraction. This is not to be confused with normal market deflation (constantly falling prices), rather a by product of the elasticity of our money. In a free market that did not permit excess credit creation (ideally none), used sound money and removed the monopoly our governments hold on our money, deflation would be a normal occurrence. As history has shown, economies that have undergone deflation, have performed better than economies that have experienced inflation. Milton Friedman, who in fact believed in price stability therefore inflation, concluded that America during the period from 1865 to 1879 experienced huge economic growth despite having no inflation. On the contrary the U.S. was experiencing deflation.

"[T]he price level fell to half its initial level in the course of less than fifteen years and, at the same time, economic growth proceeded at a rapid rate. . . . [T]heir coincidence casts serious doubts on the validity of the now widely held view that secular price deflation and rapid economic growth are incompatible."
Milton Friedman and Anna J. Schwartz, A Monetary History of the United States 1867–1960

Around this time Germany also experienced rapid price declines, yet had the best economic growth in the whole of Europe as they became a world superpower that challenged Britain's status at the start of the twentieth century.

These false justifications to create more credit will ruin market forces for years to come. Credit merely channels societies resources. If we have less credit then prices drop to their new equilibrium. Just because credit contracts, doesn't mean we suddenly loose all our infrastructure, our skills, our resources? They are still there, and will just be re-priced accordingly. The competent, people and businesses who did not overextend themselves during the credit boom, did not make wasteful purchases, will take over from the people who were overextended and have been liquidated, who could not manage societies scarce resources.

'Price Stability'

So why do we have this catastrophic credit expansion that creates all the issues we now have? Governments and Central banks use a concept of price stability. Many of you would have heard of it before. In the UK for example we have a composite index that represents typical consumer goods, called the CPI (Consumer Prices Index). The government (Central Bank) try to keep this target in a range of 2-3%. Around the turn of the Twentieth Century a proponent of this concept was an economist called Irving Fischer (an early day monetarist). The concept goes that this will somehow ensure greater economic productivity and planning. Another economist at the time, Friedrich Hayek, indicated that this proposal was doomed from the start. In order to stabilise prices in a free market where prices were continually falling, the stabilisation would inevitably take the form of a credit expansion, which would provoke a boom. This boom would be unsustainable and would result in these artificial credit distortions eventually unwinding with a bust.

These polices were used during the 1920's in America, with the Federal Chairman Benjamin Strong, ensuring 'price stability' by crediting a huge credit bubble in the stock market. Irving Fischer, who supported such polices said in 1929;

"Stocks have reached what looks like a permanently high plateau."

He also made statements for the continuing years that stock prices seem to have stabilised, even as they continued to decline until 1933. Meanwhile in 1928/1929 Friedrich Hayek, had wrote that a great depression was coming. Price Stability was a form of central planning, targeting fixed metrics that were incompatible with market forces. It was central planning intervention, interference with markets just like Communist Russia. At the time he was laughed at, people were saying it could never happen, this was the "Global Economy", the "New Economy". However the disaster was always on the cards, it was just a matter of time. Governments and Central Banks subsequently use 'Price Stability' to legitimise this expansion of the money supply that always brings about the boom and bust process we are currently seeing.

Price Indexes

Then we come to the point of the price index (CPI, RPI etc). How do we determine the algorithm to use? In a free society how do we decide what people spend their money on? Well one cost would be living costs, as we all have to live somewhere. Not in CPI. CPI, the preferred measure the government uses doesn't even include typically peoples biggest cost, their roof over their head. So how can they target 'price stability' when we don't include house costs. Quite simply they can't and its all an illusion. All the inflation went into houses - trillions of it, now its all spilling out as the governments try and replace the bad loans that were lent on these assets. It's a similar story with stock markets, they are also not included in any measure. The indexes they use from the start are flawed. Its all deliberate, to give people the illusion of prosperity i.e. rising asset prices to ensure continual inflation, debasement of our money. These are the justifications they now use for printing money, flawed centrally planned metrics which is just the same as any Communist centrally planned ethos. All monopolies are doomed to fail and impoverish the people. This is no different.

The amusing thing with CPI in the UK, is it hasn't even fallen in it's targeted range and yet the government are already wanting to print money, even before true falling prices have actually met their bounds that they use.

Arguments against deflation

There are many common horror stories with deflation, a fear is installed in people with various doomsday scenarios that will occur, and all of them incorrect.

The first one, is no one will buy anything. People will stop consuming and we will all have no jobs. So when mobile phones, computers, televisions, holidays, cars etc have all been falling, did people prospone their consumption? Of course they didn't, people have a time preference to enjoy their life now. Everyone knew these goods would most probably fall in price over the past 10 years yet everyone kept buying them at record levels for the enjoyment of these products now. People buy mobile phones every year, despite them continually falling in value. Common sense says people always spend money. We always need goods. People use these justifications for houses, if prices keep falling then no one will buy them. People will always buy houses regardless, as its a home, and people will always pay for the enjoyment of 'their' home. If peoples past expectation during the housing bubble was rising appreciation, then these attitudes need to change. A house is a home and historically has been a poor investment. When the credit crunch began people stopped buying homes not because they thought they would fall, but because the banks stopped reckless lending. Now people are not even sure if they will have a job, so buying a home suddenly seems like a liability.

Second, it would be harder to service our debts. Sure, if you have a million pound house with an income on minimum wage and a 125% mortgage. This only occurs in the extreme case we find ourselves in now, that is caused not by deflation, but the excessive credit expansion of the preceding years, all in the name of 'price stability'. Even in our current situation, people who have over extended themselves get liquidated. The people who have been prudent and competent take over these assets. Governments cut their wasteful spending, and don't rob the people through inflation allowing the competent private sector companies to take over - not the government like we are seeing now. An attempt to re-inflate will only result in further struggles to pay debts as the new money ends up in food, energy etc meanwhile production is distorted and hampered by these re-inflationary tactics.

Third, we will get a deflationary collapse like Japan in the nineties. It wasn't the deflation that killed Japan, as in a monetary trap, it was the government, a structural trap. It continued with further inflation. The government expanded its involvement, tried to prop up prices and didn't allow liquidation. The funny thing is U.S. Treasury Secretary Timothy Geithner now states that Japan did not inflate enough and that's why their economy never recovered. Talk about clown school economics. I couldn't believe what I was hearing. It was like Robert Mugabe stating that Zimbabwe's economy is in such a bad state, because he didn't print enough money.

Deflation allows all sections of society to prosper. It distributes lower priced goods and services to all income groups, regardless of social standing or what assets they hold. Inflation enriches the wealthy at the expense of the poor. It puts a break on social mobility. Banks and Governments are always the winners as they receive the money first. As the money moves out, prices rise and the last to get it suffer. As long as the government holds a monopoly on our money they will always inflate, regardless of the consequences. Regardless of robbing the very people they are elected to represent. The only way to prevent this is by giving production of money back to the people - to the market. Just like any other good, Chicken, Shoes, Phones, all are provided by the market and money is no different. It is merely a convenient commodity to exchange our more cumbersome goods. Britain had free market money around the turn of the nineteenth century, as it rose to become the economic superpower of the world. Government intervention outlawed it, as there was no benefit for them subsequently creating the modern money monopoly they still hold. One day, I hope we will look back at inflation as an ancient cult, extinct, with deflation a permanent feature in our economic landscape, discriminating against no social group and ensuring everyone can enjoy the fruits of a true free market.

"Today everybody is prepared to consider a rise in his nominal or monetary income as an improvement to his material well being. People’s attention is directed more toward the rise in nominal wage rates and the money equivalent of wealth than to the increase in the supply of commodities. In a world of rising purchasing power for the monetary unit they would concern themselves more with the fall in living costs. This would bring into clearer relief the fact that economic progress consists primarily in making the amenities of life more easily accessible."
Ludwig Von Mises, Human Action


  1. An now the start a £75bn 'quantative easing'... isn't this a leap into the unknown?

  2. Thats what the bank would have you believe. Printing Money never works. History and economic theory proves it. All it does is hamper capital formation, consequentially disrupting production and distributes resources to the government.

    The idea that you can create money which creates wealth is nonsensical. Wealth is human ingenuity, labor and generations of capital goods. Not a printing press.

  3. It's an interesting point, but I've read around a bit more and this seems to be intended to prevent capital destruction, rather than to aid capital formation - which, in the current circumstances, appears to be the higher priority.

    As the money will be mainly used to fund the acquisition of toxic assets they hope thereby to get credit flowing again.

    I agree that this is the problem of having a credit-based economy rather than a product- or cash-based economy, as capital values became easily disassociated from actual worth and must eventually somehow realign, however the scale of the global economy makes it avoidance of credit transactions unrealistic.

    It became most apparent in the housing market, where traditional mortgage applications were calculated on a earnings to borrowings ratio of 1:3 boomed to 1:9 in many cases before self-certificated ninja applications were then accepted to support the continued rise of the bubble.

    So it may be fair to say the housing market is not collapsing, but realigning at a realistic and sustainable level.

    Equally, imbalances in the wider economy must be return to a sustainable level - locally it's been clear for some time that we need a few more social workers etc and a few less estate agents!

    So I think the issue is whether the Treasury is capable of turning the printing presses off at the right moment - too soon and it won't work (despite the injustice and the pain), too late and they'll debase the currency (which would have more serious consequences).

    With interest rates as low as they can go, 'quantative easing' is about the only lever government can pull with a year before a general election, but they are treading a very fine line on a barbed-wire tightrope!

  4. Oranjepan,

    First of all it is primarily credit destruction, not capital destruction that is occuring. Capital is still out there, indeed peoples savings should increase as we have had far too low savings in recent years to invest in production and consequently to generate real long term beneficial wealth.

    You can never get credit flowing again by re-inflating, with what is happening now. Printing money out of thin air will do no good. The only way to get credit flowing again is to liquidate all the bad investments that haveoccurred. The quicker this is done, the quicker we can all move on, and credit will flow once more.

    Credit based monetary systems will always enrich the banks and the govt at the expense of us the people. Global economies functioned fine in the past with sound money. Not sure what you mean by a product based economy, I presume a barter system, but the whole point of a common money is that itsimplifies the markets pricing mechanism. Also its prices not capital values that move higher as more money enters the market. House prices got high, because central banks inflated the money supply by lending cheap money to banks in turn who lent huge amounts of credit to people. These financial instrumentsexacerbated the problem, as banks could then expand the money supply further, beyond what the central banks expected.

    Whats happening to the housing market, is prices are returning to historic averages (they will go lower, but eventually return to historic prices). This process can not be stopped, and the policies being carried out can only make things worse.

    The central banks have no intention of turning off the printing presses. They want inflation. The government needs it. Plus once demand for money evaporates and people want to get rid of their money in exchange for goods thus prices will rise quicker, then people require more money in order to pay for these newly priced goods. It's very hard to stop this process, and is not as easy as turning off a tap in which the media and so called economists will tell you. Turning off the tap eventually led to the early eighties Thatcher recession, the worst post war recession. It's known in economics as a secondary depression and occurs when a government reflates, but eventually gives up and lets the market work. We will get this some point down the line and it will be worse than the current recession.

    Lowering interest rates, printing money its all price fixing. The government doesn't need to do anything. The market is correcting everything now. This is how things get fixed. Not 'Quantative Easing'.

  5. Don't get me wrong - I'm not in any way trying to defend the govt policy, rather I'm looking at it with a political eye.

    The policy of Brown's govt is aimed at working to win the next election, but due to his poll rating his interest is in sustaining appearance of the crisis (even if that means sustaining the actual crisis) and then shifting the blame for it onto the people who're working the perversely incentivised system he has created.

    I think I'm in agreement with you if you oppose the distorting effects created by market intervention of this sort, but I think the result of the general election will provide the evidence of whether or not it worked for the government.

    My focus is on describing how economic competence and political sense have diverted paths as the electoral cycle comes full circle.

    I don't know if you've picked up from my blog where my sympathies are, but I'm very concerned about what either of the two largest parties might achieve - especially if the historical analysis you provide is anything to go by.

    I think £75bn in three months is a massive amount, but they've given themselves the option of printing another similar amount for each of the next quarters.

    So, yes, it seems probable that they may find it difficult to turn the taps off, but they've already covered themselves politically by creating a methodology which they can use to justify their actions - it's a clever strategy, but I doubt it's wise.

    The worst thing is that the pain is always preventable - if we learn how to use the power of the ballot box to hold our politicians to account.

  6. Your correct the pain is preventable. However none of the mainstream parties offer policies to avoid this pain. They are all clueless, either due to their inability to understand economic issues, or their desire to preserve the status quo. This includes the liberal democrats who offer no real alternative to Labour or the Tories.

    The ballot box is critical and is the only thing going for the UK (along with law, order etc). The only way things will begin to change, are when things get really bad - and we are still a way from that. The current set of politicians don't have the spine to implement radical but required policies. David Cameron may say we need to cut public spending, but this is easier said than done. When he comes to power and 3 million plus are unemployed, will he really decide to increase short term unemployment more, in order to cut govt spending. People forget that under Callaghan unemployment doubled. It did the same under Thatcher when she tried to correct things. Nick Clegg is just in a similar mould to Cameron, so I don't think any of the candidates will have the strength to correct things. From what I can see they are just going to kill the pound and give up on it, sooner than I expected. Remember all fiat currencies eventually end. Whether its 10 years, 100 years etc - the pound will end, either through abandonment or hyperinflation.

    Like you say the ballot box can hold our politicians accountable. However, they all offer nothing that can amend the current problems we see and will continue seeing. That's why Labour and the Tories swing in and out of power. Lib Dems have been seen as a wasted vote, if they rationalised (as they will never get in power) they would start suggesting real fixes to the boom bust cycle. They would have nothing to lose unlike the other main parties and once the people understood the issues, would vote accordingly. Problem is the policies I suggest would put govt out of power. There would be no need for central banks or huge govts.

    Only time will tell.

  7. You make a lot of interesting points, but I'm not sure I agree completely. So excuse me if I go on at length.

    Vince Cable is doing himself a lot of credit by arguing a pragmatic non-partisan line which I have a large amount of sympathy with. But I don't think strong leadership is necessarily conducive to good leadership - in a way I'd hope for a hung parliament as this would force all sides to come to the table to reach a sensible decision across party lines: only by putting partisan interests to one side will the common interest be served.

    So I'd advise more pragmatic, tactical voting and less idealistic or tribal voting.

    As far as the LibDems are concerned, I don't think they have all the right answers, but I'm more optimistic about their chances of discovering what they may be since they aren't beholden to any vested interests.

    You seem to be proposing the libertarian minarchist and free-trade position, which I think has a lot of merit, but depending on how the 'public' debate is formulated, why would the policies you propound necessarily be any more unpopular than what exists now?

    I'd argue that the current levels of apathy and disinterest in politics actually shows the failure of the current 'divide and conquer' style of debate. Unless we rebuild levels of active engagement with issues of importance then it seems obvious to me that as a society we will only continue to lose many potentially valuable contributions.

    So, my concern is asking how the 'public service' position can be reconciled with 'financial sense' position.

    I feel that only a competent politician who is capable of doing so is deserving of my support. Consequently I remain a healthy scepticism, but nonetheless encourage participation wherever I can. My hope is that the next generation will be able to finally clear up the messes created by the ideological war, but I also recognise it is a gradual and ongoing process prone to setbacks.

    Ultimately, though, we are left with a situation we have to deal with - we aren't starting from a blank slate.

    How do we get credit flowing again? How do we ensure that credit controls are strictly enforced? How do we prevent flawed business models from taking over?

    Historically, we are in a period of transition towards a more globalised economy, so my feeling is that there should be a more globalised regulatory architecture to compliment this and run in parallel with it. The moves to integrate former tax havens into compliance with tax disclosure etc are therefore welcome and points a constructive way ahead.

    I don't think we necessarily diverge on these points as I'm making a case for decentralised, layered institutions organised in a comprehensive and structured way, not for a bigger centralised bureaucracy.

    Anyway, I appreciate hearing your thoughts, whether in a response or in future posts.

  8. The reason for the levels of voter apathy is the fact that all the main political parties use focus groups and just converge towards similar policies. This became evident when John Smith, the leader of the labour party, died in 1994, thus symbolically ending the rule of the left within labour. Since then Labour have just copied Tory policies, dressed differently but the same. Everyone accepts both parties are the same thus politics doesn't mean what it used to when there were differences. Society has reflected this reality, by disconnecting from politics. Political extremes usually benefit in this environment as people see no rational proposals in mainstream politics as it continues to fail in delivering solutions to the economic issue we see.

    I am indeed proposing a true libertarian solution, as an overly active state always leads to central planning, totalitarianism and preferential treatment of certain social groups at the expense of others. If you have not read about it, I would fully recommend Austrian Economics, the rationalisation of economics, as it is not a dark art as some would have you believe.

    Your mention of a more global connected system is one that I agree with. I made a statement 6 months ago that currencies would fall while others would converge. Since then the Krona collapsed and others are looking suspect. The recent G20 meeting also mentioned thepossibility of printing a global currency. This is the ideal form of fiat currency with unbound limits to inflate. We are a way off this though, if our leaders choose this route.

    Thanks for the comments. Always like to hear what other peoples thoughts on the current depression are.

  9. I agree with you on your analysis of the similarities between Labour and the Conservatives, however this does not mean all parties use the same method of formulating policy.

    The recent LibDem spring conference in Harrogate provided evidence that it is their membership which agrees policy, rather than depending on top-down methods of control - perhaps this is why they get such a bad press!

    I like what I've read from the Austrian school, but it also appears this has largely been misapplied due to misinterpretations for political gain (in a similar way to the Chicago School re:Chile).

    Hayek's 'Why I Am Not A Conservative' is informative on this point and is a starting place for many libertarian LibDems (including bloggers Charlotte Gore and Tristan Mills, who you may like to read. Jock Coats is also interesting, arguing consistentlyfrom a more left-wing libertarian 'geo-mutualist' position).

    Though not directly part of that movement, one of my current favorites is EF Schumacher's 'Small Is Beautiful', in which he proposes 'intermediate' answers opposed to the overdependence on, and favoritism towards, any one sector.

    There is much vibrant political debate within the LibDems, so I'd be interested to hear your criticisms of what they have to say.

  10. A colleague mentioned Schumacher's book, and I have yet to read it (or get hold of a copy).

    Had a quick look at the links in particular read, however this is my libertarian thinking. Investment bubbles are not the products of markets, rather preferential market treatment towards certain groups of individuals - not a free, equal, law enforced market. All the schools get misapplied. Even current Keynesian is being misapplied (Keynes recognised that govt. should build up surpluses during the good times - which no Western Govt has done).

    Unless Lib Dems recognise the monopoly our govt. have on our money, then they do not have the answers. Money needs to be given back to the market, along with abolishment of most govt programs. We live in socialist market economics - we have never experienced a true free market.

    Vince may have been one of the few politicians that called the credit bubble, but his recent calls for nationalisation is not a solution that I agree with. They seem less market orientated than Labour.

  11. Note: above should read however this is NOT my libertarian thinking

  12. Charlotte appears to be more of a late convert to libertarianism, whereas Jock is a forceful long-term advocate of privatised currencies and land value tax (also sitting on the LibDem federal policy board trying to push these lines). My guess was actually that Tristan would be most up your line.

    Anyway, none of them agree entirely, and none are afraid to criticise highly respected works of reference. Neither do I agree entirely with everything any of them say. And they are each just independently-minded local people, albeit with blogs.

    My point is that there is vigorous and inclusive internal debate at all levels which is forced to reach conclusions and make recommendations according to the democratic process of the party.

    It is perpetual and continually on-going if you can find it. It can seem long-winded at times, but parties build on all the diverse traditions they encompass. It can seem imperfect too, but practical politics means it requires real-world answers which can be sold to an electorate.

    From what I've seen of LibDems generally they make a habit of saying 'the devil is in the detail' and 'one size doesn't fit all' etc. Vince Cable's pro-nationalisation stance was accordingly highly conditional, arguing that it was necessary as a temporary measure and only acceptable due to the extraordinary circumstances. That's a pretty fair argument, I think.

    On face value it might seem undesirable and contradictory to preferred theory, but I think the art of good politics is all about knowing when, why and how to change your mind (or not, as the case may be).

    The thing is that all theories explain the past and the past only. Events are continually superceding knowledge and forever providing contradictory results - there is no single formula and any politician must therefore be his or her own best philosopher with only their own judgement to offer.

    What would you like to be different?

  13. Phill, I share you feelings about Vince's 'solutions' to the problems we're facing and what needs to happen. I also agree about the state of our economy - we don't have free markets by any stretch of the imagination.

    For what it's worth the economic liberals within this party are trying to organise and become more influential. We're only at the start of that but we keep finding each other and finding that we're not prepared to stay quiet any more.

    The big problem, as I'm sure you're aware, is that a large chunk of the party believes that 'social democracy' and 'liberalism' are interchangeable, and if they're not then it's 'liberalism' they'll ditch - and have in fact ditched. Liberalism exists as a brand of social democracy rather than anything distinct from anything else.

    It's sadly a catch 22 situation - how do we attract more economic liberals to the party without the party being more economically liberal? Policy is controlled by the members, so there's hope - but there's a long way to go.

    Either way your economic analysis is excellent and I wish you luck in your blogging.

  14. Thank you both for your comments. I have to say I didn't realise the Liberal Democrats would have members who understood true liberalism. Like you mention Charlotte, there is always hope. If these policies keep going on then hopefully things will get so bad that people will start looking for answers, rational answers, as opposed to Daily Mail rantings about immigration or some other non entity discussion.

    However generally people levitate towards extremes as the mainstream is associated with the status quo. There does need to be change and there is a true third way, not Mr Blair's interpretation. It's good to see individuals like yourselves try and change policy from ground up, and spread true liberalism. Good luck in your endeavours.