I was asked if I had a brilliant idea for 21st century economics and I replied that it is all on my blog. I was then asked if I could put it altogether in one clear and concise piece. Here it is, but the economists will not like it as the brilliant idea reduces them to academic observers rather than interventionists. The assumption based upon centuries of observation is that the economy works best without them or the Establishment interfering.

The best way to rethink economics is to think about what it was that worked in the past and, rather than lose it, think how it can be improved upon for the future.
Although imperfect, capitalism is the only tried and tested economic model that has been successful in promoting economic growth, raising living standards and bringing about greater equality of income and wealth.
Unfortunately economists do not want to hear about a system that does not require them to manage the economy, and has been far more successful than any of the macroeconomic interventions that they have engineered so far.
In a capitalist system the government has an important but limited role to play. They must buy the public good, that non-rival non-excludable product that we all want but are not prepared to buy. In a free market capitalist society the most important public goods are the laws, rules and regulations that underpin private property rights, remove asymmetry in private contracts and level the playing field for competing firms in all those industries producing the private goods and services that we all choose to buy.
As an efficient economic system requires government activity to be limited to the above it is also necessary to have an added constraint which is that the government should, by law, balance its budget over a three year term. This is inside the election cycle and means that they will be required to finance all current and capital expenditure from current taxation.
To improve the economy`s efficiency the tax system needs to be revised: all taxes should be scrapped except for VAT on all products and an additional excise duty that can be used to discourage consumption of the demerit good and give financial support to the merit good. In addition to this there will be three rates of income tax. A 20% income tax will be applied on all income above £20,000 and a 30% rate on all income above £80,000. All these numbers will be index linked to RPI ensuring their real purchasing power. Thirdly there will be a reverse income tax of 50% that will guarantee all adults over the age of 18 a yearly income of £10,000. This will replace almost all welfare benefits, help finance continuing education, support the welfare service and give the unemployed an incentive to work even in part time jobs as reverse income tax eliminates both poverty and the poverty trap. A massively slimmed down welfare system will support education, health and those people registered as physically and mentally unable to support themselves on a minimum guaranteed income of £10,000.
As we have removed fiscal policy from macroeconomic management of the economy the only macroeconomic requirement will be for the Bank of England to maintain a 2% inflation rate without manipulating interest rates. This will require quantity on money management on their behalf.
To deal with the public good on an international scale it will be necessary to have international laws and an international court whose rulings are enforceable across all international boundaries. Their brief will be to stop environmental degradation and deal with private property rights within a country and between individual countries, where the ownership rights will be over borders and waterways.
The advantages of the system so far proposed is that government will be limited to managing the provision of the public good, a limited welfare commitment as well as major support for education and health. One of the public goods will require government to oversee the efficient use of resources to merit goods. I propose that state education will be free from 4-18 and run alongside, and compete with, private education. My experience tells me that we need to scrap grammar schools and have a comprehensive educational system with 11-16 schools feeding into sixth form colleges and the whole 4-18 system needs to be under local authority control. A specific number of health services will be available free to all and be run alongside a private health service. The National Health Service will be able to act as a monopsonistic buyer of pharmaceutical products.
The provision of education and health will no longer be monitored and as such will release significant resources to front line services. This will mean more teachers, nurses and doctors at no additional cost. Only problematic outcomes will be investigated. I do have a special request for our education and it is that “economics” is made compulsory in years 10 & 11. It is a fun subject that promotes a clearer understanding of the world`s goods and bads and there will be many unemployed economists who used to advice government, directly and indirectly, who will be available to teach.
Government will now be more focused with less responsibility for macroeconomic management of the economy so I see no need for political parties. In each of the 650 constituencies only independent candidates can stand and 650 elected Members of Parliament will elect a Prime Minister and a Government.
For those of you who are worried that the economy may not grow I remind you that well managed, almost free, markets will allocate resources more efficiently than any other system known to us. Private property rights will lead to investment in profitable activities. Failure is a brief drain on resources but is also necessary to sift through what people really want and the successes will far outweigh the failures. After all, the main sources of economic growth are invention and innovation and these only ever come from the private sector of the economy. One further caveat to limited government is that under no circumstances must any government ever intervene over pricing in markets when it is imposing regulation.
In conclusion we have a financially small government clearly focused on buying the public good, supporting the merit good and discouraging the demerit good. The Central Bank is supporting regulations and aiming to reach the only target it can achieve which is 2% inflation. Relatively stable prices and a responsible Treasury that balances the government`s budget will be coupled with private enterprise to ensure that the economy grows at a fast and sustainable rate, while employment levels are high and the balance of payments close to a zero balance on current account. This will produce long term stability in the domestic economy and in its currency on foreign exchange markets.

John Hearn 17/3/2019