Dr Liam Fox MP calls for ‘fiscal restraint
and monetary realism’

Speaking at the IEA this morning, Dr Fox called for an increase in interest rates and a fresh look at monetary policy.

Dr Fox painted a bleak picture of quantitative easing (QE), arguing that central bankers have created a ‘drug pusher and addict‘ relationship and are now unwilling to do the right thing and cause pain for the groups that are hooked.

Fox was careful to note that it is not the whole economy that is hooked on QE – it has been good for banks and asset owners at the top, but the benefit has not filtered through to everyone else and small businesses continue to struggle to borrow.

Cheap money has encouraged capital misallocation, Fox argued, with large companies taking more risks on capital markets and massively growing their debt – feeling safe in the knowledge that government will bail them out if (when) it all goes wrong.

‘I would suggest that we are blowing bubbles rather than preventing them […] We’ve over-corrected from the last crash, and now we have to tighten up again … It is not possible to do it painlessly.’

Dr Fox called for a 0.5% rise in the base rate, a restoration of the balance between borrowers and savers, and an end to using cheap capital as a gambling tool. He also shared his concerns about current levels of government spending, asserting that the UK budget deficit is still too large and spending plans lack ‘inter-generational fairness‘.

QE may have staved off the worse of the crisis, but it has not addressed structural problems and patterns of behaviour that caused it, indeed, it may very well have stored up more severe problems for later.

Dr Fox thinks that politicians need to look carefully at the argument that low interest rates have caused cycles of boom & bust by creating cheap capital which fuels the stock market beyond sustainable levels.

‘Wishful thinking is a poor substitute for critical analysis’

In a wide-ranging speech with impressive levels of analysis, Dr Fox tackled a number of issues around economic security.

He questioned the independence of the Bank of England; calling for more scrutiny and criticising the relationship that has developed between not just the Bank of England and the UK government, but other central banks and their own respective governments.

‘Central banks have become governments’ lender of first resort.’

Those who subscribe to Austrian economics will be disappointed to hear Dr Fox did not call for the abolition of the central bank, but rather suggested reviewing the targets of the Bank of England and how it functions to ensure ‘the independence is real and not just a mirage’.

Dr Fox also questioned the usefulness of GDP as an economic indicator “There’s a difference between GDP and wealth creation,” he said, before calling for a new measure:  “Gross Private Product (GPP)”, which removes government spending from calculations to focus on real wealth generation in the private economy.

Unsurprisingly, Fox’s analysis of the numbers has shown that GPP grows under Conservative governments, and contracts or stagnates under Labour governments. This shows, according to Fox, that “the private sector is able to grow when it is given the space“.

Dr Fox’s willingness to tackle these important issues – so often ignored by our political leaders – is to be commended, and his in-depth of understanding of the complex dynamic effects of government intervention in the market is truly refreshing.


Emily is the chairman of Conservatives for Liberty. She is passionate about the power of free markets to improve the living conditions of people on all levels of society and wishes to overturn the misconception that the Conservative Party seeks to protect privilege rather than spread opportunity. Follow Emily on Twitter: @ThinkEmily

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