In an earlier column here I defended Liz Truss. I expressed support not so much for the content of her policies as for their intention. Truss wanted to promote the growth capacity of the UK economy and ensure that working would pay more. My support for Truss went completely against the consensus as virtually everyone I heard about her was scathing.
Less than three weeks later, she is gone, as Britain’s shortest-serving prime minister. The YouTube videos in which she is robustly ridiculed yet again are in high demand. Nevertheless, I stand by my original position. Not just the UK, but we as well need more economic growth by strengthening the supply side of our economy.
Last week, I attended a discussion session on how to strengthen the Netherlands’ growth capacity. It was a disconcerting meeting. A senior official introduced the discussion, putting a number of frustrations on the table. One of his first suggestions was that we should stop doing things that blatantly limit the capacity for growth. Of these, he gave some examples.
AML, privacy and ESG reporting
In banking, thousands of people are working to ensure the best possible compliance with anti-money laundering legislation. On balance, all this work produces mostly customer frustration and very little else, except fuss when the regulator finds that something is wrong. Despite all this work, frustration and fuss, competent authorities only investigate further in a limited number of cases. Complying with the privacy legislation also keeps a lot of people busy, without much economic or social benefit. All a waste of productive assets. And we are probably only at the beginning of ESG reporting.
Another frustration of our speaker was that in our country we have declared rules sacred. Nobody is apparently willing to use common sense and take responsibility when temporarily or locally ignoring some rules yields more than it costs, which he said is done in many other countries. This is most evident in the shutting down or banning of housing construction because of temporary nitrogen emissions. It’s driving me crazy.
Due to immigration, our population grows quite a bit every year. Despite this, the labour market is very tight which puts a brake on our growth. According to the speaker, after two year only three per cent of all status holders, as asylum seekers that have been officially admitted are known in the Netherlands, have a job. In Poland, that number is 80 percent.
Fundamentalists
The discussion then shifted to the current situation on energy prices. Energy transition fundamentalists were delighted. The high gas price is actually exactly what the energy transition needs. Some of these fundamentalists argue that we should not dramatise the high gas price. Do the math: in 2019, we used around 37 billion cubic metres of gas in the Netherlands.
At a market price of say 20 cents per cubic metre, that’s about 7.4 billion euro. Now the TTF market price is about 1.20 euro, so our gas bill would be about 44.4 billion euro with unchanged use, representing more than 4 per cent of GDP. By the way, two months ago, the gas price was almost triple its current level. If that price had remained, our gas bill would have been more than 12 per cent of GDP. It strikes me as a dramatic shock to our ability to grow, but apparently you can differ on this.
Our standard of living is determined by the strength of the economy, and any possible improvement in our standard of living and that of our posterity depends on the economy’s capacity for growth. There is a lot of that in our country - after all, we are a cool country - but also a lot that is not. Laughing at Liz Truss is allowed, but some self-criticism would be appropriate. It’s sometimes enough to drive you crazy.
Independent economist Han de Jong is a former chief economist at ABN Amro. He comments for Investment Officer on economics and markets on a weekly basis. You can read more about his views at Crystal Clear Economics. This column originally appeared in Dutch on InvestmentOfficer.nl.