Question: if the Chancellor were to increase stamp duty on homes, or extend capital gains tax, would a fall in the number of transactions offset the rise in the rates?The target is tempting: look at the way property inflation has risen close to its previous peaks (second graph). My guess is that there will be some increases, but mostly wrapped up in the guise of closing loopholes – loopholes that he himself created to boost the enterprise economy.We already know that the special tax treatment of films will be changed, and it seems probable that enterprise companies formed to develop the income of the self-employed will also receive less favourable treatment.But will this be enough? The other obvious candidate is the housing market. We don’t know whether he will need to do so because we don’t know the details of the problem of tax revenues. So just as the Chancellor was right to lean against the boom, so he has been right to give a boost to the economy during the downturn. The issue is not so much whether he has been right at a macroeconomic level; rather, it is whether he would have done better to have increased public spending more slowly, and instead of raising taxes, held or maybe even cut them.His problem now is that he may have to increase tax rates just to finance the plans he is committed to carrying through. (The top 1 per cent of earners pay nearly a quarter of all income tax.)Now, to some extent fiscal policy should act as a stabiliser for the economy, as indeed should monetary policy. This has been a function partly of somewhat slower growth, but it is more a result of the squeeze on the incomes of the highly paid, who pay most of the income and capital taxes.

In the early years, tax revenues were strong, coming in well over projections; in the latter years, revenues have fallen short. Now, however, the stated policy of the Chancellor is to allow overall spending to grow at roughly the same rate as GDP but to protect priority sectors, such as healthcare. It follows that some other areas will have to be squeezed.There is a further issue here While spending has soared, revenue has not. He spent most of his first term playing Mr Prudence before switching to Mr Spendthrift.

In his first few years he probably put too tough a squeeze on public spending; in his second period he overspent, for there is no doubt that a fair part of the additional funds have been wasted. (The official figures show that more than three-quarters of the additional spending has been absorbed in higher costs rather than higher output.) So while the packaging has been the same, the product has been utterly different. The question now is whether there is to be a new balance between the two sides – a happy medium, so to speak.You can see the switch in the first graph, which shows how, during his first three years of office, public spending (shown as total managed expenditure) fell as a proportion of GDP Then came the switch and the reverse happened. Societies are complex, and economics must be embedded in society. If we are to progress in our consideration of alternative models, maybe we need to recognise the existence of hybrid institutions.The curse of the US age is that we can start to view the world in black and white. Can we get back to third ways?christopher.walker tiscali.co.uk.