This was my big event: the SMF hosting a talk with Vince, me and Michael White of the Guardian, chaired by Ian Mulheirn.  I loved it! And the SMF filmed it, so my Mum can get to love it some other time.

I have about 10 minutes left on this computer, so really hurried thoughts:

 My take was classically liberal. 

1Yes, the state has a big role right now propping up demand (on related note: see this excellent summary in a comment by ValueThinker about why this made sense last year).  But the Lefties hoping that this will herald a permanent larger role for the State in the economy are deluded – and despite Darling making the right call last year (unlike Osborne, see many posts passim),  the whole episode is a sign of failure.  we don’t want to be continuously reliant on the State making the right fiscal call.

2. Banks: use their innovation for clever things like retirement lump sum management not tax avoidance.  Banks can really add value – and we are not as reliant on banking or financial services as some figures suggset (Liam Halligan yesterday ludicrously put it as 25% – not it is about 8%, and only half is the City, and not all of that is banking – legal, accountancy, markets – all different.  LH clearly had dared himself to call the Lib Dems’ “yoghurt Munchers’ to their faces: I look forward to watching him screw up his market call on YouTube, see comments to previous post)

3. Manufacturing – don’t make a fetish of it – LT environmental issues demand less manufacturing one day – the Germans had to go through huge austerity to get into their leading position – etc. And China can catch up because  – Solow growth model – it’s earlier down the curve.

4. No picking winners (like the MSFT guy earlier in the day urging the govt to support gaming).   But support the conditions for growth, and let the flowers bloom.  Govt would not have thought of or imagined the Internet.  Don’t make the BIG mistakes – look at Argentina versus Korea since 1950.  Openness – a great liberal theme – is the grand dividing factor between growing over 40 years and Not.   Flattered us all about the founding myths of this Great Party.

Vince went on longer: repeated a lot of stuff about regulating pay and bankers more.  Michael White was very entertaining – I’ll have to refer to the TV recording for his anecdotes. John Harris of the Guardian asked Vince how he would restrict bankers pay if they kept threatening to go overseas – I got a laugh with my reply about how boring Geneva was, how they ban you from flushing the loo after 10pm (Michael White chiming in with speculations about what they might be flushing away).  Lots of fun Q&A, but because MW had got lost in the carpark, we had less time than I wanted.

Oh, and a question from Somerset about whether we should try to be like France.  I speculated aloud about what the Act of Parliament making us like the French would look like – several pages for Boulangeries.   Generally agreed that France was a good but inimitable place.  In fact, only problem with the event was the lack of real dispute.  Would definitely want to listen to Michael White again.  For Vince, it was the 12th event THAT DAY.

I loved it – definitely want to do more of this stuff.

Work restarts.  The Bank has released its minutes.  Duncan has written an excellent blog about 1976 and all that which makes me need to buy yet another book on that (Healey’s own biog was excellent). The FT is full of stuff. – including questioning whether the Lib Dems are really interested in power.  The IMF is talking about the long term scars of banking crises, and the wealthy are still getting wealthier. And Aditya’s Brain food

 has come out.


6 thoughts on “Debate with Vince about Britain: State and the Economy

  1. Dear Giles

    In this post you point us to Duncan’s Blog where he worries:

    “Figures, forecasts and statistics can be wrong. Estimates of the PSBR (public sector borrowing requirement) were widely off the mark in 1976/77. The result was that Healey tightened fiscal policy far more than was necessary. What will be the deficit in 2010? I honestly don’t know, probably a large one but to start making judgements and allocating cuts now based on such an imprecise estimate risks repeating the same mistake.
    “The Cabinet in 1976 was fully aware that the public spending cuts would damage the economy. Benn from the left articulated the Alternative Economic Strategy as a response (actually much praised in Andrew Gamble’s work), Crosland instead argued for increased spending and possibly limited import controls. The failure of the Crosland and Benn camps to unite is a great lost opportunity.
    In the end the Cabinet surrendered to ‘the markets’. Monetary targets and spending cuts (plus asset sales) were accepted purely to appease market opinion. The result was a deeper recession and the breaking of the social contract that led, indirectly, to the winter of discontent.
    “The simple fact is that market opinion is changeable and often wrong. In 1976 the Government backed down rather than fighting. I worry we are being pushed into making the same mistake today.”

    How wise. Exactly my fear.

    (If you are interested in 76/77 have a look at David Gowland. Bernard Donoughue might have been the public face of Callaghan’s economic policy but I would not underestimate the influence of Gowland.)

    And the MPC minutes? Whither money and rates?

    Safe journey home


  2. Thanks Bill

    I love reading about 1976 but I think the differences are far more interesting than the similarities.. it and Duncan’s post deserve a longer reply (I’m writing from a taxi). Suffice to say now that we would need a favourable 100bn multi-year error to prevent the need for the word ‘savage’ & I see no sign of it.

    later, Giles

  3. I remember 1976/77.

    What you cannot know unless you lived through it was how bad it was for anyone in private industry.A Government who were economically incompetent.. “tax the rich till the pips squeak” etc and nearly bankrupting companies by taxing on inventory gains .

    And Tony Benn wittering rubbish: he was absolutely way out field.
    As for this current Government? £175B QE and the economy is faltlining.. So when there is no QE?

    And there will be no QE as borrowing on the current heroic scale =£175 to £200 b a year is unsustainable.

    A double dip looks pretty inevitable: how bad it will be is questionable.. but a lot of economic capacity has gone and will never return…

  4. I broadly agree, but your choice of analogy isn’t great – since government did in fact invent the internet – it came out of government funded US Dept of Defense research into military computer networks. In fact the internet – an all singing, all dancing, non-rival, non-excludable, public good – is precisely the sort of thing that government subsidies are needed for…

  5. You’re right: it isn’t the very best analogy, though I would still maintain that there are thousands of off-shoots of government spending programmes and projects like ARPANET, and it took good decentralised, suck-it-and-see, creative destructive entrepreneurship to highlight that the Internet was the way to go.

    Once that highlight had shone, the government could start dealing with the public goods/positive externality aspects of the affair. I would, if I had the research ability and French-language speaking ditto, look at Minitel as the alternative vision. Or that French version of Google (Quaestor?) that failed to go anywhere . . .

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