… had I had a long CIF piece on the Chancellor’s debate.   This was to be my closing paras:

———————–

Who do you think expressed these sentiments:

“I wish you well in your job search – I think the government can help  …   Inequality matters … We believe very much in the tax credit system  …  Bankers’ pay is completely out of kilter with the rest of the country …  Banks need to be properly regulated”.

These centre-left bromides came not from Darling or Cable but Osborne. The most surreal moment was when a doctor asked which of the speakers could guarantee essential NHS services.  While Darling talked vaguely about the importance of health, and Cable stuck to his ‘austerity strategy’ of bitter truths at every opportunity, it was Osborne who was most unequivocal in defending high health spending.  After years of berating New Labour profligacy he has found himself defending the biggest item in Brown’s last spending review as Chancellor.

The debate was probably won by Vince Cable, who managed at times to swipe at both his rivals at once, and was clearly faced with a very pro-Vince audience.  They loved his old-Labour style attack on the Conservatives wanting to reward their ‘rich backers’, and were determined to applaud a quite modest claim that “some of us did see this crisis coming”.    Alistair Darling stuttered some of his best lines, and was most fluent in relaying nerdy details that were tangential to the questions being asked. At one point he responded to a student’s anxious enquiry about future job security with a tour de horizon of pharmaceutical industry and green energy.  Darling has clearly learned a lot as Chancellor, but at times the quantity of information drowned the message.

However the greatest interest lay in watching Osborne – still favourite to be the next Chancellor.   No-one can deny that he is clever, or that he understands his economic theory.  Nor could they deny that he now speaks progressive language with greater assurance. But despite these and other advantages – how his predecessors would have loved to have attacked a Labour recession! – doubts must remain about his judgement.  The National Insurance cut is the latest example of a good idea but for the wrong time.   Abandoning his attacks on debt for a crowd-pleasing tax cut left him sharing the middle ground with his centre-left opponents.  As a result he lost many sharply-drawn dividing lines, and any monopoly on that word “responsibility”.

A kinder verdict is that Conservative difficulties reflect a genuine tension between detoxifying their brand and a new language of austerity that has been the centrepiece of their recession strategy.   I have long maintained that their call for cuts was spectacularly mistimed.   Since this became clear they have oscillated between toughness on the debt and a fear of the consequent unpopularity.  Tonight, this indecisive strategy seemed to leave them with the worst of both worlds.

——————

I think the morning verdicts have crystallized around (a) Vince won it (b) Darling remains a real Labour asset (c) Osborne didn’t blow it.   As well as (d) we should have more of these events.   I can’t bear watching Question time: I always want to dissolve the people, elect another one.  Not with this event.

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20 thoughts on “What I would’ve waffled

  1. Cutting NI is indeed a better policy than marginally cutting the deficit. The reason being it cuts the overbearing government sector, now above 50% of the economy & producing negative wealth. That means we can have growth & 1% growth is much better than several % cut in the deficit since with growth the deficit is at least manageable & people are actually better off (which is supposed to be a purpose of government).

    Darling completely undercut his own policy of saying we have to keep up the deficit by government spending by saying we cannot use that same money to increase production in the productive part of the economy. The Libs position of wanting savage cuts but none of them this year manages to combine the worst problems of both.

    1. How does cutting NI cut the government sector? Aren’t you getting revenues and spending mixed up? Revenues are 36% of the economy. If you measure it that way, which you shouldn’t. I find it naive and simple minded, for these reasons:

      http://freethinkingeconomist.com/2010/01/06/the-government-is-smaller-than-you-think/

      The LD position is correct if you think government fiscal support needs to be timed with the strenght of the economy.

      Agree about how we need growth.

  2. The option was to take the tory cuts & use them to cut the deficit, as Darling imlicitly advised, thereby undermining his own policy that we need the government spending to appear out of recession, or to use it to cut government income equivalently as Osborne said (or to do nothing for a year & then have savage cuts LD style).

    Government’s income may be 36% of the economy. Spending is over 50%. I’m surprised you don’t know that. This plus the degree to which government regulators have a negative effect on the productive sector is why we are where we are.

    1. Not over 50%, and much of this is transfers. Govt consumption, of course, is about 25%.

      we are ‘where we are’ not for the supply side reasons you give, but because of a collapse in demand.

  3. Don’t argue it with me tell them http://www.csmonitor.com/Money/Stefan-Karlsson-s-Blog/2010/0324/UK-government-spending-rise-above-50-of-GDP
    “52% of BNP in 2009 rising to 53% in 2010.”

    I fail to see how it is possible to have a lack of demand when 53% of the spending is by government which is entirely demand & supplies no goods. In any case if a housing bubble, ie people putting far more of their money into housing than its intrinsic value, existed then by definition it cannot be a problem of people not having the money to soak up all that production.

    Where exactly is this overproduction in the British economy which demand for goods can’t keep up with & why aren’t we exporting all these surplus goods to China?

    1. Neil, your ideas of supply and demand are, um, original. Do you really think that working out whether we have a demand or supply led recession amounts to sticking your finger in the air and seeing whether you can see/fail to see the lack of demand given the government spending levels you think you know but you don’t? I’m not sure where to start.

      Here is the lack of spending: household saving
      http://www.guardian.co.uk/business/2009/sep/29/financial-crisis-credit-crunch

      and private businesses hoarding cash

      http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2010/03/corporate-surplus-hits-record.html

      the Chinese have a low currency. They can’t afford most of what we produce. And even so their stuff is just 3% of our trade.

      For figures on the real ratios, go to here:
      http://www.hm-treasury.gov.uk/d/budget2010_annexc.pdf

      Tables C3 and C4 may help you out.
      Or insert conspiracy theory of your choice about what the figures really are. This is the Internet after all, that’s what it’s for.

      But let’s face it: you’re hard coded to think that government spending is the problem. I won’t irritate you by arguing more on this thread. Have a nice evening.

      1. Despite the handwaving I would be interested to se if you are still maintaining that the government is well under 50% of the economy?

        If not how, bearing in mind that government has net heavily negative economic value, can you say that our recession has nothing to do with that & is down to households saving more. Household saving seems to be a function of no longer seeing housing as such a good investment. If industry isn’t investing that is entirely consistent with government regulation making it impossible or unviable – we would, for example, have 10s of billions being invested in nuclear plants tomorrow if government wasn’t preventing it. I asked you why, if lack of home demand is the only problem why we aren’t exporting it all to China – to say that we aren’t exporting much to China is not an answer.

      2. Government spending is about 48% of the economy, declining now cyclically. Government consumption is abotu 25%.

        Economies go into recession when everyone tries to save at once, and no-one fills the gap. Businesses don’t invest when they think there is enough capacity given the demand outlook. Just picking your own bugbear and saying “this is the reason” doesn’t work given that the regulation has been in place for most of New Labour.

        China is a long way away and mostly consists of peasants on <$2000 per year. Why exactly should they be buying sterling stuff? Get real.

      3. Well the 52-3% figure seems to be credibly supported & yours is simply assertion.

        History shows economies go into recession when bubbles burst. People deciding not to invest their money is a natural response to the loss of investment in bubbles not some spontaneous & mystical mass decision to save.

        You do not dispute that the money is easily available for the investment I named if government was not preventing it’s use.

        China is no further away from us than we are from her, neither being very far in an age of containerised shipping. If we were producing stuff they wanted we would sell it as she is doing with us.

      4. “You do not dispute that the money is easily available for the investment I named if government was not preventing it’s use.”

        Well now I do dispute that. Government is not preventing it – in fact it announced a host of measures in the Budget to encourage investment.

        My source is not an assrtion. It is the Treasury who actually gather the money, help measure the GDP and do the spending. Perhaps you could find me the OECD or IMF measurements that back up your assertions? Or the IFS? hmmm?
        http://www.ifs.org.uk/budgets/budget2010/tetlow.pdf

        slide 31.

        Neil, you are better advised to go off and read an economics book for a bit, than this saloon bar stuff. “Not investing” and “Not spending” MEANS saving ….

        The idea that “we can’t be in a demand recession because we are not sending containers full of British stuff to China” takes the NEF award for economic non-sequitur of the week.

  4. While I thought Cable did very well, I did find the line about Conservatives wanting to reward their ‘rich backers’ extraordinarily crass. Even though I might, thinking as a partisan, agree with it, it does seem to be against the sentiment that even with the Tories their hearts are in the right place – that they ultimately want what is best for most of us.

    The fact that it got such a good reception, as well as being a bit of a blow to detoxification, does make me wonder about the values involved in judging the winners of these things.

    1. Vince has a very populist streak, and yes it bothers me too. I doubt the Tories are out just to please their kind. And the rich have done well this recession – everyone knows this by now. Tories too.

      I am fairly sure Cable is more nuanced in private. But some of the populism IMHO leaks into policy recommendations that I would not follow myself – like Glass Steagall, for example.

  5. Have to agree with you that some of Vince’s populist streak is worrying. I thought the area where Darling trounced Vince was when he talked of breaking up the banks, with his now tiring line about “casino banking”. Darling’s point that most of the problems came in banks that were involved in very traditional though poorly ecxecuted banking practice for once made Vince look ill-informed. What does he think Nothern Rock and HBOS were up to? The “scargill in pin stripes” also played well as a gag, but that sort of thing only backfires in the long run.

    1. Although, to be fair, I have heard that most of the losses that UK banks are taking are on US-originated debt (which makes sense, given that our housing bust is far less than theirs). I wish I could find a source for this, it was told me by a Goldmans economist and is certainly true. But I like sources. And when I tried to work out how Granite (NRK’s off balance sheet buyer of mortgages) worked, it did my ‘ead in.

      But in general I agree: Vince’s populism does not solve the banking crisis.

    2. UPDATE:

      John Kay today casts more light (FT). Phew!

      If there has been no UK housing market crash, why were large mortgage lenders – Northern Rock, Bradford & Bingley and HBOS – prominent among the British victims of the credit crunch? The answer is that losses on UK residential mortgage lending were not even a significant contributory cause of the failure of these businesses. Northern Rock expanded too rapidly – partly by making poor loans, to be sure. But the reason the company failed was not the rate of defaults on these poor loans. It failed because its excessive growth required constant refinancing and the company ran out of cash when wholesale credit markets dried up. Bradford & Bingley also had funding problems; but its need for major refinancing related not to its own bad mortgages but to the bad mortgages it had foolishly contracted to buy. And HBOS, for a long time the UK’s leading lender for house purchases, had a good-quality mortgage book. The bank ran into trouble because its traders and corporate bankers failed to display the same prudence.

      Housing market bubbles contributed to Britain’s financial crisis, but the bubbles were in the US, not the UK.

  6. Your contention that the government is not preventing people building nuclear power stations is simply nonsense. Anybody trying to do so woyuld be arrested. The fact is that nuclear power stations can be built in 3 years but there is no prospect of government allowing anybody to start doing so within 5 years. Nonetheless the billions spent purchasing British Nuclear, not as a conventional investment but because it holds sites which may, someday, some of them, be permitted to be used for such investment proves that any claim of a capital shortage is rubbish.

    FTE you would be better advised to look at how the real economy works rather than just pretending nothing but pieces of paper matter.

  7. Osborne on why we should cut right now:
    “everyone knows in your own life that if you have a debt problem, the sooner you deal with it, the easier it is to deal with”

    Surely this likening of government and personal debt is wrong – savage government cuts could reduce growth in the future and make the debt problem more difficult to deal with, whereas paying off your credit cards won’t stop you getting a promotion. Doesn’t this non-engagement with the rationale for Keynesian counter-cyclical fiscal policy cast doubt on whether “he understands his economic theory”? Also talking about “paying down the debt” when I think he meant cutting the deficit?

    1. I may have been kind to Osb. I am trying to introduce balance to myself.

      But politically he is right. Were there no macroeconomic constraints, the argument for starting hard and deep would be much stronger.

  8. The idea that government doesn’t have to engage in the fiscal prudence people do, essentially because people can’t print their own money, sometimes has some short term validityEven then if your credit card company gets a court order to take your wages you ain’t gettingthat promotion.

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