From the outset, I would like to say that I think their basic message is more realistic than Labour’s.    Up to this point:

Some politicians say: ‘give us your vote and we will sort out all your problems’. We say: real change comes not from government alone.

When a state is bringing in revenenues only 75% of their expenditure, a handover of power to “you the people” is inevitable.  They are trying to make a virtue of this. As Danny Alexander put it, this could be rephrased as “you’re on your own”.  Well, we will be.  Huge cuts are coming, whatever your ideology. Some will welcome it, a lot will feel suddenly lonely.

But Cameron was shamelessly unrealistic in his implicit claim that a hodge-podge of mutualistic communitarian ideas can ensure that there are not worse public services.  (James Mackintosh has an excellent post on this, attacking Labour as well). Cameron actually had the nerve to claim that because Sainsbury’s say “Good food costs less” then it should be just as easy with government services.  A line thought up by a dyed-in-the-wool PR executive, rather than someone who has thought about how public services are delivered – and are different from groceries.

Moving on to the actual document and its economic bits:

“But the real prize for Britain is to create a new economic model, one founded on investment and savings not borrowing and debt.”

This phraseology has annoyed me before. Debt is used to transmit savings into investment.  Someone borrows when someone else saves – otherwise how do you offer a return? It is a silly piece of nonsense.

We will move from state action to social action, encouraging social responsibility in all its forms and across all the country – whether curbing incivility on our streets or supporting social enterprises with the power to transform neighbourhoods. Mending Britain’s broken society will be a central aim of the next Conservative government.

I really have no idea how you ‘do’ social action, particularly with not much money.

with the national debt already doubled and in danger of doubling again, it is this debt – together with the jobs tax that Labour will introduce to help pay for it – that threatens to kill the recovery.

I disagree: I think it is a lack of aggregate demand, not 4% gilt yields and a penny on National Insurance, that might damage recovery.

We need to boost enterprise and develop a low carbon, hi-tech economy. Our exports must grow. We need to get Britain working by creating jobs in the private sector, and we must get better value for money from the public sector.

I agree with all these aspirations.  But they were also the centrepiece of Darling’s budget, which I thought was basically about supporting investment.   More small companies need to start up – Labour had a few plans for that.  Gilt yields being below 5% is not enough to make that happe, which is what this implies:

The bedrock of this new economic model will be the stability and low interest rates that come from a credible plan to reduce our record budget deficit, protect Britain’s credit rating and give taxpayers value for their money.

Repeat:  Japan has had stability and low interest rates. They are not always a sign of success ….

But otherwise, time commitments force me to delegate.  Jim Pickard can’t find very much new (he has a long list of not-news).  Jeremy Warner calls it Hot Air:

All the tax pledges, spending cuts, and to the extent that they are listed at all, planned supply side reforms, have been announced before. So too have plans to set up an independent Office for Budget Responsibility, transfering responsibility for banking supervision back to the Bank of England, and just about everything else that’s in the section labelled “Change the Economy”.

And the BBC’s At a Glance finds the big difference is still that ruddy NIC change.

UPDATE: To be fair, the Conservatives have more on starting up small businesses:

As well as stopping Labour’s jobs tax, for the first two years of a Conservative government any new business will pay no Employers National Insurance on the first ten employees it hires during its first year. To support small businesses further, we will:

• make small business rate relief automatic; and,

• aim to deliver 25 per cent of governmentresearch and procurement contracts through SME s by cutting the administrative costs of bidding.

We will support would-be entrepreneurs through a new programme – Work for Yourself
– which will give unemployed people direct access to business mentors and substantial


15 thoughts on “The Conservative Manifesto – the economy first

  1. I don’t agree that “When a state is bringing in revenenues only 75% of their expenditure, a handover of power to “you the people” is inevitable.”

    I agree that, given certain political and ideological realities, this is likely, but it is not necessary. Government net spending should be–for the most part–a residual. In fact, I consider this to be the tr00 conservative position–that the government’s net spending should be determined by the net saving preferences of the private sector and the current account balance. Deficit spending should allow the private sector to accumulate the amount of net financial assets it desires whilst ensuring that the economy generates the real goods and services consistent with its potential.

    There’s a great Keynes quote about this (isn’t there always). I’ll be back…

    1. This reminds me of Dillow’s playful post about this recently; that fiscal policy cannot decide deficits.

      But I think to be serious your point only applies to the cyclical element. That is the residual, but the govt can still be structurally in deficit, and to the extent that this is the case, some sort of retrenchment is inevitable.

      1. Maybe I should just come out and say it: I don’t think that either the structural or cyclical deficits are large enough!

      2. How many of the jobs that have been lost during this recession in the UK do you think we’ll get back?

      3. And of course, the govt can only be in deficit–be it “structurally” or “cyclically”–if another sector is in surplus. Pre the GFC the govt and household sectors both ran deficits (starting around Q4 2001, IIRC–about 4% and 2% of GDP respectively) offset by corporate and foreign sector surpluses (very roughly 4% and 2% respectively). If the government cuts net spending to reduce either cyclical or structural deficits there are only two possibilities–right? Someone else starts or income falls.

  2. What’s wrong with “the real prize for Britain is to create a new economic model, one founded on investment and savings not borrowing and debt”?

    Don’t you agree that, in the run up to the crisis, the balances that UK household and government sectors were running were unsustainable? Savings from the rest of the world kept the show on the road, but there was not much investment and it was not sustainable. It is not non-sensical to argue that the household and government sectors should be doing more saving and the corporate sector more investment.

  3. It was not an unsustainable trade deficit that got us in trouble, and the government’s structural deficit was too large by 1-2%, but again hardly the problem.

    There are still debts. THe household saves, the corporate sector invests, by borrowing off the household sector – that is presumably the model Osborn wants (we are guessing here). But there is still debt. Savings being invested requires debt to intermediate. If he said “economy built on household debt” it may make more sense/

    I’m tired, sorry. My original post explores my irritation more fully

  4. Agree that we’re guessing what they mean, but I’m assuming the best of Osborne rather than that he’s spouting nonsense! I might be wrong, we’ll probably soon find out.

    When politicians (including Vince Cable) talk about excessive debts running up pre-crisis, I’ve always interpreted this as meaning mainly household sector net indebtedness. As politicians they are after all speaking mainly to households. So I interpret the Tory manifesto as meaning just what you say – households should save more and lend the money to the corporate sector for productivity-enhancing investment. Doesn’t seem so crazy. Maybe they also want the corporate sector to finance itself more with equity than debt (saving may take either form), which would also be a sensible proposal.

    1. I agree to some extent- though I follow Spencer Dale (see last year speech) and Chris Giles (ages ago) in believing that we did not have as much borrowing to consume as is popularly imagined – the borrowing increased largely to facilitate an intergenerational exchange of assets because of high house prices. It was definitely unstable, but I am not sure that we have to force ourselves to rely on a germany 2000-2007 model of growth – which was after all very slow, and still better suited to Germany than us.

      Which is why I think more spelling out of just what he means would be nice …

    2. While that would be nice, it’s hard to imagine private sector investment increasing if consumption falls even more. Household net saving is maybe 1% of GDP, after ten years of net borrowing. Corporate net saving is (was, last time I looked) around 8% of GDP. To my admittedly inexpert eyes it looks like the corporate sector does not need to borrow money from anyone to fund investment. It has large amounts of retained earnings that can do the job quite easily. What it needs is economic growth such that investments are profitable. If the government cuts net spending and households increase net saving, why do we think that the corporate sector will respond by upping production?

  5. All this serves to emphasis the complete mess economics has got itself into through purely ideological assumptions – which defines as value something which is its complete opposite -as to the nature of money.

    “Debt is used to transmit savings into investment. Someone borrows when someone else saves – otherwise how do you offer a return?”

    It’s quite simple.

    You use equity instead, where there is no obligation (although there is the capability) to repay the financier,and while you use his capital, you pay him a return.

    The fact of the matter is that fiat money is not a debt instrument, but a credit instrument.

    Notes and coin are essentially equivalent to non interest-bearing redeemable bearer shares, while QE actually knows who owns it, and is akin to a non interest-bearing redeemable share.

    There is no reason at all why banks need act as credit intermediaries, and the dis-intermediating logic of the Internet is that they should transition to service providers instead, managing the creation of Treasury credit for investment in public or private assets. That would actually assist banks because the only capital they would then require would be that needed for operating costs. (In fact there’s no need for the Treasury as an intermediary either, but one step at a time…..)

    In other words, the Chancellor should create all of the necessary money as interest-free (but not cost free) Public Credit , and this should be invested into the economy under professsional management – with a stake in the outcome – and accountable supervision. What QE should NOT be used for is exactly what the chancellor is doing with it now: ie supporting and even inflating financial assets.

    Once QE-financed productive assets are complete, they should be re-financed with existing money (ie pension investment in an expanding national equity) and the QE may thereeby be retired and recycled.

    As the FT suggested a few weeks ago we should be looking at a new approach to sovereign equity – in addition to the ones we already have, namely notes and coin, and QE.

  6. @ Vimothy – I’m a bit late to this (sorry), but you ignore the foreign sector. I suspect the traded sector of the economy is more capital intensive than the non-traded sector, so stronger exports will tend to stimulate domestic investment. I’m comforted by the fact that Martin Wolf agrees (from today’s FT):

    ‘The Tories are saying some of the right things, notably over the need for a new economic model, based on higher investment and savings.’

    What’s your alternative vision for when the public sector stops borrowing at current levels (through choice or because the markets force its hand)? A heavily indebted household sector going back to net borrowing?

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )


Connecting to %s