In case I have not mentioned it before, I am a liberal.  I find the idea of being reliant on the state for my future wellbeing disturbing, and intrinsically unsatisfying. I sort of expect others to feel the same.  Whether it comes from the right (see IEA comment thread) or left, I am repelled by the idea of being the toy of government forces.  This is one reason I found Labour’s manifesto video offputtingly self-congratulatory.

So I’m sort of attracted to the basic Conservative mantra: “it’s not about government, it’s about you”.  As the Guardian leader writes:

You do not have to buy in to everything that Mr Cameron says about his “big society” idea for providing better government through the empowerment of the small platoons to recognise both that this is interesting new political thinking, that it addresses an overmighty and inefficient central state about which no liberal should be indifferent

Of course, they are trying to make a virtue out of necessity – with a savage retrenchment in the offing, it had better be about you, because ‘we’ have the bond market to worry about.   But as a guiding philosophy it is a reasonably liberal one.  This does not mean it is guaranteed to work. As the FT leader observes “it is not self-evident that the government can actively build a “stronger society” that will volunteer more.”   Neither can we be sure that Conservatives would do any better than Labour; as Nicholas Timmins observes:

in the past 15 to 20 years some 30,000 or so new charities have been formed. The voluntary sector has slowly taken a larger share of public service provision. And Labour, like the Liberal Democrats, has been actively encouraging social entrepreneurs, providing resources for training, access to new forms of capital and legislating for the “Big Society Bank” that Mr Cameron now wants to use. About a third of council leisure services are already run by social enterprises . So the Tories can scarcely claim copyright for the idea.

Martin Kettle like me is not averse to the bigger idea, but the sheer gusts of optimism about how this will all pan out – which you can hear on the Guardian podcast – sounded loopy at times, given the paucity of real examples to work from.    He writes:

Personally, I like the sound of a lot of things in Cameron’s idea. … Yet looking at the day’s events again on the news bulletins last night, what struck me most about the Tory launch was that it all looked a bit disconnected from real life

You cannot blame the Tories uniquely for accepting the need for cuts but not spelling out the real pain they will cause; all the parties are playing this game.  Everyone is trying to sound tough, and realistic and optimistic – and these together produce an impossible trilemma.

But my major worry is still about macroeconomic stubbornness.  There is one way that the public already has the whiphand over the Government, and that is the one area where a Conservative government is determined to try to exercise rigid control.  And that is over the deficit.  As I have illustrated Excel-style, argued at length with Policy Exchange, pointed to through Dillow and Richard Koo’s slides, and can now quote to you from Martin Wolf today:

In the UK at least, the fiscal deficits are mirror images of private sector surpluses. Moreover, the direction of causality is from the latter to the former.

During a cyclical slump like this, most of the fiscal deficit cannot be chosen by George Osborne, his OBR, or anyone centrally.  As is observed in a quite brilliant post for Economists View,  the deficit is largely endogenous.  The great British Public – or rather the ‘private sector’ – is already in control here. The State cannot MAKE the private sector do particular things just by being virtuous. As Wolf reminds us:

The Panglossian view is that if the fiscal deficit were reduced, domestic private spending and the external balance would adjust automatically. But, with real interest rates on index-linked gilts at just 0.6 per cent, short-term interest rates at 0.5 per cent, yields on conventional 10-year gilts at about 4 per cent and weak growth of credit and broad money, this is a fairy story. The situation is entirely different from that in 1981, when the Tories tightened fiscal policy successfully in a recession.

The Conservatives, like Wolf and the Treasury and Everyone, wants a New Rebalanced Economy.  But whereas Labour produce a Budget that tries to favour investment, the Conservatives actually propose scrapping investment reliefs to fund a corporation tax cut – even though corporate profits are fine and tax levels not too bad.  They call for more manufacturing and green-ness, but as honest Ken Clarke admits there will be no aid for specific sectors and companies.  Their faith in laisser faire (well, apart from with immigration) is still strong: cut the deficit and all things will flower forth.   They still ignore demand problems – the Conservatives have never presided over a demand slump like this.   Read the BOE Agent’s survey:

Investment intentions remained subdued, as the significant margin of spare capacity, uncertainty about future demand and the restricted availability of credit continued to weigh on contacts’ spending plans.

Demand is the one thing the private sector has control over, and the problem is not the government being in the way.   Yet reducing demand from the government – regardless of economic conditions – is the one settled Tory policy that we can rely on – because they are hardcoded to believe in non-Keynesian effects.  Uhoh.

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20 thoughts on “The people have the whiphand. But not in the way the Conservatives would like

  1. Surely fundamentally the problem with voluntarism is that the country has a very unequal distribution of income and wealth, and so without taxation at gunpoint, as our libertarian friends like to say, voluntary associations are always going to be underfunded where they are needed most.

  2. Great post. If it weren’t for your stubborn refusal to grapple with concepts of assymetric/ihidden power hidden by your ‘liberal’ values, I think I’d be extolling your virtues as the kind of grounded-in-reality/grounded-in-value political thinker we’re going to need.

    It will be nice, in four weeks time, that you (and even I?) will be able to write stuff about deficit fetishism and the basic misunderstanding of what money actually is (fiat, not commodity), and start to stand a chance of being heard. After the election, the governing party may be very interested in demand-based thinking all of a sudden. I am consoled by that thought, while I keep my head down metapphoricall and canvass.

  3. ‘I find the idea of being reliant on the state for my future wellbeing disturbing, and intrinsically unsatisfying. I sort of expect others to feel the same. ‘

    Are you honestly confused when they don’t or are you just being rhetorical? If the former, can I offer the observation that I don’t think anybody who does *rely* on the state finds it as satisfying as being able to rely on themselves (although history suggests that ideal voluntary organisation run by low-paid volunteers engender the same lack of satisfaction). In many ways I’d be much more satisifed if I had enough shelf space and money to make my trips to the local library pointless.

    But not that much more satisifed, because when I visit the library I don’t see it as relying on the state as much as relying on – no, not relying on, really – as much as relating to other people. The people who have helped to pay for this, whose tastes have shaped for better and worse what is available, the people whose use of the library helps justify its existence. It’s the sort of relationships that occur when people create something much greater than then could through their own efforts or through the workings of invisible hands, and while it doesn’t have to be a state-only affair – it’s the sort of feeling that overwhelms when when I just think of the concept of the Olympics, which is hardly statist – I sort of expect others to not care how it comes about. To me, ”I find the idea of being reliant on the state for my future wellbeing disturbing’ sounds like ”I find the idea of being reliant on other people for my future wellbeing disturbing’, which I could sort of understand but never really empathise with.

    Or to put it another way, layers of government are conduits between individuals. Yes, they can agglomerate power. But this ‘them ‘n us’ is not as clean as Liberals need it to be for their clockwork theories.

  4. Technically I can only expect to rely on the State, but that’s more because I work in an almost-fully nationalised industry.

    CS Clark: I think you may be looking only at the destination, and not at the route map. How people rely on others is as important as the fact that they do. Government brings about interdependence by imposing itself as a mandatory conduit, regardless of either side’s wishes.

    Trade and other voluntary relationships also generate interdependence. This is the point of comparative advantage, after all: we give up strict autarchy in exchange for a greater supply of goods. But these things do it through more organic means, which respect human individuality and our desire to choose our own path.

  5. In fairness to the Tories, if the burden of corporation tax falls mainly on labour. Cutting corporation tax should lead to higher wages for workers giving them more income to increase demand. Although with unemployment and underemployment a feature of the economy employers may retain the windfall and distribute it to shareholders.

    1. yes – and scrapping the allowances? I am no expert but these proposals seem to point to more retained profit, less invested profit . More corporate surplus – but is that the problem? It isn’t 1974 .

  6. ““it is not self-evident that the government can actively build a “stronger society” that will volunteer more.””

    Tsk. Revealed preferences. If people aren’t prepared to volunteer to get things done then clearly they don’t value those things sufficiently to volunteer to do them. Therefore they shouldn’t be done.

    1. Sorry, I am being dim; does that not prove the point in the quotes?

      Or are you saying that because we can’t encourage nurses to form collectives to offer healthcare then clearly the NHS is a bad idea, because one could pick quite a lot of holes in that

    2. “If people aren’t prepared to volunteer to get things done then clearly they don’t value those things sufficiently to volunteer to do them.”

      Obviously.

      “Therefore they shouldn’t be done.”

      Er…

  7. But we had hospitals and nurses and medical care before we had the NHS. And they were indeed often organised on a voluntary, collective, basis: even if the nurses and doctors were paid many were organised as charities.

    Outreach diversity advisors not so much.

    By moving to voluntary methods of organisation we find which of the various things currently organised at gunpoint (which is what taxation is, at root) are valued sufficiently for people to keep doing them.

    1. So what about when people organise on a voluntary and collective basis to elect a government which proposes, e.g. state-funded healthcare and other public services, on the grounds that they feel that leaving welfare services to charities is utterly inadequate?

      There is something pretty undemocratic about this kind of classical liberal argument.

    2. But surely some of the ‘at gunpoint’ things are organised because there are quite obvious market failures in areas like health, that make public provision much more rational? [Some of the NHS must be down to a need to redistribute as well; many (most?) people could not afford to pay the doctor.]

      My problem isn’t that this is democratic – as if everything a democracy ends up doing must be self-evidently good – but that revealed preference, powerful notion that it is, is clearly inadequate when people are sometimes ill-informed, have obvious behavioural biases, free-ride, have activities that produce negative externalities that make coercive behaviour rational (like forcing them at gunpoint to send their kids to school rather than up chimneys) and so on.

      I hardly need to lecture Tim on the possibility of market failures – no doubt you are just mischievous in ignoring the possibility …

  8. “So what about when people organise on a voluntary and collective basis to elect a government which proposes, e.g. state-funded healthcare and other public services, on the grounds that they feel that leaving welfare services to charities is utterly inadequate?”

    You mean people who organise on a voluntary and collective basis to force people to do something on a non-voluntary basis?

    “There is something pretty undemocratic”

    Sure….what’s so great about democracy? That it’s the least bad option is true but it’s still the tyranny of the majority. There have, at times and places, been majorities in favour of hanging buggerers, killing Jews, preventing abortions and the righteousness of slavery. The majority ain’t always right, you know?

    1. “You mean people who organise on a voluntary and collective basis to force people to do something on a non-voluntary basis?”

      Yes. Or does no one do this sort of thing in Libertopia?

  9. “you are just mischievous”

    The mischievety lies not so much in the extreme form in which I’ve couched the argument. But that I’ve even raised the point at all. Some of the things which are currently done at gunpoint will not be done in a voluntary system. And some of those some things are things we shouldn’t be doing precisely because people don’t think they’re worth doing.

    And moving to a voluntary system is exactly how we’ll find out which those things are.

  10. “Or does no one do this sort of thing in Libertopia?”

    Dunno about Libertopia as I’m not a libertarian. I’m a classical liberal. If it weren’t for the distressing foolishness over the EU I’d be in the same political party as Giles, Orange Book Division.

    1. Damn! so near yet so far!

      Though I’m not mad keen on the EU. Nice idea, terribly carried out in many ways.

  11. “the EU. Nice idea”

    Something of a bridge to cross there, as I think it’s a foul idea in the first place.

    Fun fact: part of the original idea was that European countries didn’t really trade with each other all that much. A great deal of in and out to old colonial possessions and so on, but not much with the bloke 50 miles away across a national or linguistic border. Given transport costs as a percentage of the value of goods more more local trade would be a good thing. Wealth producing in fact.

    Oddly, 6 months before the Treaty of Rome was signed the first container ship set sail. The very technology which made physical distance a near irrelevance as far as the cost of trade was concerned. Brimingham England to Brindisi, Birmingham Alabama, Bremen or Birmingham Australia (I’m sure they’ve got one) now costs around and about the same for a 40 foot container. Certainly, close enough to the same that on anything other than the very lowest value goods transport costs simply don’t matter. It’s under $100 a tonne for anything to anywhere.

    At which point it doesn’t matter whether you trade with the bloke 50 miles away or not. The whole problem you’ve been trying to solve by political means has been solved by technological.

    But what’s worse is that in order to encourage that trade between Birmingham and Bremen and Brindisi you’ve put up trade barriers to that newly wealth enhancing trade with the other Birminghams and so on. Plus loaded 600 billion a year of compliance costs onto that Single Market.

    No, bad idea at the heart of it, not just the usual insane bureaucratic implementation.

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