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.