Incoherent Tories

Margaret Thatcher said “Socialist governments always run out of other people’s money. It’s quite a characteristic of them.” In the not too distant past – with a popular Labour Government spending public money on popular things – the Tories had been reduced to merely asking for the “proceeds of growth be shared” between tax cuts and smaller spending increases. Spending other people’s money seemed to be doing the electoral trick.

Since our lopsided economy imploded they have been able to switch back to their good old fashioned ways. They want spending cuts, they want deep spending cuts, and if Nick Clegg hadn’t said it first, they’d want savage spending cuts. Some on the right are positively relishing the prospect of throwing a million of state employees out of their jobs.

Key to the Tories new line is that Brown’s feckless spending in the good times has led to a fiscal catastrophe in the bad times. From 2000, when Brown was really allowed to let rip, to 2009 Britain’s net debt has grown from just over £300 Billion to just under £800. For George Osborne the fiscal cupboard is bare.

The arguments for running deficits in a slump are well worn. By taking up the slack in the economy, state spending can act as a counter balance in recessions. The arguments for running a large deficit in boom times are a little less cogent and revolve around a rather inconsistent set of Golden Rules.

The Tories have taken up a position attacking Brown’s boom time spending for worsening the fiscal situation now times are bad. Despite what Chris Dillow has argued I feel I must agree with them one this small point.

But of course I can never bring myself to agree with the Tories too much. Given the Tories allergic reaction to the mainstream economic opinion on the benefits of stimulus spending it seems foolish to suggest that if they were in power we would see a glut of countercyclical spending. In fact we would still have been treated to a Government reaction and economic collapse like that seen in Ireland.

  • Irish unemployment is 12.5 per cent;
  • The country is experiencing deflation at –6.6 per cent.
  • GDP has fallen 7.4 per cent over the past year and 10.5% from its peak;
  • And despite the cuts they have still had their credit rating downgraded.

In the Pre-Budget Report Darling said Labour were acting from a position of strength, much to the mirth of the Conservative benches. But in a way he is correct, right wing pundits are keen argue that the public sector has not kept pace with the productivity of the private sector yet they have still seen a massive increase in spending. From Tom Freeman on the NHS:

Osborne thinks the bad news far outweighs the good; I respectfully take the opposite view. Productivity is down 4.3% but the actual output of the health service is up 52.5%.

Earlier on the news George Osborne was bemoaning Labour’s PBR, he demanded that Darling announce a time table for cuts now: “Budgets must be balanced every household knows that.” A Government is very unlike a household, and its outgoings do not always have to balance with its income, but George Osborne seems worryingly or wilfully oblivious to this.

Our fiscal situation could have been far better entering this recession, but the party most vocal in its lamentation for this failing is also the one which would have been least willing to make the most of it.

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7 thoughts on “Incoherent Tories

  1. Couple of points:

    Comparisons with Ireland (pop 4m, exports v large relative to GDP) are probably misleading. For a Whole World economy or close approximation, e.g. USA, fiscal stimulus makes far more sense.

    For a tiny economy (Iceland, the household of one family), it fails utterly. See
    http://freethinkingeconomist.com/2009/09/09/musing-on-icelands-littleness/

    Second point: if the Tories had been in charge, they would definitely have spent the surpluses on some combination of tax cuts for income and capital. It may have overstoked the boom even more, though there may have been multiple effects (price of £ I can’t think through). But I doubt they would have chased debt levels of 30pc, or otherwise treated the temporary tax windfalls, given the dominant narrative they like of “overtaxed Britain”.

    1. It is a little too convenient to point to Ireland as an example of what would happen to the UK if the Tories were in charge.

      I stil think it is a useful illustration that despite what has happened in Ireland many on the right still think the “correct” choices were made in a recessionary situation.

      A post comparing Ireland and the UK is definitely in order soon though, just to tease out what is applicable and what is not, shall start planning.

      I agree that the Tories would definitely not have left the Government Balance in a significantly better situation, but public services would also not have seen the rise in investment which they have, making the cuts they’d impose all the more swinging.

  2. Well done on a few myths debunked. I especially appreciated the graph of Health input and output.

    When it comes to George Osborne, most of the economists I hear from think he’s a liar or an idiot. Of course, neither show a very promising future for Britain at this rate.

    1. Yeah Tom Freeman provides some good stuff when he’s not moving flats.

      The Tories definitely can’t lay claim to the idea that this would all be so different if the UK Government had acted like they had wanted.

      That would require ignoring not only what they said, ignoring what they recommend now but assuming that the international economy would be totally different just because the UK Government had behaved differently.

      (Oborne may be both, you know)

  3. Quite right. And the “investment” that Brown did does have investment-like qualities, at least: repaired schools etc do last, whereas payments to higher earners just get spunked away somewhere. As Nicholas Timmins observed somewhere, at least we have some infrastructure to fall back on now. We won’t instantly rewind to 1997

    1. “Acting from a position of strength” once its all been explained is a good turn of phrase, and I’m sure that’s what Brown thought when he forced Darling to say it. It ain’t great from a PR point of view because that really isn’t how its been framed, however that fact does need to be emphasised.

      There has been investment, my mums a teacher and she’ll testify to that. I just really wish Labour weren’t such authoritarian bastards sometimes, then I might be able to support them more than just as a third least worst option.

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