“It’s the ideology, stupid” is the Coalition Government’s new mantra on the economy

“It’s the economy, stupid” was famously the theme of Bill Clinton’s 1992 presidential campaign against the incumbent, George Bush Sr.

George Osborne is now trying to use the same message to pretend that the scale of the planned public expenditure cuts are justified by the state of the British economy and the scale of the deficit that the Coalition Government inherited.

However, an article by the estimable Bill Keegan in today’s Observer demonstrates yet again that what is driving the Coalition Government’s stance on public spending is ideology not economics – a desire to finish the Thatcherite evisceration of the public sector.  It is rather as though Thatcher’s children – aka Cameron, Osborne and Clegg – have a psychological drive not only to obtain parental approval, but a desire to achieve more than that parent – just as George W Bush seemed to feel he had to emulate his father’s invasion of Iraq and then take that invasion one stage further to regime-change and beyond.

Bill Keegan describes the Coalition Government’s economic policies as “fiscal masochism” and “Born Again Thatcherism” arguing that:

“The pretext for Thatcherism Mark One was the threat of accelerating inflation in 1979/80. The acceleration in inflation was assisted in no small way by some injudicious decisions taken by the Thatcherites, decisions that served to embed an inflationary shock emanating from the second oil crisis. This time the pretext is the fiscal deficit, the significance of which our new government has been grossly, and irresponsibly, exaggerating.

Last week, I pointed out how minor the public debt “crisis” of today appears when compared with the situation that faced chancellor Neville Chamberlain when he introduced his deflationary budget of 1932. Chamberlain, and the “Treasury View” that lay behind his budget strategy, have rightly been castigated by economic historians for that deflationary approach. Yet the debt problem facing our strange coalition is hardly on the same scale.”

He then takes the Coalition’s arguments neatly to pieces:

“The figures are worth repeating: the latest budget red book puts UK debt at 61.9% of gross domestic product in 2010/11 (against 177% in 1932) and debt interest at 6.3% of total public expenditure in 2010/11 (against 40% in 1932).

And the invaluable annual report of the Bank for International Settlements (the “central bankers’ bank”, based in Basle) contains some impressive charts and tables that suggest our new prime minister and chancellor, along with their Lib Dem collaborators, should be prosecuted under the Trade Descriptions Act for distorting the scale of our fiscal problems.

I give you chapter and verse: on page 68 (Part V) you will find that Britain is top of the league when it comes to the length of time before its debt has to be refinanced. The “average maturity” of the UK’s debt is 14 years; by comparison, other leading industrial countries, including the US and Germany, have maturities of under 9 years. This is not to say there is anything wrong with the US or German position – few can gainsay the fiscal rectitude of the Germans; and the US, whatever its fiscal problems, remains the pre-eminent reserve currency. But it shows how hysterical the debate in Britain has become.

Again, on the same page, the BIS report contains a graph comparing different countries’ dependence on overseas finance. “Non-residents” hold approximately 70% of Greek government debt, just under 50% of US government debt, and below 30% of UK government debt.”

So the debt is not as bad as suggested, the scale of the debt interest needing to be paid each year is not as serious as we have been told, and the UK’s vulnerability in terms of refinancing and of overseas debt holdings is far less than the Coalition Government would have us believe. 

So it’s not the economy, but ideology.  And Tory ideology at that.

I’ve mentioned before being told by a (slightly tipsy) Conservative MP before the election that the Tories’ political strategy, if they won, would be to declare that the state of the economy was much worse than had been expected and then embark on a programme of “Ridley-ite” cuts that would make Margaret Thatcher proud.  And that was before the full scale of the global recession had kicked in.

And now as Bill Keegan reminds us even the markets are getting jumpy:

“While Osborne has been fomenting fears of how the markets might react to insufficient austerity, the theme of the market reports last week – following the commitment to fiscal masochism that emerged from the G20 meeting at the weekend – was that those financial markets that brought us the crisis and then called for austerity are now concerned about the effect this might have on economic growth – and hence on those budget deficits they seek to reduce!”

4 thoughts on ““It’s the ideology, stupid” is the Coalition Government’s new mantra on the economy”

  1. Sadly since about 2007 Labour seems to have completely forgotten how to communicate with middle-of-the-road swing voters. This was evident both in this year’s and in last year’s woeful campaigns and helps to explain why we were reduced to a feeble 29% of the popular vote in May and now have almost no MPs in the south of England.

    Alas our temporary leader is, as an Observer editorial notes, still at it: “instead of promoting an alternative agenda, acting leader Harriet Harman has devoted disproportionate energy to attacking Nick Clegg’s MPs for a perceived betrayal of their principles.

    That approach does more to gratify Labour’s sense of itself as guardian of the “progressive” moral high ground than it does to drive a wedge between the coalition parties, which is presumably the aim. While many Lib Dems might be uneasy about alliance with the Tories, they are unlikely to be shamed into sabotaging their own government by opposition sanctimony.”

    Cameron will still be PM in 2020 at this rate….

  2. I thought they had given Wm Keegan a job to shut him up?

    Jolly good show, then.

    Quite clear that Osborne’s “rebalancing” is a move towards “Ground Zero” for the British State and an attempt to drive down the working class, and raise up his own.

    Re the 1997 – 2010 piffle above: I recall that Blair’s popuarity was at a fast ebb in 2007, which is why he actually left, voluntarilly. The Billionaire led media fancied the Tories’ chances this time, and went for it.

    Period.

    True that the first third of Labour’s Leadership election hasn’t been all that edifying, too many candidates sucking up to too many witless activists who do not ken the achievements labour wrought 1997 – 2010 as set out by Toby here, and on twitter as @LabAchievements.

    Labour’s return to governement will depend – as ever! – on how fouled up the economy is in 2015/2020 and how convincing Labour’s economic team is. Why Ed Balls is the best shot, were there not other good reasons.

    But despair is a realistic alternative strategy.

  3. You forget that, in Thatcher’s era, high unemployment forced down the price of jobs. Could the Coalition government be working towards the same means?

    Also, given the equation formalised by Irving Fisher (PV=MT), the quantitative easing employed by the last Government failed to acknowledge the time-bomb of what happens to all that money that’s idling about when the velocity increases.

    Any O level economist will warn of very high inflation once transactions start to pick up so, either prices start to rise or bucketloads of money have to be taken out of circulation through taxation.

    The simple answer would have been for the government of the day to take more equity in the banks in return for the money. Once the economy started to recover, the government could then take money out of circulation by privatising that equity. Ergo, no need for punitive taxes or job/service cuts espoused by the incumbent government.

    Incidentally, given that we are told that we need taxation to fund hospitals, schools, police, armed forces, the welfare state, etc., under fiduciary monetarism without a Gold Standard (where taxation is used to control the amount and velocity of money in circulation), we would still need taxation to some greater or lesser degree whether we had any public spending or not.

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