Both Nick Clegg and Vince Cable give the economic problems of Greece and the eurozone as the reason for Liberal Democrat support for public spending cuts now rather than when the recovery is assured.
In an article in the New Statesman David Blanchflower, the former member of the Monetary Policy Committee and the one who got things right, sates bluntly: "The deteriorating conditions in the eurozone have made it even more dangerous to cut (public) spending now."
The Conservative argument for cuts now is that they will boost confidence in the financial markets, floating on this bed of confidence industry will invest, and private spending will more than fill the gap left by the cuts in public spending. Given that the eurozone is our major export market, if it is in trouble then an export led stimulus becomes more difficult. In addition, to quote the Blanchflower article again: "If the pound... appreciates against the euro, the progress that the stimulus achieved in the UK would be thrown into reverse and growth would be even lower."
Blanchflower also points out that the US, which at roughly 12% has a similar level of current public borrowing as the UK, is not cutting public expenditure, nor are most of our major competitors
I suspect that the Liberal Democrat conversion to cuts now owes more to the malign effect of the chemistry than to the economic realities. We should stick to our Keynesian guns.
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I think you are absolutely right, the conversion has more to do with internal coalition politics than economic reality.
ReplyDeleteThat said, I would say:
1) Greece may not be the main reason but it is a serious factor, worthy of consideration. I do not presume to know more about this than Blanchflower but we are not the US. The pound is not the reserve currency.
2) Internal coalition harmony is arguably very justified. The Tories are the senior partner in this relationship and their position on this is fundamental. There is little room for compromise here, and the Tories were always going to get their way. I would argue the LDs should retain their position while being supportive. COnstructuvely critical of cuts, should I say. But in the interests of making the coalition work and exerting influence elsewhere, this is probably a justifiable tactical retreat from an unwinnable argument.
True there have to be compromises in the coalition and, as the senior partner the Tories must have their way on most things. However I should prefer to see tacit rather than vocal support based on a dubious premise where they are so obviously wrong and our pre-election stance was the opposite.
ReplyDeleteDelighted to find another Lib Dem who agrees with me.
ReplyDeleteHowever with this perspective that I share with you, I am wondering what to do. I see myself as a Liberal, but what am I doing in the Lib Dems campaigning for a recession?