Friday, 13 August 2010
Cameronian cuts cursed - official!
Yet another article from the Financial Times, Future generations will curse us for cutting in a slump, this time by the distinguished economist Robert Skidelsky and former Treasury official Michael Kennedy, argues the folly of the government's slash and burn economic policy. Liberal Democrats should be dissociating themselves as far as politically possible from this barely hidden agenda of ideologically motivated cuts.
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Skidelsky is of course Keynes's biographer and is steeped in the similar debates on these issues that took place in the 1930s. Then the 'orthodox Treasury view' had powerful support from leading economists such as Pigou. The situation today seems to be the reverse with top economists queuing up to question the government's policy and, as far as I can tell, hardly anyone publicly providing a coherent defence of the Osborne line. Is his policy simply ideology-driven as you suggest or is the Coalition receiving economic advice that we are just not hearing about?
ReplyDeleteThe monetarist/supremacy of market forces views have held sway for the last 30 years or so, and university departments have taught accordingly. Hence I think Keynesians are regarded "has-beens" clinging to an outdated doctrine with little relevance to modern life. I would consider this if there were a coherent argument to support it, but, as you observe, there isn't. All the right wing scares about the markets taking vengeance if the government doesn't do what they demand have proved false. Therefore I'm driven to the conclusion the the soft-spoken Cameron has simply seized the situation as a good excuse for implementing harsh Thatcherite policies.
ReplyDeleteMy impression is that the efficient market consensus was shattered by the 2007-8 crisis and that Keynes has returned to a central place in understanding what is happening. Thatcherist economics was built on a neo-liberal resurgence in the 1970s spearheaded by Friedman, the Institute of Economic Affairs, Alan Walters and many other economists. It was articulated by Sir Keith Joseph and others within the Tory party. I am struck by the absence of a similar intellectual/ideological basis for the Coalition's economic strategy. Even the Economist this week in a generally favourable review of the Coalition did not identify the roots of Osborne's economic approach (though it did go into detail about the decentralist ideas of Steve Hilton, Oliver Letwin and Rohan Silva). Maybe I am just out of touch, but I cannot see where the Tories (let alone the Lib Dems) are getting the intellectual underpinning for their economic analysis, other than from the City. Hence my original question: is the government's policy just shallow, opportunist and City-driven, or is there a deeper strategy behind the scenes that we don't know about?
ReplyDeleteIn my search for influences on the Government's economic thinking, I found 'Conditions for Growth' (CPS July 2010, available on the CPS website) very interesting. Chapter 2 is an excellent summary of the impact of the crisis on the UK and priorities for recovery. Its prescriptions are quite Keynesian (for 'Margaret Thatcher's favourite think-tank'). It emphasises that maintaining aggregate demand is crucial, saying: 'the situation is currently finely balanced. To the extent that government spending is currently supporting aggregate demand, unwinding this too fast, and in the wrong way, could put the nascent recovery at risk'. I wonder if the current rhetoric of draconian cuts is camouflaging what is really intended as a more long-term and selective rebalancing of spending. Osborne's speech of 17 August used the word rebalancing a lot.
ReplyDeleteThanks for that, Jaime. I'll look at the reference as soon as I get the chance. I hope you're right, and that the rhetoric is just camouflage so that we're quite relieved if things aren't as draconian as we'd been led to expect. If so, that's "old politics" rather than the "new" we were promised. As to re-balancing, if it's from the financial services sector to the the manufacturing sector, well and good, but if from the private to the public sector, I wouldn't be so enthusiastic. The proportion of GDP devoted to public expenditure in France is higher than ours and my year there convinced me they get very good value for money.
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