काले व् Alexander

I was away on a walking (or, rather, paddling) holiday in Wales last week so missed a visit by Danny Alexander Chief Secretary to the Treasury,and Tim Farron, Party President, to Bradford for a "question, answer and comment session" with Liberal Democrat members

However, my friend John Cole (the काले in the title)took the opportunity to state: "I think the budget policy is wrong-headed: David Blanchflower says it is "abysmal" and ask " Why are we supporting a 1920s Treasury View policy and not a Keynesian one?

John followed up Alexander's response with the following letter:


Baildon June 17th

Dear Danny Alexander,

To reintroduce myself, we met at the Bingley Rugby Club on 16th June when you & Tim Farron had a dialogue with Yorkshire members. I am the retired school teacher of an unreconstructed Keynesian disposition.

Thank you for the considered reply which you gave to the points of concern I raised re. the deficit reduction strategy. I hope I made clear at the meeting that I am not a “deficit denier” and I fully acknowledge that the structural deficit within the budget (which has been allowed to exist for far too long) needs to be stripped out. Where we disagree is on the timing of the stripping out, and what should be the government’s fiscal (and monetary) stance in the interim.

If I understood your response to me correctly, the coalition’s main reason for not pursuing a Keynesian contra-cyclical reflationary policy is that “the markets” would not wear it. You mentioned credit rating agencies, presumably hinting at the danger of the UK losing its AAA status. This becomes, I feel, a counsel of despair. If national governments, either individually or in concert, are prevented from pursuing a reflationary economic policy (which might be their preferred policy) because of the say-so of Moody & Poor etc. then in effect national governments have ceded their economic sovereignty.

There were other parts of your response with which I was perfectly happy – where you spoke of green investment, other infrastructural investment and funds for regional investment. However, the monies in the latter are significantly smaller than those provided by the Labour government through the RDAs. We agreed, these funds should be bigger.

In short, supply side measures are not enough. We need to concentrate on the “C” word – “confidence”. At present both consumer confidence and business confidence (on all sorts of measures) are low. This is a classic situation for the government to take the lead with infrastructural investment (giving a legacy for future generations) financed by deficit spending. Keynesian policy may be counter-intuitive to those brought up on the “household expenditure” model of macro-economic management, but Osborne, Cameron and “the markets” need to get their minds round it. If we, as Liberal Democrats of the lineage of Keynes, continue to support what is essentially a throw-back to 1920s thinking then we are simply validating ignorance.

Yours sincerely

John Cole

P.S. A couple of technical points: (i) When we talk of credit rating agencies, are these the same ones which gave Icelandic banks AAA status until very shortly before those banks crashed? (ii) Given the long term shttp://www.blogger.com/img/blank.giftructure of much UK government debt and the UK’s track record for being able to achieve negative PSBR – see the period around 2000 - this danger of debt-default has been over-egged. The UK is NOT comparable to Greece! http://www.blogger.com/img/blank.gif

Well done, John.

Just to demonstrate that this blog is even handed in its attitude to Liberal Democrats in government I do believe that, in contrast, Danny Alexander got things right when he outlined the government's proposals for public service pension reform. Provided the lower paid are protected, and they seem to be, I see no reason why the higher paid, chief executives, head teachers and so on, should be given final salary pensions lavish beyond the dreams of avarice. Pensions based on average salary seems to me to be more than adequate to stave off penury . (see posts on Teachers' Pensions and Mists and Mysteries about Pensions