Wednesday, 10 May 2017

The myth of Tory economic competence.



I don’t watch Andrew Marr’s Sunday morning politics programme because I’m at church at the time it is broadcast and never seem to be able to find “catch-up” time. However I understand that  two weeks ago  (30th April) Theresa May persistently evaded Marr’s questions about nurses having to go to food banks because they couldn’t afford to buy food, but three times referred to the need for a “strong economy” and a government which “understands the importance of the strength of the economy.”

Well, who would argue against the desirability of a flourishing economy?  But the impression Mrs May gives, and clearly intends to give, is that Conservative governments provide this strength and Labour governments don’t and won’t.

Sadly I suspect that most of the electorate accept this, but it is the triumph of slick PR and a lick-spittle press rather than an objective appraisal of the truth.

Simon Wren-Lewis, a professor of Economics at Oxford University, has attempted to provide such an appraisal   on his blog Mainly Macro.  I strongly recommend  reading the entire article at

But in case you haven’t time here is an honest summary.  (My own additional comments in Italics in brackets). The survey looks at the major economic decisions by British governments over the past forty years or so:  1979 - 1997 (Conservative Chancellors of the Exchequer), 1997 - 2010 (Labour), post 2010 (Conservative)

1.       Geoffrey Howe’s (Conservative) 1981 budget.  Imposed tax rises in the middle of a recession.  Was famously opposed by 364 economists in a letter to The Times. Generally accepted to have delayed recovery by some 18 months.  (This was the period in which Britain’s manufacturing  capacity was reduced by a fifth, and unemployment rose to over 3 million, with the consequent  loss of skills and export potential – not to mention devastated communities and much human misery)

2.       The Lawson (Conservative) Boom in the late 80’s: a dash for growth (that produced little growth but lots of inflation).


3.       Joining the  Exchange Rate Mechanism of the EU (The ERM) in  1990 (John Major, Conservative chancellor).  (Most of us welcomed this as a good move. The problem was that we joined at too high a rate – almost 3DM to the £.  John Major was not necessarily to blame: Mrs Thatcher is said to have decided on the figure unilaterally, and imposed it on her cabinet.


4.       Ejection from the ERM. Black Wednesday,16 September 1992,   Norman Lamont Conservative chancellor. ( The above rate proved unsustainable  Britain was ignominiously  forced to leave the ERM)
5.       The failure throughout  this period to use the revenues from North Sea Oil to set up a Sovereign Wealth Fund (as did, for example, Norway)  (Instead the bonus was squandered on tax cuts and the funding of the high level of unemployment)

The ERM debacle led to the loss of the Conservative's credibility on economic matters and,  eventually, to Tony Blair’s Labour landslide in 1997.  

 Wren - Lewis highlights three major decisions made during the period of the Blair Brown governments and  argues that all three were correct.  They are:


1.       The independence of the Bank of England (from 2nd May 1997).


2.       The decision, engineered by Gordon Brown, not to join the Euro in 2003. 

3.       The fiscal stimulus (Alistair Darling Chancellor of the Exchequer) after the crash of 2007 which stabilised the economy and restored some growth.

Wren-Lewis excuses the Labour government’s failure to regulate the banks and financial sector more tightly, and thus perhaps avoid the crash of 2007, on the grounds that they were following the consensus view at the time. The Conservatives were arguing for even lighter regulation.

(Wren-Lewis does not mention  the financing of public sector infrastructure projects, especially hospitals and schools, by Private Financial Initiatives, PFIs, which I believe is a major mistake for which we shall be paying over the odds for years if not generations)

On George Osborne’s tenure as Chancellor, Wren-Lewis praises the decision to set up the Office of Budget Responsibility, OBR, but condemns the decision to embark on austerity from 2010 as a “huge mistake.”  He also points out that the decisions to leave the Single Market and Customs Union are not mandated by the Referendum but are “down to the Conservative government alone.”.

All in all, it is hard to argue with Wren-Lewis's  conclusion that "[The track records ] show clearly that Labour tend to get things right  while the Conservatives  have created a number of major policy induced  disasters."

5 comments:

  1. When you take a step back and look at the whole thing objectively it is absolutely ludicrous. The important economic decisions of a nation should not be tied to these politics. These bafoons that dominate the political narrative, grinding their axes and being 'interrogated' by even more bafoons from our glorious BBC masters of double-speak.

    On the other hand let's not be so naive as to think these decisions are taken by anyone other than the dark suits, the elite higher powers that put these puppets in position in the first place.

    As regards current policy, I don't believe it is possible to borrow/spend your way out of a deficit and I support austerity (although seemingly the rhetoric doesn't support the truth, the deficit is increasing?) we have fuller employment and the gap between the very rich and very poor growing bigger, negative real wage growth for the squeezed middle. All sounds like business as usual?

    The biggest shock this country had to face in the last 25 years was the change of the name of the 'marathon' chocolate bar to 'snickers'

    I would absolutely love to see what a majority liberal government would bring to the table, I really mean it. How would they effect real change and how would they ensure that the important economic decisions were not just clueless overtly-political stabs in the dark?

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    1. Mr Stewart,

      I think you identify the problem that helps to explains both Brexit and the election of Donald Trump - that the decisions are made by the "dark suits, the elite higher powers" without much regard to the reactions and feelings of those at the bottom of the pile.

      I also agree that that lot of economic decisions are "stabs in the dark," but surely you would like the stabs to be made by people who had made an effort to assess the effectiveness of similar stabs in the past rather than by blind prejudice.

      By that test you are wrong: a country can spend its way out of debt. But you are right that "austerity", rather than balancing the books by the end of the parliament, has failed miserably, (and the misery has been experienced by those very same people at the bottom of the pile, and not by the perpetrators of the policy).

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  2. Seems (a) cherry-picked (presumably each government made more then three economic decisions, so why are these ones representative?) and (b) a bit disingenuous — criticise the Conservatives for raising taxes? When Labour would have raised them even more? Praise Labour for keeping us out of the Euro — when there's no way any Conservative government would ever have joined the Euro?

    More to the point, everyone accepts that Labour won in 1997 because Blair managed to convince the public that (New) Labour could be trusted with the economy, and that they wouldn't just tax & spend (remember the commitment to keep to Tory spending plans?). There's no reason another Labour leader couldn't do the same, except that the current one seems singularly unable to do so, instead publishing an uncosted manifesto full of spending commitments that will presumably have to be paid for either by tax raises or increases in borrowing.

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    1. Yes, I accept the element of cherry-picking, but be fair: there are actually four policies for which Wren-Lewis criticises the Tories, not three. And the point about taxes is not that they are changed, but when, which is crucial - ie not raised in a recession, or cut in a boom.

      And, still being fair, we are told that the costings of the Labour manifesto will be revealed next week, and details of some of the tax increases and borrowing have already been released.

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