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  (30^th 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

https://mainlymacro.blogspot.co.uk/2017/04/economic-competence-revisited.html.

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 2^nd 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."