Thursday 1 December 2011

Some green shoots...?

The Chancellor of the Exchequer's autumn statement does contain some signs of green shoots, not, alas, of economic recovery, but of a change of direction. Public investment is to be ploughed into upgrading some of our motorways and the railway network (including the electrification of the TransPennine route.) The money involved is peanuts compared with what is required, and much less than the amount of public expenditure that has been cut. In addition the extra spending on real investment will not come on stream for several years, (though doubtless consultants will gobble up their fees fairly quickly) whereas the cuts were and are heavily "front loaded." Even so, it is good to see signs of a change of heart, however small.

I have believed from the beginning that the Tories' public austerity policy is ideologically driven and not a matter of necessity. I suppose, to do them credit, that they genuinely believed, against all the odds and Keynesian teaching and supporting evidence, that state expenditure was crowding out private enterprise, and that if the state were cut back the private sector would expand and fill the gap. I do not believe that they deliberately set out to create misery among such a large proportion of the population.

Unfortunately, now that their policy is plainly demonstrated to be wrong, it is difficult to see what they can do without loss of face. These minor touches of the Keynesian tiller are welcome but they are not enough. However, I cannot see how the blustering harangues of Ed Balls will either bring about a more robust change of heart or convince the public that Labour's economic competence is superior. We are locked into a form of adversarial politics which may be fun for the participants in parliament (Labour members seemed to enjoy receiving news of economic failure, rather than be distressed by the consequences for the constituents for whose welfare they are so keen to seem concerned in other circumstances) but precludes changes which common sense demands

One thing that could come to and end is Liberal Democrat distortions of the truth in order to justify Tory folly. A letter from Danny Alexander to Liberal Democrat members repeats the tired old mantra of *the terrible legacy left by Labour" (it wasn't, it was left by the recklessness of the bankrollers of the Tory party, the financial sector) and that the Tory austerity programme is *sheltering households and businesses across the country from the worst impact of the (credit) storm" (it isn't, it is the relatively modest level of our long-term debt and the existence of a lender of last resort which makes our borrowing status secure).

Happily Alexander does not repeat another red herring put about by Osborne, that his policy is thrown off course by the crisis in the Eurozone. Admittedly the situation in the Eurozone doesn't help, but Osborne's policy was failing long before the Euro crisis broke. Another distortion of the truth which has come to Osborne's rescue is that UK interest rates are low as a result of his austerity programme. They are, but not in the way he would like us to think: bond yields are low because the returns from the depressed economy are even lower.

I suspect that few readers plough on to the end of a long post, but a not unexpected disappointment is that the government has not had the bottle to resist the calls for the abandonment of the 3p per litre rise in fuel duty. In this area the coalition is as supine as Labour, and claims to be the "greenest government ever" are, if not yet on the scrap-heap, at least severely dented.

1 comment:

  1. Peter, as I understand it, the scrapping of the fuel duty rise was a concession we permitted in exchange for curbing the rise in rail fares.

    I'm unhappy about the it, too, in isolation, but I think keeping rail from becoming too unaffordable is a more important goal right now.