What should the Lib-Dems have done in May 2010?

by Ray_North on March 25, 2013

UnknownI recently met a man who enjoys the role of Nick Clegg’s Special Economic Advisor. I met him in a social setting, and as such tried desperately to keep my sceptical view about his Leader’s performance (and in particular on all issues concerning economic policy), under my own hat. But, inevitably, the coalition was discussed and the particular SPAD told me that he had been in charge of framing the economic part of the coalition of the agreement. At this point, as you can imagine, I was biting hard on my lip. He then said two things – first, he said, the austerity was necessary because we simply haven’t got any money; and second, he said that the Lib-Dems had no alternative other than to go into coalition with the Tories.

Well, with regards to his first assertion, it may be true that we didn’t have any money in May 2010, but, as a result of the coalition’s botched policies, we’ve now got even less.

But, that isn’t the point of this piece – I want to deal with his second assertion, which he made with a great deal of confidence – that is that the Lib-Dems had no alternative but to go into coalition with the Tories – because it is a view that is shared by many Lib-Dems as something that they cling on to, ‘things might be shit,’ they say, ‘but we had no alternative.’

Well. I don’t buy that. The Lib-Dems had a number of alternatives after the election of 2010.

Let’s start by looking at the situation before polling day. In terms of policy, the biggest issue during the campaign had been the economy – the Tories espoused their austerity programme, whilst Labour and the Lib-Dems suggested that we needed to cut the deficit but not at the same rate as was being suggested by the Tories (pretty sensibly as it happens).

In terms of personal profile, the undoubted star of the campaign (certainly in the first few weeks), was the Lib-Dem Leader Nick Clegg. Although he didn’t actually do particularly well in terms of seats won, he definitely increased his own standing, within his own party and within the country as a whole. He ended the campaign was a great deal more kudos than he started.

Now, of course, on polling day, the Tories, despite Gordon Brown’s massive unpopularity, failed to win a majority, but did poll the most votes and win the most seats.

So, as we all remember, Nick Clegg was suddenly the man holding the balance of power.

And this is where it all started to go wrong for the Cleggster. He made three crucial decisions.

First – he decided that the Tories as the party with the most seats should have first go at forming a government. I think he was right about this – both constitutionally and within the spirit of our democracy. So in relation to crucial decision number 1, Clegg can be forgiven.

The same can’t be said for crucial decisions 2 and 3.

His second crucial decision involved him sending his team of advisors (including Cable and Laws) along to speak to the Tories and, incredibly, despite fighting a general election saying that the Tory plans for the economy were flawed, the Lib-Dem leadership allowed themselves to be convinced that, in fact, their whole economic policy was in fact wrong, and that the Tories were right – austerity would have to be immediate and brutal. When you think about it, this volte face is just stunning. It happened just days after the Lib-Dems were asking people to vote for them on a particular premise. In reaching this decision, Clegg and his advisors made three massive errors – first, technically, they erred by failing to understand that, at that moment with our economy just about recovering from the banking collapse, austerity would do anything other than plunge us back into deep, dark recession (they bought the line that the Private sector would boom and pick up the reigns growth);
second, they wrongly believed that if they were in government they would be able to implement loads of Lib-Dem type policies in other areas of government and that this would compensate for the overall economic programme that they were about to sign up to – which was naive in the extreme, as anyone could see that anything remotely good the coalition did would be overshadowed by the almighty mess that the economic failure would bring;
and third, again, showing an incredible naivety, they failed to see that the Tories weren’t nice cuddly middle of the road, let’s do business types, but actually, desperately ideological in their thinking – with a deep-rooted hatred of the state and a labradoresque enthusiasm for cutting public spending and, as soon as they could, taxes.

For whatever reason – and I am convinced that it is fundamentally because Nick Clegg and David Laws were pretty relaxed about the ideological thrust of the Tories and too politically inept to work out the political repercussions of austerity, and it was this, rather than a desire for ministerial positions that was the driving force behind the Lib-Dems at that time – the Lib-Dems then decided to enter into coalition with the Tories.

And the result? Well, despite Eastleigh, the Lib-Dems are set to be routed in the next general election, whilst their record as a party of government has been an appalling catalogue of broken promises, u-turns and missed chances.

So, what should they have done?

Well, I’m not going to suggest that they should have formed a coalition with Labour in May 2010. Although, I do not doubt that the majority of Lib-Dems would have favoured such an outcome and that ideologically, the two parties were much more compatible, the reality is that Labour didn’t have enough seats to have formed a government with the Lib-Dems, nor did the Labour leadership have the will to enter into such an agreement, especially as it would also have meant accommodating others.

Which brings me to the third crucial decision that Nick Clegg made – he decided that there had to be a majority government of some sort. He signed up to the myth that if there was a minority government then, for some reason, there would be a run on the pound and the banks would collapse and the world would end. There was no evidence for this, it is, I fear, a baseless and lazy assertion perpetuated by worried Politicians who should know better. He then further concluded that his party would not stomach another general election. Now I can sort of understand that after a tiring general election, a pelican might not fancy another contest, but, isn’t that desire to lead what actually makes the difference between mere mortals and the rest of us?

So in relation to crucial decision number 3 – that is that the country could not possibly have allowed a minority administration, he was wrong.

What Clegg should have done then is this.

First, he should have agreed to allow the Tories first dabs at forming a government.

Second, he should have stuck to his economic policy.

Third, he should have rejected the Tory overtures to form a coalition on the grounds that (a) the Tory plans for the economy were suicidal and (b) no coalition can properly exist if the senior partner is seeking to impose an ideological programme on the junior party.

He should have then told the Tories that he was perhaps prepared to support them on a policy by policy basis, but would not support any budget that included immediate and swingeing cuts to public services and public spending.

And he should have told the nation that he was taking this tough decision because he was not prepared to see the nations economy destroyed and that if there had to be another general election – then so be it, because people, jobs and growth was more important than his own and his parties ambitions.

Of course there’s every chance that in a further general election David Cameron would have won his majority and formed a purer government, and I accept this – but that’s just a risk that Nick Clegg would have had to take, the type of risk that marks out the difference between great leaders with an instinct for leadership and the stomach to do what is right, and others who simply bumble along and allow themselves to be knocked over by the runaway locomotive of history and fate.

There, that’s is the answer to the question – well what should Nick Clegg had done then?!

{ 23 comments… read them below or add one }

Charlie_East_West March 25, 2013 at 8:52 pm

It is amazing what the allure of a ministerial car and a grace and favour lifestyle can bring…

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George_East March 25, 2013 at 10:40 pm

There is no evidence at all that a Conservative Party that went back to the country in the Autumn of 2010 would have won a majority. This is one of the great convenient assertions that is put about by those who want to justify the Lib Dems’ decision (I am not including you in that group Ray). The Tories had no discernible honeymoon in the summer after the election. They would have had to have done better than they did against a Gordon Brown led Labour Party. They need a 7 point lead over Labour and haven’t achieved more than 36.9% of the vote in a general election since 1992.

Also a minority Tory government would have led inevitably to a shorter Labour leadership campaign, and probably therefore a different outcome, as the Labour Party would not have wanted to risk being caught leaderless going into a second election campaign.

A think the more likely result of the Lib Dems remaining on the opposition benches (possibly in a confidence and supply arrangement) would have been a far more moderate Tory government, that would not have been able to go to the country for a second mandate. What the Lib Dems did instead is give the most right wing government since the 1920s an 80 seat majority. Good work Clegg.

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Ray_North March 26, 2013 at 7:46 am

I’m not suggesting that it was by any way a certainty that the Tories would have won a second election in 2010, but it was a proper consideration for the Lib-Dem leadership – however, if they had confidence in themselves and their positioning then they would have dismissed it.
I also agree that a Tory minority government having to deal with the other parties on a policy by policy basis would have had to be more moderate than the coalition has turned out to be.

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Hugo March 26, 2013 at 10:38 am

What should Clegg have done? Realised that his bargaining position was far stronger than his advisors led him to believe. If, and I hesitate on the if, if the party were truly liberal in attitude, belief and conviction then the allure of a ministerial position would not have been a factor. For all their faults a Tory is at least transparent in their single minded desire to be in government. Dave and George would have sold their souls, assuming they hadn’t already done so, to be in power.

There couldn’t have been another election. Elections are costly and the liberals, conservatives and Labour had blown their election budgets and there was nothing left for a rerun. Although an election on a budget would have been interesting to observe, perhaps it would have been far more democratic with candidates reduced to actually having to shout their election campaign through a megaphone. God forbid there might have been some good old fashioned political debate. But since all of our polititions are career politicians they sadly lack any political passion and certainly don’t have any ideals from which to base a philosophy for such a debate. I digress.

Clegg should have insisted on being Home Secretary and not Deputy Prime Minister. Why o why did Clegg want to be the man that followed Prescott. As Home Secretary he would have been in a position to shape the country whilst Dave could be left to swan about the world massaging his ego.

Lastly the liberal party should have wised up to the fact that they were being humiliated and treated as a joke by the Tory’s and hence the fact that for the first 18 months it was a Liberal spokesman announcing the bad news.

What should Clegg have done – grown a pair!!!

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George_East March 26, 2013 at 10:50 am

Hugo, I agree with a lot of that. The Lib Dems had the whip hand in negotiations not least because if they had not backed the Tories one way or another then it would have been curtains for the Dave and George show.
The critical thing if they were to go into coailtion though was to insist that Cable was chancellor and that the basic tenets of economic policy remained what the Lib Dems had campaigned for in the election. The absurdity of Osborne’s economic slash and burn policies being ‘disastrous’ during the campaign but suddenly, when an offer of government came along, there being no alternative as a result of Greece, I tell you, Greece. Unless the Tories conceded on that coalition should have been out of the question.
And yes them agreeing to be the bad news bunnies in the first year was hilarious. They were so excited to be in government, no humiliation was too large.

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Hugo March 26, 2013 at 11:57 am

I’m afraid I can’t agree that Vince Cable should have been chancellor. Only because ‘Vince’ is the name of a bookie or loan shark , but that’s my own snobbery talking. Ken Clarke should have been chancellor as he was well experienced having done the job before and because he’s a closet Liberal.

Although not natural bed fellows, the liberal and conservative philosophies are not poles apart. Free market economics is the backbone of old fashioned liberal philosophy. However a liberal attitude doesn’t allow for outright war on the poor and middle classes which unfortunately is current Tory agenda.

It is a sad truth that the Labour administration had spent all the money as a result of Gordon Brown attempting to redistribute the wealth throughout the country by creating public sector employment in the depressed regions. Local government was also left to grow fat and no matter what your political persuasion no country can afford to have 25% of its working population employed in the public sector. The maths simply doesn’t work.

The country is skint. Those on the left cry foul whenever there is talk of reducing the welfare state and those on the right simply want the poor to starved out of existence. No matter which party Nick chose to form a coalition with it is very probable that almost four years on things would look pretty much the same. But at least with a Tory coalition we get to boo at Osbourne and its a useful reminder to all those voters that had apparently forgotten just how nasty a Conservative Government can be. We can only hope that the electorate are wise enough to realise that the £10k tax band was a liberal policy and that without the liberals holding back the extremists in the Tory party we would probably already have declared war on Europe and most definately would be sending the poor and unemployed as task force to protect the Falklands. Although I might be overstating it a little. Although the current exodus of nutty Tory’s to UKIP does suggest that the liberal presence is having a beneficial effect in much the same way as penicillin and a social disease.

Slash and burn policies suit those whose investments and trust funds depend upon the city and the pound remaining strong. Since I read somewhere that over 70% of current MP’s are millionaires it is very unlikely that the slash and burn policy will be abandoned anytime soon.

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George_East March 26, 2013 at 12:42 pm

Hugo, the country was not skint because Labour spent all the money. That, I am afraid, is another one of the self-serving stories that Lib Dems tell themselves. It is completely false. Before the financial crisis in January 2008, the UK’s debt to GDP ratio was 35.5%, lower that it had been for most of the Thatcher or Major governments and at a level that was low by any standards in the previous 200 years. The spending of the Blair/Brown years was perfectly affordable.

The financial crisis of 2008-9 was caused by a deregulated and reckless banking sector,a sector which the Tories wanted to de-regulate even further. Unless you can make a compelling case for saying that public spending in the UK caused Lehman Brothers to go under in the US, the Labour caused the financial crisis by spending too much arguement is one without any substance.

As for public sector employment, that is of course a function of trying to deliver high quaility public services which had been disgracefully allowed to wither in the 1980s and 1990s. Sweden has, for example, a far higher percentage of its workforce in the public sector than the UK did even at the peak of the Blair/Brown experiment. It has weathered the economic storm caused by the financial crisis far better than the UK has. It still has a triple A rating, has lower inflation than the UK and has not had a single dip recession let alone a triple dip. There is no difficulty whatever with the maths.

Maybe a Labour-led government would be in the same position as this government, but I doubt it. It had after all (as the Lib Dems agreed until offered ministerial limos) said that you should back end spending cuts so that you did not kill a nascent recovery; a recovery which was doing pretty well as of May 2010. Had there been further shocks to the system as a result of the Eurozone, I have little doubt that Alistair Darling would have ajdusted policy accordingly just as he had in 2009. Unlike the Tories and the Cleggites there is no ideological opposition in Labour (and formerly among the Lib Dems) to using fiscal policy as a tool of economic management.

The UK’s economic management under this government has been uniquely disastrous since May 2010 (all the economies that have done worse than the UK have had no ability to change things because of being locked into a single currency). There is and always was an alternative. Unfortunately we are run by blinkered ideologues.

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Frannie March 29, 2013 at 4:10 pm

George East……the country was not skint because Labour spent all the money. That, I am afraid, is another one of the self-serving stories that Lib Dems tell themselves. It is completely false.
The financial crisis of 2008-9 was caused by a deregulated and reckless banking sector,a sector which the Tories wanted to de-regulate even further…………..

Exactly! In fact just before the ‘crash’ George Osborne wrote an article, in the ‘Telegraph’ explaining how “He would match Labour’s spending”….However, a lie told often, and loudly, enough becomes the truth.

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Hugo March 26, 2013 at 1:13 pm

Statistics, especially when expressed as percentages are absolutely meaningless without the background data. 35.5% may indeed be a lower percentage of GDP but without knowing the actual GDP as a figure the 35.5% doesn’t mean anything. May I suggest that Brown spent 35.5% of a much much bigger number and a number that was greatly distorted by the tax revenues brought in from the City which we now know was quite simply inventing profits on future investments in order to justify obscene bonuses.

I’m all for a Scandinavian style approach to government but I doubt any party would he elected on a manifesto of a flat 40% income tax with no tax allowances for anyone. Not that I would be opposed to such a tax regime as I’m all for massive investment in public infrastructure and social welfare. However thanks to Thatcher and the manufacturer of the board game Monopoly we in the UK are averse to landing on income tax or paying for much needed property repairs.

To take further issue with your comment that the Blair / Brown spending as being perfectly affordable surely the fact that it cannot be afforded now with a budget deficit of £120 billion a year is demonstive of something that wasn’t affordable.

I find it impossible as a liberal with liberal attitudes and beliefs to debate whether I would prefer a labour or Tory coalition. Both labour and Tory have extremists with extremists views and no matter which party Clegg jumped into bed with the liberal’s would be equally unhappy with the more extreme attitudes.

Whilst Osbourne might have hung his political career on a triple A rating only to have decided it wasn’t important the second The rating was downgraded it cannot be sidelined as an irrelevance. Cheap credit is essential if the UK is going to borrow its way out of this depression. After all Osbourne has already successfully consolidated all his loans into one easy affordable loan payable over a longer period at a cheaper rate and can now report to the country that he has reduced the deficit.

Yes the financial crisis was a world crisis, yes the crash had nothing to do with Labour and was in no way because of labour policies and Gordon Brown is not these responsible for the trouble the world is now facing. But the spending even at 35.5% of GDP was only affordable whilst the good times looked like they would never end.

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Hugo March 26, 2013 at 1:32 pm

P.S. the use of statistics in an argument/debate is unfortunate for politicians use statistics as a drunk uses a lamp post, for support rather than illumination.

Here’s a topic for debate – the role of government is a logistical problem and not an economic problem. Economics is nothing more than the stud y of human behaviour and all humans have the same fundermental drive, the need to eat and sleep. No matter what catastrophe might strike the need for a human to make money will remain. The economy will always right itself and a hands off approach is, in my worthless opinion, the best approach. Government is about building a successful country and not a successful economy. Government is logistics.

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Ray_North March 26, 2013 at 1:42 pm

Hugo, though I agree that economics is not a pure science and is determined by many variables, some of which are difficult to predict – you can’t exactly divorce economic policy from the rest of public policy. I also have some sympathy with your view that you should have a ‘hands off’ approach to economics though, I would say that one should have a pragmatic, ideologically neutral approach to economics – competence is the key. Sadly, what we have at the present moment is a Chancellor who is both incompetent and driven by ideology, so, we’re fucked both ways!

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George_East March 26, 2013 at 2:15 pm

‘A hands off approach’ is exactly what Keynes was describing when he made his famous quote about ‘in the long run we are all dead’. It is the last thing we need. I am very surprised that you sympathise with that approach Ray.

Of course an economy will right itself eventually, human interaction has as part of its core economic activity (it is a process of exchange), but that doesn’t mean that a government should allow needless misery to be inflicted if it is able to act and it assuredly can. This was the lesson of the great depression of the 1930s. It is absolutely tragic how much we have unlearned in the intervening period.

It goes further than that too, as Brad Delong and Larry Summers have recently shown sustained periods of high unemployment have a permanent effect on the productive capacity of an economy and its long term growth rate (a concept known as hysteresis). Therefore doing something is not only a way of ensuring more short term misery on real people but also a way of reducing your economic performance in the future.

As for the use of statistics, you cannot make bold assertions about unaffordability and unsustainability of debt or public sector employment ratios without considering the actual data. If you don’t do so your argument is no more that, ‘I believe x because I do…’.

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Ray_North March 26, 2013 at 2:21 pm

Hmm, by ‘hands off’ – I make a distinction between those who have an ideological approach to economics – that is those who feel that come what may, we must roll back the state, or even, come what may, we must nationalise all private property and those who see economic policy as a tool of government – what I want to see is pragmatism and competence, so that your aim, which I entirely concur with, that is the distribution of resources for the common good, is achieved.

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George_East March 26, 2013 at 2:25 pm

‘Hand off’ is normally seen as a synonym for laissez-faire (they mean the same thing after all), which is essentially the Chicago School view. It is itself deeply ideological and fundamentally wrong.

Ray_North March 26, 2013 at 2:34 pm

As you know, I’m no proponent of the Chicago School of economics – I believe in the state provision of various public services and that the aim of government is to provide those public services – as such the most able government’s are surely those that are best equipped to deal with economic conditions without the encumbrance of ideological baggage. It is why, I believe that Alistair Darling was actually a very good Chancellor.
As I said, economic theory is a tool of government rather than an end to government in itself – and the tool is best used by someone who wields it (excuse the mixture of metaphors) in a competent and dispassionate way.

Hugo March 26, 2013 at 1:57 pm

Why can’t politics be divorced from economics? If government were to only involve itself in education, health and infrastructure whilst ensuring that it does not over commit itself on borrowing then an independent Bank of England can be left to moderate and facilitate the economy. After all local government doesn’t have an economic agenda.

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George_East March 26, 2013 at 2:19 pm

Because that would mean you would be left with monetary policy alone. The Bank of England has, to be fair to it, done its damndest on that front – by printing money at a rate as fast as the machines can manage, and by keeping base rates at 0.5% for an unprecedented 4 years.

Fiscal policy is inevitably the domain of government – otherwise how on earth can the public make choices about spending on ‘education, health and infrastructure’. Unfortunately our ideologically blinkered government no longer sees fiscal policy as a tool of economic management even though monetary policy has done pretty much all it can.

Of course local government has an economic agenda – it receives taxes (business rates/council tax), sets council taxes and decides how it should spend its revenues. It should have more freedom to do so, but that is another debate.

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George_East March 26, 2013 at 2:04 pm

But the absolute numbers don’t matter at all, that is the whole point. They are absolutely meaningless. As the economy grows total GDP is higher, it is then a question of how you divvy up the cake. Of course absolute spending under Blair/Brown was massively higher than it was in, say, the Second World War when debt to GDP ratios were 238%, but the public finances were far healthier.

Government spending as a percentage of GDP in the first part of the 00s was lower that it had been, for example, for almost the entirety of the 19th Century, when Britian is conventionally seen as being at its economic peak. The early 00s were, as a result, precisley the time to increase public spending, Brown even ran a surplus for a couple of years at the beginning of the decade paying debt down in absolute terms.

As Paul Krugman rightly observes the only country currently in economic crisis, where the cause of the crisis was its public finances, was Greece (and that was because it lied about the true numbers to get in the Euro).

Of course spending at 35.5% GDP is affordable, in good times or bad. It is a relative number and as I have said it is historically relatively low.

The more interesting question you raise is whether such spending is affordable when it is 80%+ of GDP, as it is now, as a result of two years of an economy which has, at best, flatlined. There is actually very little to believe that this is problematic (Japan’s ratio of GDP to debt is 227%, the US over 100%, both are able to achieve historic low yields on their Treasuries) and, of course, the UK itself has for sustained periods ran far higher debt to GDP ratios.

Of course the deficit must be dealt with over time , but it is all a question of timing and dealing with the deficit is likely to take a hell of a lot longer if you pursue policies which sabotage the income line of your annual accounts. The deficit in the US is now coming down and it did not go down the austerity route. The reason for this is that the economy is now growing relatively strongly.

UK treasuries have been at very low yields throughout the crisis – it has nothing to do with Osborne, other than to the extent that the economy is now seen as so weak that they are seen as the only safe haven. This is another one of the absurd ways in which the Tories try to spin failure into success.

My point on Sweden was that you said that ‘no country can afford 25% of the working population in the public sector. The maths doesn’t work’. The answer to that is they can, they do and the maths works perfectly well. According to the International Labor Organisation, public sector employment represents about 28% of global employment.

What you are now saying in your latest comment is a question of political choice – and that is a different matter entirely. If your position, as a matter of ideology, is that you think that debt to GDP should be less than 35%, or that the public sector should be less than 25% of the total workforce, or whatever, then fair enough, but you should not try to justify it in terms of ‘there is no alternative’, or ‘x is unsustainable’, as the historical and comparative data is wholly against you.

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Hugo March 26, 2013 at 3:18 pm

The fundamental human need to eat is unfortunately going to mean that I have to stop debating and get on with some work. However, returning to what Clegg should have done and whether the liberals should be backing the Osbourne road map for recovery, I stand by my remarks that no matter which party, labour or Tory we would be in exactly the same mess. Lets not forget that Osbourne’s austerity measures haven’t actually been implemented yet. Public sector job losses are yet to take place.

The UK economy is smoke and mirrors with a balance of trade deficits year on year. Japan is screwed with an ageing population and a welfare state it can no longer afford. The US gets to keep a strong currency and therefore high borrowing despite its pitiful economy because the world buys dollars to trade oil. Likewise the GB economy of the late 18 hundreds up to the end of the Second World War could have massive debt because at that time the Pound was the currency of international trade, something the US forced us to give up as part of the Special Relationship. Again you are using statistics for support and not for illumination.

I would like to agree with you that the current borrowings of 35,5% of GDP and now 80% of GDP are affordable but the existence of a £120 billion deficit on repayments each year suggests otherwise. Why if it was affordable would there be a deficit. If we could pay the extra £120 billion each year just to maintain the interest on the loans then surely we would be paying it back.

Osbourn is a plonker with no clue to what he is doing and driven by desire to emulate the Thatcher years. Ed Balls on the other hand has proved himself useless as a shadow chancellor as he can do is repeatedly state that he would not have implemented the spending cuts that the Labour party had committed themselves to when they were in office.

It’s time for a change!!!

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George_East March 26, 2013 at 7:18 pm

Hugo, agreed – a man’s gotta eat.

It is true that many of the austerity measures are yet to come, but others have plainly been implemented – the end of the school building programme, increasing VAT to 20%, the freeze in benefit uprating etc. Every one of them sucking large amounts of demand out of the ecomony.

Further, it is truly moronic to go around as Chancellor spouting nonsense about how we are on the verge of Greek style economic collapse, as people might believe you and you will then have a crisis in confidence which leads to reduced spending and demand.

On Ed Balls, he has actually made the one sensible speech in response to the economic crisis by a major politician since the election, which was his Bloomberg speech in August 2010 when he was a candidate for the leadership. If you get a chance look it up – it is spot on. Since he has been shadow chancellor, not so much.

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George_East March 26, 2013 at 7:22 pm

Oh and on the deficit point, deficit financing in a recession is actually pretty conventional economics. You need to borrow more in the short term to maintain aggregate demand, which will lead to lower borrowing in the medium term. The critical thing with the deficit is that it comes down over the medium and longer term, for now let it rise if it fixes the economy.

The ‘deficit’ is something which has become the ultimate bogey man – something to scare children with. There is a deficit in any one year because of an excess of spending over income. That requires further borrowing which adds to government debt. But unless that debt is at a level where its servicing becomes unaffordable it doesn’t matter a great deal. You cannot go on increasing it indefinitely but as Jonathan Portes has observed the deficit at the moment is probably actually too small not too large.

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nvelope2003 March 26, 2013 at 4:13 pm

What a wonderful thing is hindsight.

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Ray_North March 26, 2013 at 4:55 pm

Actually Nvelope, in this instance, there is a difference between hindsight and something that is reasonably foreseeable – I remember saying to Lib-Dems at the time, that if they pursued this course of action they would be putting the economy back into recession and their own party in meltdown. I don’t like saying ‘I told you so…… but…’

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