The battle lines deepen
George Osbourne’s speech today marks a very clear dividing line between the government (with the Lib Dems) and the Conservatives.
In his interview on the Today programme he has clearly lined up the Conservative Party in opposition to a Keynesian response to recession. Indeed he used ‘Keynesian’ as a term of abuse and said:
“You can’t spend your way out of recession.”
This is very redolent of the arguments that used to take place during the early 1980s recession. Labour’s Jim Callaghan was the first to use this argument in a speech setting a strategy that did not result in a Labour victory at the 1979 election. But it was Mrs Thatcher and Sir Geoffrey Howe who practised the full-blooded monetarism that raised taxes, cut spending and saw record levels of unemployment.
Labour of course was too busy having an internal civil war to mount an effective critique, and in any case even those arguing policy rather than party structures were divided three ways. There were the Keynesians, those who tacitly accepted a monetarist approach and those continuing to argue for an alternative economic strategy based on import controls and a high degree of state intervention and control. (See this (pdf) for a flashback to the kind of arguments that went on then on the left – though whether it conjures up nostalgia or embarassment among those old enough to have been there would be an interesting question!).
But back to today. Osborne both opposes further government spending and borrowing and advocates tax cuts – in particular a council tax freeze and cuts in payroll taxes (presumably NI contributions for small businesses). As Vince Cable has pointed out, there is an inconsistency here – unless of course Osborne has big immediate spending cuts up his sleeve. Forcing local authorities to implement these could be one way of paying for a council tax freeze – though the current state of local government means that it would mainly be Conservative councils implementing such cuts.
Unemployment is set to increase, thus pushing up benefits spending, and the tax take will just as inevitably fall, it will be impossible to avoid government borrowing going up unless taxes increase or spending is cut.
But if either happens it will make the recession worse and unemployment go up even more, which in turn will increase government spending and reduce the tax take, so to keep borrowing down …
This is what geeks would call a recursive process. I think I’d call it a deeper than necessary recession and avoidable mass unemployment.
The phrase that most brings back previous recessions to me is Norman Lamont’s “unemployment is a price well worth paying”. George Osborne looks suspiciously Lamont-lite today.