Political Promise

Why I am NOT right behind David Cameron

In Ani Mathur, Charlie Edwards on November 17, 2010 at 9:52 am

Ani Mathur read Charlie’s article yesterday and disagrees. Here is his reply:

Personally, Cameron strikes me as a man of relative integrity. He’s not a fundamentally bad man, as some might portray him to be, even if he is aloof. But thus far, his tenure has left a lot to be desired.

The biggest issue first: our fiscal position. Deficit deficit deficit. The ringing buzz-word of recent history and the biggest topic for a generation. The choices made now have to be right – and they’re not. It is perhaps one of the most impressive acts of politics, by which Cameron and his team managed to convince such a large proportion of our public that we face Armageddon. Making some initial cuts to placate the bond markets was in practical terms a necessary step. The ratings agencies, over-zealous after their ineptitude in the build up to the financial crisis, required some indication of action, to stop them reducing our rating which would thus increase borrowing costs. Additionally, given the panic regarding sovereign debt due to the Greek situation, which was at its height in May, some cuts were necessary as an overt indication that Britain was in no way Greece. Whilst this is obvious, given Britain’s ability to collect tax and historical financial stability, (and shame on Cameron for so often using the Greek comparison), panicking investors sometimes need strong signals to calm them down, justifying some early cuts.

Yet after this initial act is where Cameron got it wrong. Not only was continuing to cut brutally in a time of weak growth economically unsound, it was ideologically motivated.

Economically, to start on such a programme at a time of weak international growth whilst stubbornly refusing to develop backups indicates not only a false belief of infallibility but callousness as well. It is noticeable that the IMF, who Cameron lauded as supporters after they initially supported deficit reduction, became much more equivocal in support after greater details of plans were released, and further, strongly recommended the need for a backup.

If something goes wrong during cuts we have two methods of re-inflating our economy, fiscal policy (relating to government spending, taxation and borrowing) and monetary policy (relating to the control of the money supply by the Bank of England) – and monetary policy is largely out. With real interest rates negative, the only other option is quantitative easing – better than nothing, yet still highly inadequate given its questionable benefits the last time it was used. We are currently in a liquidity trap – this means government spending and support is the only way forward if something goes wrong. Government has to have a backup in case it is needed. But anyway, even beside a backup, why not get it right first time round? Instead of taking the risk of renewed recession, why not continue support now until the economy stabilises, and then consolidate public finances (which is at some point necessary, just not now).

We are not on ‘the brink,’ or facing Armageddon. The bond markets are calm – costs of borrowing have fallen. The aftermath of the comprehensive spending review helped this, but even before, borrowing costs were reasonable. Additionally, when we actually look at the key economic indicators in their context, whilst consolidation is eventually necessary, we’re not doing too badly. Our Debt to GDP ratio is historically low and internationally sound (lower than Germany’s). It has exceeded 40% of GDP (the level Brown impractically ‘committed’ to) at 68.1%, but if we stuck to a target of 40%, forget ‘The Great Recession,’ we’d have seen ‘The Depression: II.’ We have time.

Enter the ideological aspect. I do not think Cameron is a Thatcherite – he is not. However, this does not mean elements of ideology do not underpin his actions. In his own words, “there is such a thing as society; it’s just not the same thing as the state.” In essence, this is the guiding principle of Cameron’s operation. Not just rolling back the state on its own, but rolling forward society whilst the state rolls back. Doing this, we avoid social unrest and upheaval. The ‘big society’ replaces the ‘big state.’

Maybe, if times are good and things look up. It’s interesting to note another great believer in this philanthropic ideal of society replacing state was Herbert Hoover, who tried similar policies during his tenure before the depression. Unsurprisingly, during the bad times philanthropy did not take on the role it might have done during the good times.  The state couldn’t execute its necessary functions and society refused to budge forward to try and take up the slack. Social upheaval ensued – a terrible situation. I sincerely hope Cameron has better luck.

The nature of the cuts made, not just the timing, is the other main reason why I am not right behind Cameron. I take the expertise of the Institute of Fiscal Studies slightly more seriously than the whining of Nick Clegg regarding ‘fairness.’ Regressive were the labels assigned to cuts and regressive they were. Housing benefit reforms will merely exacerbate urban inequality – I never thought I’d say it, but BoJo was right about what the effects on London will be. And whilst there might be elements of welfare dependency in some areas, will cutting spending in areas such as the North East, and decreasing available jobs, really be helpful in helping people to gain employment? Sufficient jobs must exist for dependency cultures to end. I find it particularly insidious that after cutting spending on welfare allowances, legal aid to court cases regarding welfare being cut was in itself cut. And VAT, something both Cameron and Clegg identified as regressive, increasing? This is just the tip of the iceberg – the nature of the cuts deserves more space than I have to write about.

Whilst the deficit and cuts are unsurprisingly the predominant areas of my focus, Cameron hasn’t particularly been a class act regarding other issues. Parliamentary reform is superficial and his desire to reduce the number of Common’s seats is incredibly partisan – it will disproportionately benefit conservative MPs. Respectably he’s seen the fallacy of arbitrary immigration caps, and his foreign engagements have been beneficial. Moving the FSA’s regulatory capacity to the Bank of England is also a sensible step. However, his banking reform is substandard – not having more seriously looked into separation of ‘traditional’ and ‘investment (casino)’ banking functions will be a long-term mistake.

For most of what I say I hope I can look back on this and sigh in relief at being wrong – that cutting now will actually not cause problems. That the nature of cuts will not cause a lost generation or significant social unrest. Things may well pan out that way.  However, the risk regarding a double-dip is not worth taking –buttress the economy now, consolidate later. Although he once said he wished to “sweep away the rotten edifice of government” Cameron is sweeping away ripening or healthy aspects – cutting loans to industries of tomorrow such as Sheffield Forgemasters? Sweeping away a rotten edifice of government? Really? And yes, whilst Labour might not have come up with fully formed policy, I am pretty sure they will do much sooner than Cameron was able to ‘stand’ for something after taking helm all those years ago.

I suppose we’ll just have to wait and see.

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