Lessons of Coalition (15): what do the Lib Dems need to learn from the first 3 years?

ldv coalition lessonsLibDemVoice is running a daily feature, ‘Lessons of Coalition’, to assess the major do’s and don’ts learned from our experience of the first 3 years in government. Reader contributions are welcome, either as comments or posts. The word limit is no more than 450 words, and please focus on just one lesson you think the party needs to learn. Simply email your submission to [email protected] Today Richard Flowers shares his thoughts.

The Economy (it’s too soon to say)

Three years into a five-year fixed Parliament, with the economy showing tremulous signs of growth, and we’re all very keen to pass judgement: “austerity has failed” or “the medicine is working”.

The rolling 24-hour news cycle, newspaper deadlines, and election timetables demand instant analysis. People need to try to understand the chaotic world and events that surround them so Parties, commentators and analysts must continue to supply answers.

But don’t confuse that with the truth. Most people may accept the news cycle agenda, but it’s totally useless for measuring real economic changes or even political ones.

The problems of our economy, from “bonus culture” in the banks to failure to invest in housing, are problems of “short-termism”, and even three years is very short term when looking at the macro-economy.

We should be asking ourselves: “What are the Liberal Democrats trying to achieve in the long-term?”

I would suggest that our ongoing aims ought to include (but not be limited to):

(1) A sustainable (green) economy, that is in a position to reduce the impact of both booms and busts.
(2) A political system that responds more fairly to what people want.
(3) A state that maximises opportunity and minimises intrusion.

It’s very easy to say now with hindsight that we see that the Labour Government was incredibly profligate, running a deficit during the biggest boom in history, but it’s important to remember that very few voices (honourable mention to Vince Cable) were saying that at the time. People couldn’t see it not because they were stupid or selfish or deliberately obdurate, but because it’s very difficult to make good judgements when you are so close to the data.

The Coalition is keen to claim credit for the economy while Labour wants to pile on the accusations of failure. Signs of growth, lower inflation, low interest rates and no big spike in unemployment versus the biggest fall in living standards in the developed world and the economy still not back to pre-2008 levels.

The sad truth, however, is that almost nothing that the Chancellor (any Chancellor) can do will have any effect within the lifetime of even a five-year Parliament.

The changes to government spending are simply not big enough nor fast enough to have any major short-term impact. Cumulatively, sure, they represent a marked change of direction, but not a quick one. The Coalition neither caused nor cured the recession.

The true test of the Coalition’s stewardship of the economy will be in the next five to 10 years, and will be determined not just by whether growth continues and strengthens or remains faltering, but also whether the Treasury is able to balance the books in proper Keynesian fashion, by running surpluses as the economy recovers, or returns to the Gordon-omics of borrow and spend, and whether the reduction in income inequality is sustained – something, I suspect, will require a continued Liberal Democrat presence in the Treasury to ensure.

Previously Published:

Stephen Tall: Stronger policy development and campaigning on issues that matter to the public (AKA where’s our liberal equivalent of the benefits cap?)

Mark Valladares: Better party communications responding to the realities of governing

Gareth Epps: Government: What’s Occurrin?

Nick Thornsby: Making a success of coalition government as a concept

Caron Lindsay: That old “walk a mile in each others’ shoes” thing works

Louise Shaw: One member, one vote for all party elections

Mark Pack: The invisible ministers should up their game, or be sacked

Robin McGhee: We should organise ministers better

Rob Parsons: Understand the mechanics of government

Richard Morris: Make the red lines deeper and wider

Bill le Breton: The Open Coalition and Its Enemies

Patrick Murray: Make sure our policies are reflected in our manifesto

David Allen: If It Won’t Work, Walk

Joe Otten: Government is hard

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4 Comments

  • David Allen 14th Aug '13 - 5:10pm

    The digested read – If it’s the economy, you’re the one who’s stupid!

    To explain my slightly cryptic one-liner: As the author rightly implies, it’s all too easy for the voters to get it wrong, favouring bad economic management that has produced a bubble, for example.

    Equally, the textbook way for a cynical politician to survive when times are hard and a bubble can’t be manufactured would be (a) blame the previous lot, (b) in order to make sure the previous lot get the blame, exaggerate the problem rather than trying to overcome it, and (c) blame the previous lot again and again. Which,of course, is just what Osborne has done.

    The voters should be taught not to judge a government on the basis of the state of the economy. They should judge it in terms of how they run the government – e.g. green versus cheap-fuel, statist versus free-enterprise, listening versus controlling, etcetera. Issues like these are sensible criteria for choice. Liking being in a bubble is not.

  • Simple, you lose votes and seats at a prodigious rate. Sad and I am a supporter of the coalition, but we have to face facts, It is worth having a look at Harry Hayfields presentation today on Political Betting. Mid Dorset appears lost next time. Will the party have double figure MPs next time, it is very doubtful, in which case who would want us in a coalition!!!!!! Need a change of style, presentation, figurehead and a properly timed break from the coalition, like next week.

  • Richard Flowers wrote, “the Labour Government was incredibly profligate, running a deficit during the biggest boom in history”. I hope he can post data to support this assertion. Was it the biggest boom because economic growth was faster than it was ever in the past? Was it the biggest boom because the number of unemployed fell to its lowest point in history? Was it because while economic growth was poor it was continuous for more years than in history? (For information: There were budget surpluses in 1998-99, 1999-2000 and 2000-01.)

    I would argue that with unemployment at 5% this meant that there was still share capacity in the economy and aggregate demand was not at it maximum level and therefore running a deficit to try to get aggregate demand higher and to use more of the unemployed resources should not be seen as a bad thing. As far as I know there is no agreement on the level of unemployment that means there is only frictional unemployment in the economy.

    Richard Flowers wrote, “The sad truth, however, is that almost nothing that the Chancellor (any Chancellor) can do will have any effect within the lifetime of even a five-year Parliament.” The multiplier does exist and it doesn’t take five years for some of its effect to be seen. The government could spend £40 billion to boost the economy and this would have an effect within one year. (The government budget deficit was increased by £60.6b and £61.4b between one year and the next in recent years. It could be said that these did have an effect on the economy.)

    Richard Flowers wrote, “The Coalition neither caused nor cured the recession.” By reducing the deficit in 2010-11 by £17.9b and in 20011-12 by £20b they reduced aggregate demand and turned off the stimulus and maybe cause the negative growth in the fourth quarter of 2010 and over the New Year and spring of 2011-12.

    Therefore to state that the government can’t effect growth in the economy over periods of less than five years is rubbish and it is not borne out by the facts.

    However for the general public generally I expect what matters to them is their living standards and if over a parliament they feel better off then they will see that the government has done a good job unless there was an issue more important than the economy during that time.

    The lessons for the Liberal Democrats on the economy are:
    Recognise that the UK is not Greece or Spain and we can survive without a triple A rating;
    Understand that after a banking crisis you can’t stimulate the economy by giving money to the banks;
    Understand that cutting government capital investment in a recession deflates the economy;
    Recognise that the economy can be stimulated by increasing the money supply only when the money goes to organisations who will spend it;
    Recognise that making government employees redundant does not rebalance the economy.

    I expect I have missed some.

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