More flack for George Osborne in the Sunday papers

David Smith is economics editor at the Sunday Times and today he writes of George Osborne:

Every day, sometimes on several occasions, an e-mail arrives in my inbox on behalf of George Osborne, the Conservative shadow chancellor.

Issued in response to a minor economic indicator or flaky forecast, these missives, apart from rather demeaning the office of shadow chancellor, are usually harmless enough and can be safely ignored.

Last week, however, came one that summed up the Tory problem: opposition by soundbite. For weeks, a debate has raged about whether central banks should engage in “quantitative easing”, the technique employed by the Japanese authorities in 2001-6 to lift their economy out of stagnation and deflation.

The US Federal Reserve, cutting its Fed Funds rate to a 0%-0.25% range last month, signalled that it would formalise quantitative easing. Once you are at zero, you need other measures. Quantitative easing is often described as “printing money”, though it is not. More on this in a moment.

When, in an interview, Alistair Darling, the chancellor, confirmed that the Treasury and Bank of England were considering quantitative easing, as widely reported in recent weeks, Osborne was on the case.

“The very fact that the Treasury is speculating about printing money shows that Gordon Brown has led Britain to the brink of bankruptcy,” he railed. “Printing money is the last resort of desperate governments when all other policies have failed. It can’t be ruled out as a last resort in the fight against deflation, but in the end printing money risks losing control of inflation and all the economic problems that high inflation brings.”

This was a silly soundbite. Apart from Fed chief Ben Bernanke, the case for quantitative easing is being pushed by most economists who think the money supply matters, which should be the Tory position.

It is favoured, for example, by the shadow monetary policy committee, which meets under the auspices of the Institute of Economic Affairs, the favourite think tank of Margaret Thatcher and her former economic adviser, the late Sir Alan Walters.

Osborne and his leader, David Cameron, have had a bad crisis.

The piece continues here (along with praise for Vince Cable).

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4 Comments

  • David Evans 11th Jan '09 - 3:33pm

    Another good post for Vince. However, it is a real shame we don’t seem able to exploit it in the polls.

    One thing that is very interesting to see how economists choose obscure terms wherever possible to obscure the truth and make it all seem very complicated. Printing money is exactly what the term “Quantitative easing” is meant to hide. Whatever form it takes, the government increases its debt without an increase in assets. Whether it is a new lot of fivers or just an extra debit in the books of account, it is a debt that is unfunded and will have to be paid back, by us all either through a deflationary budget surplus, or higher inflation.

  • Andrew Duffield 11th Jan '09 - 4:09pm

    Direct creation of the national currency by government, spending it into circulation via capital investment, is not “debt” but credit – and interest free credit too. Whatever term you care to use, a boost to the money supply in this way is exactly what is needed now.

    Only when government borrows privately created sterling from the commercial banks does it amount to “debt” – to be paid back with interest of course. That is the prime cause of inflation – not debt-free public money.

    Bankers will swear otherwise naturally, but they have a vested interest (literally) in maintaining their tax-free currency creating monopoly – and in fleecing us all the privilege.

  • The piece certainly mentions Mr Cable but his praise seems to be more for the manner (a doctor) of Mr Cable than his views.

    Have there been any focus groups reporting on how voters see the Lib Dems in economic terms? If so, perhaps more emphasis should be placed on getting voters to see the party as a good choice for economics

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