Opinion: If you go down to the woods today…

At the end of the thread to my last offering there was an invitation from Mark Wright to comment on whether I still thought our conference was a disaster. Yes, I do Mark; I know it was; day by day I grow more and more certain.

My case was never based on poll performance (especially during the conference season) and Sunday’s new ComRes poll with its CON 40% (+2), LAB 28% (+5), LDEM 19% (-4) figures should remind us why. No, for me the evaluation was always to do with lost opportunities. May I try to explain my reasoning?

Back in the early 1990s and after years and years of boom and bust – we were in bust mode at the time – I found a newspaper chart showing the relationship between inflation and national product going back over a couple of centuries. Booms and busts littered the graph from the Napoleonic wars to the present. But there on the chart during the 1890s, yes the 1890s not the 1980s, was this long period of low inflation and steadily rising wealth. Shangri La!

I just had a hunch and at that precise moment I began to have this strange feeling. Bumps appeared on my forehead, I found my muscles tightening and my toes changing into hooves. I was turning into a bull. I started doing things that I’d never done before, like buying shares and property.

About three years ago I was at a raging bulls’ party. You know the sort of thing, lots of stomping, noise, testosterone. But I didn’t feel right. I nipped into the lavatory and looked into the mirror. My beautiful horns and hooves were disappearing. Claws, a big black shiny nose and a wicked appetite for raw salmon were overwhelming me. Even my partner noticed. “You’ve changed. You were always so optimistic, now you’re a bear.”

I sold my shares and property. You won’t believe the price I got for those banks! I bought a lot of gold and a forest in Ohio with a river running through it. That’s why you haven’t seen me around for some time.

On a windless day I can look into a pool of mountain water and see that “I’M STILL A ROARING BEAR!”

This is how we see things in the forest (and I’m grateful for the thoughts of a neighbour, Robert Reich, the US of A’s 22nd Secretary of Labour and Professor at the University of Californ-I-A, Berkeley).

Unemployment is rising steeply and is set to do so for some considerable time. Think of a figure and double it if the Conservatives win next year; or have a look at what Heath and Barber did before their U-turn.

As Reich says, “And for every person who shows up as unemployed in the Bureau of Labor Statistics’ household survey, you can bet there’s another either too discouraged to look for work or working part time who’d rather have a full-time job or else taking home less pay than before… And there’s yet another person who’s more fearful that he or she will be next to lose a job.”

That is a lot of sleepless nights, a lot of stress and strain, nervous breakdowns, angst, lost freedoms and life chances. Oh, and a lot more paying down debt and scrimping and saving.

Recently the odd bear has left the forest and nipped into the City to buy a few shares, but more and more of them are returning to the wild wood with a sack or two more of gold and an extra acre or two of prime forest. So don’t be fooled into thinking the economy is out of the woods yet.

When the Japanese were in this dark place a few years ago they called it their “Lost Decade.” It’s a very scary place to be and it is where things don’t work out the way you’d think they should. For one thing, as the freethinking economist Giles Wilkes illustrates with some salmon tasting charts in a posting called How Cutting the Deficit Can Increase the Deficit, cutting the deficit can increase the deficit. No, really, that’s not a typo. Read it again.

Maybe that’s why old Reich stood up on his hind legs the other day and roared, “Let me say this as clearly and forcefully as I can: The federal government should be spending even more than it already is on roads and bridges and schools and parks and everything else we need. It should make up for cutbacks at the state level, and then some. This is the only way to put Americans back to work. We did it during the Depression. It was called the WPA.”
Now that was reminiscent of remarks this old bear made in a post made here in July:

The slump continues. Borrowing is not a problem. Borrowing and other means of creating money by governments is still necessary at this time to counter the destruction of money that occurs when other sectors save more than they borrow and when the velocity of money falls. Demand remains the problem. Expansionary monetary and fiscal policy remains the answer.

But there were some pretty sarcastic comments to that along the lines of “Yeh! Why worry about debt and just keep borrowing. Well argued. Winking smiley here.”

Well, this is what Reich says when he hears that that kind of thing, “When I was a small boy my father told me that I and my kids and my grand-kids would be paying down the debt created by Franklin D. Roosevelt during the Depression and World War II. … My father was right about a lot of things, but he was wrong about this. America paid down FDR’s debt in the 1950s, when Americans went back to work, when the economy was growing again… We paid taxes, and in a few years that FDR debt had shrunk to almost nothing.”

There are two important points to make. First, we bears are betting the recession is not V shaped and is at least a double dipper. (Industrial production dropped by 2.5% in August.) The only significant agent in the economy that can buy enough of the goods and services we could produce here is the Government. Cutting public expenditure in the near-term will stall any recovery that may have been achieved by recent fiscal and monetary programmes. What mainstream politicians from Cameron to Clegg and now Brown (with Mandelson’s arm somewhere grim) are saying will drive the economy off a cliff.

Secondly, it is not helpful to label this argument Keynesian or that of the social liberals. Cable’s recent article confirms that Keynes and Friedman would have advocated similar policies over the last 12 months. Many of us bears come to our conclusion based on the money supply. It’s vanishing. Sure, there’s quantitative easing but the banks are hoarding the stuff. It is not getting through to spenders. Every time someone pays down debt, more of it disappears and with it the opportunity to buy things. Have a look at this article from the Economist with some diagrams from the Bank of England showing the money supply heading south.

Recall: where we are now cutting, the deficit will increase. All this provides a fantastic political opportunity for anyone who sees all this, warns about the dangers and campaigns for remedial action.

I do not underestimate the political challenge this very difficult message sets us. It probably needs someone with the stature of an FDR or, closer to home, a David Lloyd-George. But it gives us a clear and distinct reason to vote for us.

Cameron is surging forward but, as the Populus poll on leader image versus party image shows, he is where he is not because of his toughness on public spending but because of his special ability to reassure voters that he can make cuts that will protect public services and to ensure that the best off bear their share of the pain. In contrast, the Conservative Party does very poorly on both these issues. Cameron’s is a truly remarkable feat. We cannot compete with that ability, which adds an electoral reason to the economic reason for staying off that ground.

The Populus findings set the political battleground for the near-term campaign between the Tories and Labour. Labour will spend all their energy endeavouring to persuade voters that Cameron is more like his party, while Cameron will spend his resources trying to reassure voters that his party is now like him.

This leaves us with a major opportunity to reach out both to Labour voters and to voters who Labour have persuaded that Cameron is like his party. Labour is stuffed.

If we cease trying to outdo the Tories on deficit reduction and cuts, and start attacking them for endangering the economy, the recovery, the security of savings and jobs, we could see the kind of political changes that occurred in the 1920s. Even from where we are now you can see 50 Labour-held seats that are vulnerable to us. Change the direction of our campaigning in this way and another 50 or more open up to us and the seats we are defending become much easier to defend.

By setting ourselves free from the wrong economic analysis and the wrong political strategy, we’d be able to campaign for a Liberal Democrat Budget for July 2010 that could introduce the infrastructure, skills and communications projects that would reform the UK’s post recession competitiveness and sustainability; provide the life chances and opportunities that are necessary to keep our potentially divided communities together while destroying the forces of conformity; and stimulate the active citizenship that would eliminate dependency and transform the relationship that people have with their state.

This would take a lot of self confidence from the leadership, but in someone with the platform Cable has built for financial prescience, the argument would be heard. Then Clegg is an ideal person to come along with the ‘my generation’s big vision of a new country’ stuff.

I may be a bear on the economy, but who said I was a bear on the politics?

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This entry was posted in Op-eds.


  • The problem with your comparison is that in the 1930s The USA wasnt simply the largest economy in the world, in terms of capacity it was as big as the rest of the planet put together. Add to that the almighty Dollar, the reserve currency for just about everywhere.
    The UK is a small economy between 2 large ones, with a small currency & theres a real danger that if we run up too much debt the result would be a self-generating run on the Pound.
    Paying off the debt too quickly could be disastrous, so could not paying it off, we dont have any safe options.

  • Bill le Breton 15th Oct '09 - 10:05am


    I do not underestimate the difficulty of exposing Tory economic policy as the greatest danger to this country in many years – especially as for Clegg it would look a reverse from his Bournemouth position – but I think that in Vince Cable we have a person with the reputation and economic literacy to do this.

    For those who are ‘alive’ to this danger, we have a moral obligation to act. The question is, “Is Cable Alive to It?” If not, how can we persuade him of the danger, the obligation and his destiny?

    You suggest that the 1950s may be a misleading comparison – “demographically, in terms of technological catchup, supressed demand (all those War years).” The 2010s you assert will not be the same. I take it from this that you fear that economic recovery when it comes will not be strong enough to ‘digest’ the debt levels some of us argue are necessary to forestall further decline.

    I am watching closely the figures from Intel which also serves to remind me of Gordon E Moore’s formula. The technological catch-up required after just two years of suppressed high tech investment will be many times greater than even the stimulus following ‘all those war years’.

    The multiplier and the accelerator will be of a different order – provided the liquidity is there. So where’s that promised piece on QE or, even better, on how to ensure that the money supply is sufficient to enable recovery?


  • Bill – is that a Breton Wood?

    I’ll get me coat ….

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