Anatole Kaletsky writes in The Times:
The Tories have chosen this moment to self-destruct, leaving no plausible alternative to Labour, and nobody, apart from the redoubtable Vince Cable, to challenge Mr Brown’s delusions of grandeur – or potential economic misjudgments.
Talleyrand’s famous remark about the House of Bourbon – that they had “learnt nothing and forgotten nothing” – seems to apply with equal force to David Cameron’s Conservatives after their repeated decapitations since 1992.
Last week George Osborne showed that he had learnt nothing, by foolishly identifying the recent weakness of sterling with the alleged weakness of the British economy and the Government’s fiscal policy. In fact, the pound’s decline is not a problem but a solution. It follows naturally from the Bank of England’s aggressive rate cuts and the monetary freedom that Britain retained by staying out of the euro. This precious freedom is now reflected in the highly competitive exchange rate and ultra-low interest rates that will help to lay the foundations for recovery, just as they did in 1994-95 and 1983-84.
This week, Mr Cameron showed that he had forgotten nothing by suddenly reverting to the policies of John Major – not just the “strong sterling” totem, but the whole package, complete with empty promises of fiscal restraint, warnings about a “Labour tax bombshell” and contempt for Keynesian economics. These were policies that Mr Cameron used to advocate when he worked for Norman Lamont. The leader of the Tory “modernisers” was supposed to have forgotten all this nonsense when he left the side of the former Chancellor on Black Wednesday, but he has now reverted to type…
Unfortunately for the Tories, their policies are thoroughly bad economics.
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13 Comments
Anatole is right that a weak pound is very much part of the solution. It will help exporters and those who compete with imports (univs are seeing a rise in applications from abroad, because our courses are now cheaper in applicant’s home currencies). It also makes deflation less likely (and explains in part why petrol prices have not come down as quickly – the £ price of oil has fallen less than the $ price).
A weak £ after we left the gold standard in the early 1930s, allied to 2% base rate for years, was how Britain got out of the great depression.
BUT events of the last few months should make those of us who were keen on Britain joining the Euro – and I was one – think hard about whether giving up the ability to see the £ depreciate sensibly in circumstances like this is something we want to give up.
It also means that we might not need a fiscal boost – which has to be repaid. Falling interest rates and a falling £ both increase demand.
This post points once again to what should be our main focus. We should forget Labour, who have their own problems but who are currently doing okay. The Tories should be in our cross-hairs as they have performed appallingly in the first real crisis of Dave’s time as Tory leader.
What is sad, is that the current financial crisis was caused by American politician by increasing government intervention in housing markets. Of course they didn’t admit that it was their failure, but populistically blamed the markets. And now other politicians in other countries, who were fooled by the Americans, want to solve the problem by increasing intervention even more, and are turning to Keynes, whose policies caused problems to many economies during the 70’s. But so short is the memory of a politician…
Once again, Keynes’ name is being taken in vain. His policies didn’t fail, politicians’ interpretation of his policies did. He promoted short term intervention when times are hard, just as they are now. The problem was that politicians from 1945 onwards got used to the idea of putting public money into the economy and didn’t know when or how to stop.
“His policies didn’t fail, politicians’ interpretation of his policies did.”
That sounds more like a religious dogma than a well grounded argument. How often have I heard the same claim about Karl Marx.
Well it’s true about Marx, who shouldn’t be blamed for Marxism!
“A weak £ after we left the gold standard in the early 1930s, allied to 2% base rate for years, was how Britain got out of the great depression.”
I thought it was Mr Hitler & co. that had more to do with it quite honestly…
A weak pound is irritating for all of us that have been ordering stuff from the US for 2 years!
The current crisis was caused by a variety of factors, one of which was poor quality loans in the USA. But no-one in the UK was forced to take on the risk of those loans, financial institution decided to do so on their own, that’s pure free market.
The unfeasible rise in house prices in this country was bound to lead to a crash, that financial institutions seemed not to have put this into their business models is a big failure on their part.
Perhaps had there been in the past more warning about the risks of mortgage-supported owner occupation, we wouldn’t have got quite so far into this mess. But I rather recall those who were most keen on the free market were mad keen on everyone being a home owner, and were forcing it on people for whom it was too big a risk. Were you, Mr Anonymous, warning against the dangers of the “Right to Buy” in recent decades? I think not, anyone who uttered the mildest criticism was condemned as a throwback to 1970s socialism.
So, with housing in this country, we cut down the safety net, and made the tight-rope higher and more slippery to walk across, tying people together as they walked across it, and told them it was all in the name of freedom.
As I said somewhere else, who is more free – the man in the council house, or the man whose home gets repossessed after two months’ missed mortgage payment?
Keynes had sensible ideas but, as with all such ideas they need to be interpreted and applied sensibly as well. Politicians in the post-war period simply got lazy. My comments are not ‘religious’, just sensible opinions based on, er, what happened.
As to Marx, most people have now concluded that much of his analysis was excellent but his ‘answers’ to the ills of capitalism were pants.
Add in a bunch of Russian lunatics – not to mention a good seasoning of midddle class English people with too much time on their hands but with the reassurance that daddy or the estate in Oxfordshire will bail them out if all this ‘communism’ malarkey goes tits up – and you’ve got a ready made disaster.
Matthew Huntbach hit the nail on the head. Yes they encouraged Freddie and Fanny to give out easy credit but no-one forced our financial sector to jump into bed with the std ridden whore.
If having your opinion poll ratings 8% higher on average than the last General Election is “Implosion” then what is having your rating 7% to 8% down on the last General Election?
One of the persistant delusions that has dominated much of the party’s thinking of the last 3 years is that the Conservatives relative recovery isn’t real. Its a speculative bubble and eventually all right thinking people will eventually have the scales fall from there eyes.
I thought Henley had finally knocked the stuffing out of this point of view but it seems its back.
The Conservative Party is Western Europes most successful electoral force with a constant talent for renewal and reinvention. If the party’s response to this current bout is to shove its head back in the sand and tell its self that no one will vote for George Osbourne then there is trouble ahead.
“…If the party’s response to this current bout is to shove its head back in the sand and tell its self that no one will vote for George Osbourne then there is trouble ahead….”
Sorry David, I don’t know anyone who takes George Osbourne seriously as a politican. If anyone is coasting along thinking their poll-ratings will last at present it’s the Tories, and I think the last thing the Lib Dems can be accused of in the current crisis is shoving its head in the sand.