Opinion: We need to stand up for Liberal Democrat distinctiveness on economic policy

This weekend the latest Federal Party mailing further confirmed that the Party continues to define itself as a split-the-difference party between Labour and Conservatives, painting only Labour as a risk to the economy. Successive rounds of poor election results should have taught us that we need to change tack. The mailing reads, ‘Our message for 2015’:

So the choice in this election is clear: Labour will borrow too much, risking the economy. The Tories will cut too much, threatening public services and sacrificing the least well off. The Liberal Democrats will borrow less than Labour and cut less than the Tories.

Campaigners should deviate from this line to achieve a better election result. We need to stand up for Liberal Democrat distinctiveness on economic policy. If we don’t, no one else will.

Our message about the economy should set us apart and we should be proud of it, rather than peddle lines inferring how fiscally responsible the Conservatives are. The logic behind this so often repeated mantra is deeply flawed in terms of political strategy and economic reality. The Party should be championing the distinctive contribution that the Liberal Democrats bring to economic policy, rather than basing its key campaign message on the assumption that the Conservatives bring to a coalition better economic policies than Labour.

This weekend’s missive stems from the leadership’s desire to take ownership for a Conservative led coalition, especially its record on the economy. This is a politically dangerous approach for several reasons:

1. For junior members in coalition, a key challenge is maintaining distinctiveness. Aligning with the Conservatives on the economy is no marker of difference.

2. Voters of all persuasions perceive the Government’s economic approach as being fundamentally Conservative. Consequently, those who feel optimistic about the economy are (as David Howarth revealed) much more likely to reward and give credit to the Conservatives, not the Liberal Democrats.

3. The Government’s economic policy has broadly failed, even by its own performance measures. Their aim was to close the structural deficit by 2014/15, but this is now not expected to happen until 2017/18. The original coalition agreement stated, ‘The deficit reduction programme takes precedence over any of the measures in this agreement’. The economy has not grown nearly as quickly as the Government assumed, wages have stagnated for six years and the cost of living crisis continues. Yet despite the Government’s many tens of billions of unplanned extra borrowing, interest rates on government debt are still very low. These factors highlight that the greater challenge for the coalition Government was not, sticking to aggressive austerity measures, but should have been driving investment.

While problems in the Eurozone have impacted the UK’s ability to reduce the deficit, those problems are themselves caused, in no insignificant part, by policies of austerity in Europe. Rather than providing the UK Government with an excuse for failing to achieve its targets, Europe’s ills simply highlight the folly of Osborne’s approach. By contrast, America’s recovery has been much more impressive. Among many reasons for its economic performance, the Obama Administration’s stimulus measures stand out.

We should’ve taken a leaf out of Obama’s book. Following the burst of a credit bubble investment collapses and, as Keynes taught us, during recession Governments should increase spending on infrastructure, to drive demand in the short term and boost the productive capacity of the economy in the long term.

With a history of underinvestment in infrastructure, the UK was a good candidate for Keynesian stimulus. Thankfully,  Liberal Democrat Conference didn’t buy into shallow right wing narratives around macroeconomic policy and in 2013 amended Clegg’s own motion so that the ‘… principles behind the Liberal Democrats’ economic policy beyond 2015 should be guided by: Increased capital investment in people, business and infrastructure … [and] A recognition that beyond 2015, the burden of fiscal consolidation should be shifted further towards fairer taxes, especially on wealth and land.’ Conference viewed the Government’s economic policy as a necessary compromise of coalition, not the approach if governing alone.

Thanks to pressure from Liberal Democrats in Government, coalition economic policy is better than otherwise. Capital spending, though below requisite levels, is greater because of our pressure; lending to businesses was boosted via the establishment of the business bank; the number of apprentices has ballooned. This is the record of action we should be repeating.

Perversely, the messaging document sent to members this weekend weds us to the assumption that the Conservatives bring to a coalition much better economic policies than Labour. Even if this were true, it is not at all clear that the Party can gain electoral reward for this approach. Rather, this messaging continues to ignore Conference, our Keynesian heritage, as well as evidence of the impact of the government’s failing policies and the likelihood of people ever giving Liberal Democrats credit for them. It’s a recipe for disaster, yet like Lieutenant Colonel Nicholson trying to defend the bridge in ‘The Bridge on the River Kwai’, so our leadership tries to make this flawed strategy a centrepiece of the General Election campaign.

Don’t misunderstand me; I’m not advocating Labour economic policy (which changes with the wind). After all, the last Labour Government got into bed with the banks and spent based on unsustainable growth. In opposition it hasn’t championed investment and by wishing to forfeit the rise in VAT through borrowing has supported more debt fuelled consumption. However, the economy is too important to be treated as a binary debate between Conservative and Labour positions. Liberal Democrats should be showing this to be a false dilemma and championing our unique approach.

* Paul Pettinger is a member in Westminster Borough and sits on the Council of the Social Liberal Forum.

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42 Comments

  • “the messaging document sent to members this weekend weds us to the assumption that the Conservatives bring to a coalition much better economic policies than Labour.”

    Well some would say they are better but it is like winning the tastiest turd competition.

    Being better is probably true but being better is not the same as being good.

  • Jenny Barnes 6th Jan '15 - 10:27am

    Oh, I was inspired, inspired I tell you. Not quite as bad as the other two. What a message! That’ll cut through everyone’s disengagement with party politics, get over the fact that the deficit is still 2/3 the size it was in 2010, not half. Wow! Put it on a leaflet and we’re on to a winner here. Not.

  • This is an excellent article by Paul Pettinger

    Good to point to the experience in the USA since 2008. A helpful reminder that the economic disaster of 2008 was a worldwide experience and was NOT as the Conservative Big Lie pretends “all due to Labour “.

    Good to remind us that the economic policies in the USA have been markedly different from the UK Conservative fetish with hitting the poor, cutting public services and giving bonuses to the rich and the royals.

    I particularly like the reference towards the end —
    ” …like Lieutenant Colonel Nicholson trying to defend the bridge in ‘The Bridge on the River Kwai’, so our leadership tries to make this flawed strategy a centrepiece of the General Election campaign.”

  • No, sorry but I think this article has some major flaws.

    It ignores the fact that we started out with an even bigger deficit than the US, have been directly exposed to the Eurozone crisis and have not benefited from the massive lowering in energy prices caused by fracking in the way the US has. In contrast to the US, we have been faced with slumping output of oil and gas and a major contraction of our financial services sector. The fiscal gap that needed closing was larger and the task of fostering recovery in the UK economy was correspondingly that much harder.

    Despite all of this, the UK economy is not demand deficient in any way. What is holding back growth, if indeed at close to 3% a year growth can be said to be “held back” at all, is lack of exports and the slow recovery of private sector investment. This is not amenable to measures to boost internal demand further proposed here.

    Furthermore, although reduced from peak levels during the height of the recession, investment spending by the government is higher now than it was during almost all Labour’s time in office 1997-2010.

    While we do need infrastructure investment, it needs to be focused on high return projects and there is always the question of how to fund it without further increasing the deficit.

    More importantly, we need to say how we will deliver a big improvement in the productive capacity of the UK through improved skills and education, better and more stable financing of industry as well as other factors like using the fantastic research resource of our universities to generate innovation and wealth in future.

    Vince Cable has made some major steps forward in terms of intelligent, focused government intervention in these areas. We need to build on this to explain how Britain can prosper in the future.

    Where we are distinctive economically is that we are not like the Tories ideologically against state involvement in the economy, nor are we dependent on out of control public spending for our support and funding like Labour. That seems pretty well differentiated to me.

  • I think there needs to be an acknowledgement that Labour’s fiscal plans are not very radical. They plan to balance the budget minus capital spending I think. That’s not very radical when we still have a large public deficit, being harsh on it runs the danger of making the Lib Dems look right wing. What would be best is to ask people whether they would TRUST Labour to be responsible. Have they earned that trust?

    RC – Cable may have done some good but if so he’s not been very good as publicising it. Most people remember him for the student fees hike and the royal mail privatisation. I like the fact that this article has the confidence to challenge the Tory attitude to the economy. Far too many on the centre/left aren’t prepared to do this. Osborne is no expert but he gets a free ride a lot of the time! What was needed was for Clegg and Cable to have worked together on an economic policy that they insisted upon at BIS. And yet no such policy has been apparent allegedly because the relationship between the big 2 in the party is said to be frosty. A disastrous situation when you are the smaller part of a coalition.

  • “It ignores the fact that we started out with an even bigger deficit than the US, have been directly exposed to the Eurozone crisis and have not benefited from the massive lowering in energy prices caused by fracking in the way the US has. In contrast to the US, we have been faced with slumping output of oil and gas and a major contraction of our financial services sector. The fiscal gap that needed closing was larger and the task of fostering recovery in the UK economy was correspondingly that much harder.

    Despite all of this, the UK economy is not demand deficient in any way. What is holding back growth, if indeed at close to 3% a year growth can be said to be “held back” at all, is lack of exports and the slow recovery of private sector investment. This is not amenable to measures to boost internal demand further proposed here.

    Furthermore, although reduced from peak levels during the height of the recession, investment spending by the government is higher now than it was during almost all Labour’s time in office 1997-2010.”

    The US is also exposed to the eurozone. Deficits only matter if you can’t pay them back, and considering how long the UK’s interest rates are, we’ve been concentrating on the wrong metric. And the shale gas thing is a red herring- if you look at the deleveraging statistics as businesses and families pay off debts, this was almost complete before the decline in energy prices. Britain can’t rely on oil and gas in the future and the massive shrinking of our financial services industry should be something to celebrate. Being the home to those posing a worldwide economic systemic risk while adding precious little in social value is not something to boast off. It also tended to raise prices and hoover up talent that should have been going into Britain’s businesses, schools and other sectors. The fiscal gap also closes by raising revenue through taxes and higher growth, rather than simply cutting (like the coalition have privileged). Those countries that have taken a more expansionary course have seen higher real GDP since 2008. That would be a more sensible way to clear a deficit.

    It is hard to say that Britain is not demand deficient. Increased demand has largely come through artificially increasing house prices. Again. And, of course, increasing exports and private sector investment requires investment spending- in airports, roads, R&D, universities, better schools, strategic investment and subsidies etc. The free trade arrangements we have make infant industry protection and incubating arguably illegal (despite its success in East Asia and other economies), but there is still plenty the UK government should be doing. Increasing teachers’ wages so more of the top third of our graduates find their way into classrooms would be a good start.

  • Joe Otten – what policies that caused pain have now lead to strong growth in the UK economy? The central argument against the government’s fiscal plan was that it would be self-defeating (and it has been). Growth has returned as the deficit plan stalled.

  • I like the thrust of this article more than its specific proposals, so far as they go. There is a danger that we find ourselves embroiled with white elephant infrastructure projects. Basically I very much agree with RC “While we do need infrastructure investment, it needs to be focused on high return projects and there is always the question of how to fund it without further increasing the deficit. “ However, this still leaves open the question of the specific projects that are suitable. HS2, a new London airport runway, a trident replacement are all big projects, but beset with problems in terms of their economics, impact on the environment, international security and more.

    Clearly transport, energy security, manufacturing productivity, technology to support health and, others might argue, defence are UK problems which invite large scale projects. Solutions, however, are likely to be contentious in different ways. Unfortunately, there does not seem to be sufficient agreement within the Party to be able flesh out projects in these areas.

    So, while I very much agree with the sentiment, the detail that would make this work still seems out of reach.

  • One of the best things any government could do is fix graduate student funding for UK universities so we don’t have a brain drain to US universities. So many of them start their own businesses using the research they do.

  • Lauren Salerno 6th Jan '15 - 12:26pm

    RC correct on this.
    Remember
    1. We are in a wholly different situation to the USA and the comparison is invalid

    2. We are different to both left and right recognising if nothing else that spending our way out of recovery does not work but that too much reliance on cuts and trickle down is equally ineffective

    3. That we have through targeted and limited intervention taken steps forward in lowering taxes and improving skills

  • Paul Pettinger 6th Jan '15 - 12:36pm

    Fracking seems to have significantly boosted the US economy RC, but I don’t think it provides the UK Government with a get out of jail card. The development of more sophisticated fracking technology, again, stems from greater investment – the level of GDP invested in research and development in countries like the US and those in Scandinavia is noticeably higher than in the UK, but it shouldn’t be.

    The UK is suffering from a slow recovery of private sector investment and a lack of growth in exports, but again this is undermined by things like the Eurozone’s approach, other developed economies employing loose monetary policy at the same time, and low expectations of growth by businesses. The Government could and should be doing more to drive investment – with better prospects for growth, businesses should more readily reinvest, so taking back the reins from Government – but it hasn’t and we have endured a long period of relative stagnation. The general failure of austerity should be, like the banking crisis, another knock to the post 79 Thatcherite consensus. I agree the Party should be making much more of what Dr Cable has done at BIS and in Government – he’s an asset to the Party and country!

    FrankBooth and Joe O – I’m certainly pleased the Government didn’t continue the logic of their approach and respond to lower than expected tax receipts with yet further cuts, though I think that highlights an original misdiagnosis of the country’s economic problems and point to an error to reduce, rather than increase, capital spending.

    More generally, I think Liberal Democrats should ask an awkward question – why is our current economic message pro-Conservative, rather than pro Lib Dem?

  • @ Paul

    “The Government could and should be doing more to drive investment – with better prospects for growth, businesses should more readily reinvest, so taking back the reins from Government – but it hasn’t and we have endured a long period of relative stagnation.”

    1) More to drive investment, like what? Perhaps something like setting up the British Business Bank or the Green Investment Bank?
    2) We endured a period of stagnation from 2010 to 2012 as global oil, food and other commodity prices rocketed, squeezing consumers’ real disposable incomes and the Eurozone struggled, hitting exports, while North Sea oil and gas production fell and financial services contracted. None of this was due to government policy and that stagnation phase is now two years in the past. The UK economy grew by 0.7% in the last quarter, or by close to 3% at an annualised rate, so that is not stagnation by anyone’s yardstick.

    Business already has good investment prospects and is actually being sustained by internal demand. The main weaknesses come from external sources: worries about the Eurozone, Russia, the China slowdown etc. i.e. global factors beyond the reach of UK government policy.

    The important tasks facing the UK economy are:
    1) Rebalancing regionally so that all parts of the UK share in the upturn. Infrastructure is only one part of this and if overemphasised can lead to white elephant investments as have been seen in Spain and Poland. Skills, education and intellectual capital (i.e. universities) are a much more important part;
    2) Rebalancing in terms of sectors, so we are less dependent on finance and more able to pay our way in the world with a portfolio of exports, including high value manufactured goods;
    3) Shifting the playing field in favour of greater equality. In the long run, this too will come from having a more skilled, better educated population with higher productivity.

    I would say much of this is already being done by the Liberal Democrats in government, it’s just no-one ever hears about it and, partly due to the limitations of funding and working with the Tories, not nearly enough of it is being done to make a big difference quickly.

    We should be spelling out what we’re actually doing and say we’ll do more of it. How to do that in an eye-catching and appealing way that will convince the voters to listen to us again is another matter.

  • RC- Growth rates are higher because we started from a lower base, due to digging ourselves into a hole with austerity. Despite France being in the eurozone and not having control over its own interest rates, they’ve done a lot better since 2008 than we have.
    http://krugman.blogs.nytimes.com/2015/01/02/britains-success-story/

  • Also, RC- education and upskilling is unlikely to have much of an effect on equality, according to most research. Inequality is not due to an education premium, it’s largely due to stagnating wages compared to returns to capital, access to economic rents, and cycles of poverty (with Britain having astonishingly low levels of social mobility).

  • Julian Tisi 6th Jan '15 - 2:13pm

    I’m completely with RC here.

    Paul – you talk about a “general failure of austerity” and on austerity in Europe you say that “Europe’s ills simply highlight the folly of Osborne’s approach”. Why is it then that no government of any hue in Europe is rejecting some level of austerity? Have they all turned right wing? And why is it that countries such as the UK that took action earlier are now reaping the rewards and seeing their economies now growing faster than those that didn’t? There simply isn’t an alternative to austerity called “no austerity” – it can be deferred but it won’t go away.

  • Joe- Krugman’s graph is of Real GDP, which is a better measure than you use in your article. So indeed, France is doing better. Even then, when you allow for how quickly the financial sector was bailed out and returned to their dangerous casino capitalism, and the difficulties presented by being a member of the euro, France looks even better in comparison.

  • Julian- Walter Munchau in the FT said that, yes, all of the governments in the eurozone have indeed turned right-wing. It’s only the radical left-wing parties that offer an alternative to prolonged stagnation. And having higher growth at the moment is not a sign that the policy choices were correct. Digging a bigger hole to start with might lead to higher growth, but that speaks to the scale of the problem, not the correctness of the solution. Again, see the Krugman link.

  • Simon McGrath 6th Jan '15 - 2:36pm

    @Paul – I agree we need more investment. What about agreeing to a new runway at Heathrow or Gatwick which would not need any Government investment and could be started very quickly ?

  • Julian Tisi – the growth we are now seeing is partly the natural recovery of the economy but partly the result of short term policies like gifting state finance to people buying £600,000 homes. The latter will end after the election, and the vicious retrenchment in public services may well throw the country back into recession if the Conservatives have any part in Government. Please bear in mind that cutting public sector wages directly affects the incomes of many of the customers of private sector businesses, like mine. This is why the economy struggled for three hard years longer than it ought to have done. Without a clear admission of error from the Lib Dem leadership, I cannot support a repeat of this misguided policy.

  • There is a bigger question of vision too- is the aim just to go back to a status quo ante? Soros and many others have pointed out that growth has been largely on the basis of a gargantuan credit super-bubble that goes back perhaps decades. Britain’s selling its soul to finance has put the world economy at risk as worldwide growth is much lower than under Bretton Woods and bond traders in their 20s and 30s now decide the appropriate policy window that elected governments can enjoy (hint: it’s neoliberal and very narrow) while only a very small elite benefit from the economic rents that the City and the big banks plunder from the world economy with negative side effects like a brain drain from British industry, higher inflation as the money spills over into London’s housing and luxury good markets, higher inequality, London becoming a kind of drain for Britain’s wider economy as every other industry is pulled into its orbit, economic hostage-taking as they resist capital gains and asset taxation etc. Instead, Britain should aspire to be an island of people who make things, with strong worker protection, higher equality, innovation, world-class universities etc. We should look more to the emergence of Korea, Japan, Taiwan, Germany post WWII than being Europe’s Hong Kong.

  • @Stevo

    “Growth rates are higher because we started from a lower base, due to digging ourselves into a hole with austerity.”

    No we didn’t “dig ourselves into a hole”. As I explained above, most of the slow growth was little to do with UK fiscal policy. There is no automatic bounce back in the economy, so I think your explanation is a little thin, really.

    “Inequality is not due to an education premium, it’s largely due to stagnating wages compared to returns to capital”.

    If you have vastly different levels of skills and productivity between the top and bottom end of the workforce, how can that not compound inequality? Ascribing rising inequality to differences in the rate of return to capital fails to explain the contribution from increased disparity in income from labour between the best and worst paid.

    As for saying France looks better than the UK , I think you must be reading the economic graphs the wrong way up or something.

  • stuart moran 6th Jan '15 - 3:55pm

    RC

    I don’t think anyone can argue France has done well but I don’t think we can make too many negative comments

    Remind me how much QE the Bank of France has done or what their tailored interest rate policy has been again? Also can you remind me the LD policy with regard to the Euro when the Labour Government rejected membership?

    Do you consider having control over monetary policy has had any positive effect on our perceived growth or, if not, can you ask why all the money was wasted doing it?

  • Good article Paul.

    It constantly astonishes me that so anyone thinks the Conservatives are good on the economy. Put their logic under the microscope and it turns out to be riddled with internal inconsistencies and spurious assumptions – for instance that people are all calculating machines that can reliably calculate the odds of alternative courses of action or that markets reliably move towards equilibrium making them self-regulating and regulation damaging.

    These assumptions survive, and even dominate discourse, because Conservatives and their backers find it useful to treat economics as a specialist branch of political propaganda using carefully selected data and spurious assertions to promote a partisan message. This enables them to pursue a political course that benefits mainly the 1% and that the majority would never support. They can say, “Look, there is no alternative (TINA) – the markets made me do it” which is of course nonsense but Murdoch and his ilk promote this view and largely manage to drown out rivals.

    Hence when it comes to the Conservative’s planned fiscal consolidation for the next few years the OBR’s projections make it clear that it won’t work – can’t work – except perhaps at a terrible cost, particularly for the young who will be burdened with a record and wholly unsustainable level of debt as Frances Coppola explains.

    http://www.pieria.co.uk/articles/be_careful_what_you_wish_for_mr_cameron

    The early paragraphs are mildly wonkish (but not beyond most LDV readers). The last three paragraphs and final chart are a must-read.

  • David Allen 6th Jan '15 - 5:31pm

    What the Conservatives are good at, on the economy, is acting the toff. I am not joking. Their entire approach is based on presenting a Big Lye with bogus conviction, Etonian authority, and a curse of hellfire and damnation on their Labour opponents.

    The Tories have no real belief in austerity. It is just a front. It enables them to construct a blame narrative against Labour which has gained credence by means of (Rove – Bush tactics) constant repetition. It enables them to rob the poor and boost the rich while purporting to be doing something morally good. If the Tories really believed in austerity, how come they have only cut the deficit by a third, when they solemnly told us that it was imperative to abolish it over a single parliament? If the Tories really believed in austerity, how come they have let all that happen, and happily cut tax rates?

    Austerity has failed. Merkel, who truly does believe in it, has seen it wreck the eurozone economy. Obama, who does not believe in it, has achieved a much better economic performance. Osborne, who believes in nothing except winning things and helping the rich, has achieved more mixed results. Though he would pretend otherwise, he has applied stimulus economics through the housing market. That has accentuated inequality (which for Osborne means a win) but has also helped to get the economy moving. As for the appalling cuts programme that GF describes above – Well, it certainly deserves to lose them the election. Actually I suspect it is Osborne’s next Big Lye and that if he gets back into power, he will bin it and do something less self-destructive. He’s a knave but he’s not a fool.

    Labour are far from perfect. Balls thinks too much and changes his mind too often, Miliband never makes his up. Darling would have been better. Still, if I had to choose between Osborne and Balls for confidence and trustworthiness, I’d put Balls ahead. Clegg’s “clear and present danger” epithet for Labour is, well, another Big Lye.

  • David Allen 6th Jan '15 - 5:33pm

    What the Conservatives are good at, on the economy, is acting the toff. I am not joking. Their entire approach is based on presenting a Big Lye with bogus conviction, Etonian authority, and a curse of hellfire and damnation on their Labour opponents.

    The Tories have no real belief in austerity. It is just a front. It enables them to construct a blame narrative against Labour which has gained credence by means of (Rove – Bush tactics) constant repetition. It enables them to rob the poor and boost the rich while purporting to be doing something morally good. If the Tories really believed in austerity, how come they have only cut the deficit by a third, when they solemnly told us that it was imperative to abolish it over a single parliament? If the Tories really believed in austerity, how come they have let all that happen, and happily cut tax rates?

    Austerity has failed. Merkel, who truly does believe in it, has seen it wreck the eurozone economy. Obama, who does not believe in it, has achieved a much better economic performance. Osborne, who believes in nothing except winning things and helping the rich, has achieved more mixed results. Though he would pretend otherwise, he has applied stimulus economics through the housing market. That has accentuated inequality (which for Osborne means a win) but has also helped to get the economy moving. As for the appalling cuts programme that GF describes above – Well, it certainly deserves to lose them the election. Actually I suspect it is Osborne’s next Big Lye and that if he gets back into power, he will bin it and do something less self-destructive.

    Labour are far from perfect. Balls thinks too much and changes his mind too often, Miliband never makes his up. Darling would have been better. Still, if I had to choose between Osborne and Balls for confidence and trustworthiness, I’d put Balls ahead. Clegg’s “clear and present danger” epithet for Labour is, well, another Big Lye.

  • stuart moran 6th Jan '15 - 8:51pm

    I see that Joe Otten (true to form) has retweeted a piece about how Labour should not vote against cuts they will not reverse

    Firstly, it parrots exactly the line in that joke document presented by the new band ‘The Incompetents’ yesterday and I fail to see why he, and others, always feel so comfortable taking the Tory whip on these things

    Secondly, the premise is false. Labour may be opposed to cuts but they may not necessarily be in a position to reverse them immediately when in Government. Perhaps they will be in coalition, perhaps the finances are even worse than Osborne makes out and perhaps they may have other priorities. This does not mean they should not vote against – what should they do vote for, or abstain (the Simon Hughes Approach as it can now be named)

    I know the LD are experienced at voting for things they actually oppose, sometimes even doing opposite things on the same bill depending if Commons or Lords, but it doesn’t mean everyone has to do it

    I believe this person was a LD candidate in the European elections and he didn’t exactly inspire there – pretty much the same as we should expect in Sheffield Central where Labour are 25/1 on despite a wafer thin majority. Perhaps if it was a Liberal Democrat rather than a Tory apologist you may have had a chance

  • Bill le Breton 6th Jan '15 - 9:55pm

    Ah, GF, well done for linking to dear Frances using Wynne Godley’s sectoral balances.

    I wonder what RC thinks of her foot note on the effects of reducing G? He told me recently that the private sector would have no trouble taking up the slack of trying to cut £45 billion of Gov Exp out of the economy.

    As she notes, “lower G means lower Y, at least in the short run, is clear from the expenditure version of the national accounting equation:

    Y = I + C + G + (X – M)

    “It is possible that Y could increase in the medium term if I were to rise due to lower G reducing crowding-out. However, the OBR observes that the severe cuts to unprotected departments, and particularly to local authority budgets, envisaged by the Conservatives would have a “direct impact on GDP”. In English, that means the Conservatives’ plans are likely to cause another recession. ”

    It is for this reason that so many periods of surpluses lead to recessions. Unless (before John Hemming takes me to task) you happen to be a resource based economy close to a China hungry for those resources, in which case the external balance makes a surplus inevitable.

  • Peter Watson 6th Jan '15 - 10:33pm

    @Joe Otten “If you oppose a cut, surely that implies that you were in power you would find the money, somewhere, to prevent it. So if you were to come in to power, you could use that money to reverse it, unless your priorities have changed.”
    I think your first point is correct but the second point does not necessarily follow.
    Opposing a cut simply means that Labour would rather do something else now and it would be fair to attack Labour for not coming up with an alternative now. Once the cut has been made, the cost of restoring the previous status quo might be more than the savings, e.g. if I scrap a car to save the cost of taxing it, reversing that decision a few months later would cost a lot more than a new tax disc.

  • “Or your opposition was disingenuous in the first place.”

    That’s a bit rich considering the Liberal Democrats record in Government.

    Stones and glass houses

  • stuart moran 6th Jan '15 - 10:43pm

    Joe Otten

    Nonsense – as Peter Watson says there is no direct link between the two. I would also say that it is not for the opposition to make that judgement as they do not have access to the financial figures and that by the time they get into Government things may be different. They cannot trust any numbers invented by Osborne as he changes them in each speech – remind me again what was supposed to happen to the deficit by 2015?

    What Labour are doing is actually not promising things that they fear cannot be delivered – perhaps things will change if the economy is able to manage it. We have seen what pledges bring. What way would you expect them to vote? In favour of the cuts if they cannot promise to reverse them up to 5 years before taking power?

    . Osborne said in 2007 that he supported Labour’s spending plans but then said afterwards he opposed them when he was busy reinventing the shambles that was Tory party policy prior to 2010 (see Cable’s destruction of him during the debates prior to the election)

    and why do you support a party that votes for things it doesn’t support and that are not part of the coalition agreement?

    I seriously worry for the party if you are a candidate

  • Paul Pettinger 6th Jan '15 - 11:34pm

    RC – I mentioned the Business Bank in my OP and agree investing in people important. I agree that Lib Dems have helped ensure the Govt better deals with economic challenges – I think we should be highlighting this!

    Stevo wrote: “Britain should aspire to be an island of people who make things, with strong worker protection, higher equality, innovation, world-class universities”. I agree. We need a diverse economy, with high value jobs, based on innovation, skills, ideas. Relying heavily on the finance sector for export earnings is risky. UK GDP has been boosted by population growth – by instead looking at GDP per capita you offer a sobering comparison with other countries, such as France.

    Simon M – that argument has been lost.

    Good article GF (http://www.pieria.co.uk/articles/be_careful_what_you_wish_for_mr_cameron). I especially found provoking the observation:
    “The deficit obsession and the immigration obsession both stem from the same source. We distrust foreigners and fear strangers: we do not want them in our country and we do not want to be beholden to them. Close the borders, pay off foreign debts, force banks to lend only to the British, dig for victory…..anyone would think we were preparing for war.”

    Protectionists and deficit Hawks seem to share common instincts – both seem resistant to evidence and view countries/ people as operating in isolation, when they’re interconnected.

    Joe O – I think Labour are trying to position themselves as slightly to the left of the Conservatives – it seems a classic short termist, risk averse, New Labour tactic, detached from solid analysis.

    David Allen – every Conservative chancellor since the 60’s, other than Ken Clarke, has engineered a pre-election housing boom. I genuinely thought this something Lib Dems would stop. It has mocked the Govt’s aim to rebalance the economy.

    John Tilley and Caracatus – thanks.

  • Good to see Wynn Godley getting a shout-out. A truly remarkable economist.

    RC- your first “rebuttal” is unclear as to its meaning. We did dig ourselves into a hole almost immediately (as the graph in the Krugman chart of Real GDP shows).

    Of course differences in productivity compounds inequality, it just isn’t a very good explanation for most of the phenomenon, especially as wages have become uncoupled from increasing marginal labour productivity. That’s providing that you can measure returns to different factors of production neatly, which the Cambridge Capital Controversy still rages over for those who think deeply about the topic.

    As for France- I think Krugman’s chart is indeed the right way up. I look at the data rather than simply ideological priors.

  • stuart moran 7th Jan '15 - 12:17am

    Paul Pettinger

    Why do you support Joe Otten’s comments?

    For example, the cuts to arts funding. What should Labour have done?

    Voted for because, although they oppose the cuts, they cannot promise to reverse them at a future date with unknown financial situation

    Abstained for the same reasons as above but want to try and pretend they are principled (Simon Hughes does this a lot)

    Against because they oppose the Government approach and would do it differently

    I find the LD response to this to be rather nauseating and parroting the Tories, especially from a party that has broken pledges and also voted against things they support and for things they oppose

    By this measure no Opposition would ever vote against the Government unless the can specifically promise (or pledge) to do something different at some point in the future

    I saw Cable demolish Osborne’s economic plans in the debates only to find afterwards Clegg supported them. The deficit was supposed to be the main priority but then tax cuts and spending on killing badgers took the priority. In fact the Government have reduced the deficit to the same level that Darling was going to try to do but in a cack-handed and uncoordinated way whilst pretending everything was achieved as planned

    I am not a Labour supporter and have only ever voted for them once but after reading the nonsense coming from this party and the rewriting of history in cahoots with the Tories. To portray Labour as ‘slightly to the left of the Tories’ beggars belief and persuades me to ask where the LD sit?

  • so – what does a candidate do? Perhaps stress effective longterm planning? Look beyond the immediate? An example might be Paul’s comment on fracking. Surely the drop in fuel prices should have rung a few bells? Saudi and US frack can go down to $20ish a barrel, and will do because they want to get rid of oil with electricity storage rapidly becoming a reality. If you still think UK fracking is a silver bullet… Electricity storage? Product of research educated thinking. British invention of graphene – maybe – but the genius came initially from the techno framed mindset associated with the Communist education system. Lib Dems need to be the thinkers,planners and sustainabilists of this country – long term. Vince Cable really gets my vote in this. A business economist with head in the air but feet on the ground. As other writers have noted, long term radical thinking partic applies to education – enable teaching, rather than restrict it if you want a vibrant economy

  • Ken Palmerton 7th Jan '15 - 12:49pm

    If only it were possible to believe that the party leadership WOULD stand up for Liberal distinctivness in economic policy. If only we did remember what a Liberal Chancellor did to save the nation when Liberals were last in Government.

    Then DLG neither borrowed OR cut. He used the credit of the people to have issued treasury bills instead, at zero interest, as Keynes advocated, when he called for the euthanasia of the rentiers, Issues of credit which did NOT add to the nations debt.

    But this I fear is all pie in the sky, for ALL our elected representatives are either in the pockets of the city, or asleep, and will continue to do their bidding. And we the people will continue to suffer the denial of access to this worlds abundance.

  • I suspect that many are put off by the rather wonkish presentation and discussion that the issue of ‘sector balances’ typically attracts (see my earlier comment and linked article) so I thought I would try and put it in plain English.

    To be clear this is NOT one of those interminable and obscure economic arguments that go on forever without conclusion. It’s simply using double entry bookkeeping to probe how credit flows around the economy and thereby to shed some light on what the politicians are proposing and understand the implications. If this is wrong then the whole of double entry bookkeeping as practiced since the Middle Ages is wrong !

    Start with a simple case. I borrow some money from the bank (a mortgage for instance). I now have a debt (to the bank) and it has an asset (my loan). Obviously the two are equal and have opposite arithmetical signs by definition. Over the course of the loan I will pay interest but that’s another question – we are talking about changes in the sum loaned/borrowed here.

    Now consider a small town. The bank lends money to lots of people while some other people have money on deposit with the bank and of course there are also loans between private individuals that sidestep any involvement with the bank entirely. However, we can arithmetically net off all these loans to calculate for instance that overall the bank has lent the people (and the companies) of the town £X.

    Assuming that the town isn’t cut off from the rest of the world then there is a third actor we need to include, namely people from other towns. Overall the people of our town might get loans from outsiders or they might lend to outsiders (obviously I’m considering only the net loans here). Which way the lending goes will be largely determined by the town’s trade. If it’s mainly populated by retired people then it will depend on a continuing flow of credit from outside (or on the retirees running down their savings with is arithmetically equivalent).

    Change ‘town’ to Britain and ‘bank’ to UK Government and you have sector balances in a nutshell with ‘other towns’ representing other countries. It really is as simple as that but what does it tell us about the government’s plan to cut the debt?

    Well, for one thing that Osborne’s plan would never, could never, work unless there were some huge external source of credit. Given that our national credit bucket leaks like a sieve (a.k.a. the horrendous balance of payments deficit) which makes things worse not better, then this has to come from the private sector running down its savings (or the mathematically equivalent increasing debt). That is what the OBR’s projections (see earlier linked article) show and it can only end in tears.

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