The important thing for Government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.
The answer is after the jump.
Answer: John Maynard Keynes.
(Which does, incidentally, make me wonder how many people who now call themselves Keynesians really are. Many on the left outside the Liberal Democrats, certainly, view such attitudes to the role of the state – when expressed by 21st century politicians – as something to abhor. But in that respect, Keynes is rather like William Beveridge, whose views on benefits does not sit comfortably with many on the left who like to invoke his name with pride.)
* Mark Pack is Party President and is the editor of Liberal Democrat Newswire.
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40 Comments
Oh dear Mark – taking a quote from someone and not putting it into context.
In that section of the essay he is talking about dividing what should be decided by the individual and what should be considered social – “to those decisions which are made by no one if the State does not make them.”
Into that could be put pretty much any activity that the Government currently takes part in and ant many that it currently does not – it could certainly be argued that the NHS, Education system, benefits, most council services all fit in to this category of “social”.
He then talks about some areas for “social” action – population control, control of savings, control of the currency and making business more transparent. He says these are only examples of what he has thought about most. The population control one is rather surprising!
Interestingly he has a big attack on the City of London and its inability to consider the big picture – quite relevant today!
Mark – Which particular service that the left are defending, and the Coalition are cutting, do you think falls out of this category?
I think this is something we all support and I do not know any Keynsians who do not support it. Keynes certainly supported the state getting involved in things that are not currently being done, he was the first chair of the arts council after all.
Where were all these Keynsians calling for spending cuts to pay down the deficit during extended periods of economic growth? Or were they the ones making speeches about ending the cycle of boom and bust?
“Which particular service that the left are defending, and the Coalition are cutting, do you think falls out of this category?”
More pertinently, why didn’t “the Left” (OK – Gordon Brown) not argue for and implement increased taxes to pay for those “services” rather than paying for them by borrowing during a boom?
I’ve nothing against increased state involvement if the case is made to the electorate for increased taxation to fund it, and the electorate accepts that case. But that’s not what Labour did.
I choke on my cereal every time I see a reference to Ed Balls or the Labour Party being ‘Keynesian’. They flunked the first test of Keynesianism when they ran a £35 billion deficit in the middle of an economic boom. They have no right to use that name as an ideological figleaf to cover their incompetence. You can argue in defence of deficit spending in a boo, but one thing it is not is Keynesian.
What they are is pro-higher spending regardless of circumstances of appropriateness. Labour’s only core belief is hiking public spending whatever the circumstances. The economy is good, hike public spending; the economy is bad, hike public spending; there is a problem in society, hike public spending; I stubbed my toe, hike public spending. It is the only thing Labour knows.
Geoffrey: You and I must know some very different self-described Keynsians 🙂 There are plenty in the Labour Party (though not every Labour member of course), for example, who take that appellation but also see the centralised state provision of a service as a matter of first and only resort, which is a very different attitude towards the state than the one Keynes took.
Libby: this points also extends to your own question – there is a big difference between seeing state provision as the preferred, default option from the view that Keynes took.
Either in that essay or in another he talks of “semi-autonomous” organisations to provide services – the NHS would be a modern example. He also talked about private enterprise not being the best people to provide what he called the “social” side.
So he would presumably been against the semi-privatisation of the NHS which happened under the Labour Government (never mistake a Labour GOVERNMENT from being left wing as opposed to the Labour Party Members who often are) and which is being continued by the current so called Coalition Government.
libby – “he talks of “semi-autonomous” organisations to provide services”
There are a multitude of problems with this – how do you define semi-autonomous? Does the centralised state bureaucracy of the current NHS qualify as semi-autonomous? Or the independent but state-funded (hence the GP model) health service envisaged by Beveridge?
The nice thing about dead people is that you can make up anything you like and claim it was their idea.
I don’t think the current NHS lives up to being semi-autonomous by Keynes’ standards – however it would be a good example of the sort of institution that should be semi-autonomous.
Some on the right of the party try to claim Keynes for themselves, mistaking his dislike of state control for a liking for either charity doing everything or private companies doing everything – I think Mark was falling into this trap with his original post.
The Labour Government was in no way Keynesian – but I am not sure that the Lib Dems in Government are either
Libby: I think you’re looking too hard for something to disagree with in my original post – quoting words which explicitly give a role for the state is hardly falling into a trap of thinking the state doesn’t have a role and that it’s all up to private companies and charities to do everything 🙂
The more relevant trap in party debates, I think, is to boil this down to being a matter of simply choosing between universal private provision or monolithic state control, with too little attention given to how you get variety and autonomy without lapsing into either of the two extremes.
I think the big trap in political debates is to spend the first half of the debate arguing that a given dead person is an authority and then spend the second half of the debate arguing about what that person believed.
I feel that this time would more usefully be spent on considering the issues. To argue from authority is weak enough; to then debate the beliefs of the authority is a farce. The bizarre “choose only one of these two options” thinking is merely the inevitably meaningless outcome of such an activity.
libby – GP practices are private partnerships that receive money from the state – just the sort of semi-autonomous arrangement you seem to be arguing for. Yet were I to argue the same for hospitals I suspect you would be amongst the first crying “Privatisation!!!” from the rooftops.
@Mark, all very well but not related to the quote that you started this off by.
Unless you can give us more context from which this quote comes from and some policy examples.
Tabman – I am certainly not arguing that private partnerships are a good model – they do not fit with the semi-autonomous non commercial background – and I dont think Keynes would have done either.
Mark – I agree with your second paragraph in your last comment – but then fail to understand what you were trying to say with your original post
Libby- GP surgeries are private partnerships funded by the NHS, free at the point of access and some might argue its cornerstone. Are you proposing their abolition, and what would you replace them with?
The difference, @Tabman, is that GPs don’t wield huge power like mega-corporations do. GPs are responsible to their patients and accountable to the government. They have no shareholders to please and profit is not their main motive. In fact, they are paid by the state so profit does not really come into it at all. GPs don’t have shareholders to please. These mega-corporations, many of them American, who will take over many NHS services, don’t really have their patients best interests at heart like GPs usually do. They essentially care only about turning a profit and shareholder value. The relationship between GP and state and the relationship between big corporations and state are different and you know it.
I’d be fine if small, possibly family or worker-owned businesses worked with the NHS, but instead we get people like Circle, a mega international corporation who has made huge losses over the past 3 years and Unum, who have been done for major fraud and abuse of patients in the US. I don’t trust people like this to run our healthcare one bit. They will privatise their profits and socialise their loses. This always seems to happen when companies who are paid out of the public fund go down. It happened earlier this year when a surgery run by ATOS backed out of their contract after being unable to run their GP services properly. They lost millions of public money in the process (which I bet they’ll never pay back), and standards at their surgeries suffered so badly, the state had to step in and sort it out. Of course this company has form with their horrid treatment of the disabled (which Lib Dems seem to back as well).
Look – both Lib Dem and Tory promised us no “top-down” reform of the NHS. So why are we breaking another manifesto pledge and letting the Tories break the coalition agreement on this? So Lansley can shuffle more money off to his rich private health care friends (who paid him thousands of pounds to run his office when he was in opposition)?
If Lib Dems want to privatise the NHS, why don’t you just be honest with the public instead of treating us like children? Why promise things and then go back on said promises because it’s what the Tories want?
When will the people ever get what they want? Why is the Party ignoring public opinion and the opinion of many party members on this and many other issues? Are we now simply “Liberals” without the “Democratic” part? I feel like the only Lib Dem supporter who thinks principles are far more important than the small bit of power we hold (power that is losing us voters and support every day the coalition continues.)
Stephen W writes: “Labour’s only core belief is hiking public spending whatever the circumstances. The economy is good, hike public spending; the economy is bad, hike public spending.”
Surely Ed Balls isn’t calling for a hike in public spending, what he is calling for is for the current spending squeeze to progress at a slower pace, to avoid damage to the economy and growth prospects. As I recall, Nick Clegg and the LibDems used exactly the same argument before the 2010 Election. The miserable state of the economy suggests they (and Mr Balls) were correct.
Following on from Andrew, perhaps we shouldn’t be arguing about the dogma built up surrounding Keynes’ ideas, but criticising it instead.
On which point the final clause of the quote “but to do those things which at present are not done at all” might be improved by adjusting it to something like “but to ensure those things which at present are not done at all, are done.”
The former does seem to imply a necessary, if unchanging role for the state. Whereas I’d suggest libby is correct in arguing this should be taken within the context it was written that the role of the state requires periodic reform as individuals become empowered to take decisions for ourselves, and that she is actually in deeper agreement with Mark than the discussion so far shows.
An analogy might help here – if the left wants to claim the state is like the engine in a car and the individual is like the wheels it runs on, I’d say perhaps the state is more like the starter motor and government is like the ignition key while individuals are the cargo wanting to reach a destination.
Citation needed.
“Where were all these Keynsians calling for spending cuts to pay down the deficit during extended periods of economic growth?”
Largely a good question, although paying down the deficit in boom times can of course be done by any chosen combination of spending cuts and/or tax increases.
Well, of course, the answer was that there weren’t enough of them. It isn’t so easy to advocate nasty medicine, so fewer people did it. (The fact that they got it wrong then doesn’t, however, prove that they have got it wrong now.)
And there was one small but influential group who didn’t get it entirely wrong. They were the Liberal Democrats, and in those days, they courageously and rightly advocated a tax increase. Remember “penny in the pound”?
David Allen: The Lib Dems argued for tax increases in order to fund additional public spending (at least until 2005 when it was simply not credible to call for an even bigger rise in state spending than the one Gordon Brown was presiding over).
The party did NOT call for increased taxation in order to tackle the sizeable and sustained deficit of between 2.3% and 3.3% of GDP which Brown was irresponsibly running during the long boom (at a time when surpluses should have been accruing and debt falling in absolute terms, instead of which debt rose from £311bn in 2000-01 to £498bn in 2006-07).
During the mid-2000s theTories fitfully called for lower public spending to reduce the deficit, but then unwisely abandoned this position when they signed up to the 2007 CSR spending totals – a tactical manoeuvre designed purely to neutralise one of Brown’s wretched ‘dividing lines’, which Cameron and Osborne have since repented.
All in all, the Westminster policy establishment took the view (publicly at least) that there was nothing much wrong with Brown’s spending largesse that a bit more growth and buoyant tax revenues wouldn’t fix, and implicitly accepted his view that the economic cycle had been consigned to history.
To the extent that prominent Lib Dems like Vince Cable dissented by warning of a looming crash, they failed (or were unwilling) to grasp the logical implication that the government budget was unsustainable, and a significant tightening of fiscal policy was required. In principle this could have taken the form of either higher taxes or lower spending, although it would have been eccentric to continue to call for still higher taxes than those Brown was presiding over while endorsing his spending levels.
The depressing thing is that the political debate in Britain is still to a large extent framed by Brown’s worldview and dividing lines. For example, the language of “cuts” has been debased so that a small projected real-terms fall in total government spending – returning spending as a share of the economy to around the 1996 level, and well above that in 1999-2000 – is portrayed as slash-and-burn, and the meaning of “deficit” and “debt” is routinely conflated, as in “paying down the deficit”, so as to give the impression of .
Given that the deficit is the amount of additional borrowing a government undertakes each year (a flow rather than a stock, in economics jargon), you can’t “pay it down”. Instead what the coalition is seeking to do is to modestly reduce the rate at which it is accruing additional debt compared to the last Labour government. It doesn’t plan to pay off a penny of debt, and indeed won’t do so until there is a budget surplus, which is so distant a prospect that it isn’t contained within the Treasury/OBR’s forecasting horizon.
The limit of its ambitions with regard to debt is to stabilise the ratio of net debt to GDP (at about 80% of GDP, or double the pre-crisis level) by the end of the Parliament – emphasising the point that there will be a great deal of work still to do throughout the next Parliament and beyond, the more so if we want to recreate the headroom for counter-cyclical fiscal activism so beloved of Keynesians.
Alex: You’re not right about what the Liberal Democrats said in the past. It wasn’t the case of simply arguing for more taxes in order to spend more as in fact every Lib Dem alternative budget from 2001 had a smaller deficit (or, in the good years, a larger surplus) than Labour’s plans. (See https://www.libdemvoice.org/opinion-we-were-prudent-in-opposition-time-for-labour-to-follow-our-lead-23665.html for more on this.)
The quote actually represents attitudes a very wide range of people could unite around. The problem is deciding what, precisely, individuals (or free associations of individuals such as charities) can’t do, plus at what point individuals doing things a little worse becomes doing things much, much worse (because at that point the individuals will probably prefer to delegate action to the state). Quoted alone, it also misses the fact that there is a great range of associations between the individual and the state – charities, trade unions, churches, universities and the like. A major difference between Thatcherite and Cameronian conservatism is that Thatcher actively disliked the idea of people co-operating in such groups while Cameron loves it, but takes measures that impede it.
We also need to remember that this attitude should be part of a Liberal approach to devolution: that if an individual can make a choice without thereby hurting others, no-one else should interfere; if a household can, the same (provided basic individual rights are not invaded); and thus up through small communities and large local units, through nation-states to supranational institutions.
Abraham Lincoln, who started his political career in the (American) Whig Party, the party more friendly to government intervention, defined the role of government in almost identical terms – that it existed to do things individuals couldn’t do. No doubt Gladstone would have agreed. The evolution of the Liberal Party in the late 19th century featured the realisation that many of the social problems of an industrialised, urban society could not be dealt with unless government took a more active role, often at local level.
John – “Surely Ed Balls isn’t calling for a hike in public spending, what he is calling for is for the current spending squeeze to progress at a slower pace, to avoid damage to the economy and growth prospects. As I recall, Nick Clegg and the LibDems used exactly the same argument before the 2010 Election. The miserable state of the economy suggests they (and Mr Balls) were correct.”
And I’m sure you’ve seen the graph thatshows that current coalition plans are pretty much exactly aligned in pace and scale with what Alistair Darling (note – not Ed Balls) went into the election promising to do. Since then Balls has argued against every cut and against the overall plan that his predecessor would have pursued. Not credible.
Simon Bamonte – it’s pretty clear that you’re one of the Ivory Tower “never sully my hands with actual power” brigade (go and say hello to David Allen). You’re also falling into the straw man trap; stating that the only alternative to a huge State-run bureaucracy is Corporate-run bureacracy. As a proud Liberal I believe that there are far more alternative models than the one you propose, and as the GP model that you acknolwedge shows us.
@Tabman: it’s pretty clear that you’re one of the Ivory Tower “never sully my hands with actual power” brigade (go and say hello to David Allen).
So you’re resorting to name-calling now? I do not live in an ivory tower, my life is just being negatively affected by this government. I was a supporter of the coalition when it formed. I just didn’t realise, at the time, how willing our party would be to, basically, let the Tories do what they want. I didn’t realise that so many Lib Dem MPs would be willing to not only vote for policies they were against before the election, but do so with glee. Tuition fees, the VAT bombshell, disability cuts hitting very vulnerable people, NHS reform that was not on the cards, Clegg saying there would be riots if the Tories got in, doing a 180 on our deficit reduction plans, etc. What next, a war with Iran? My wife had a decent public sector job helping the disadvantaged find housing. Her job is gone now, she cannot find work at all (she’s always “overqualified” due to her degree) and she now will be stacking shelves at Tesco or Poundland next month for her benefits if she doesn’t find work. I am appalled that Lib Dem ministers support this new policy of, basically, less than minimum wage work. Here in the North, she is competing with over 30 people for every vacancy.
I just have very strong beliefs and expect the party I vote for to support the platform they campaigned on whilst in power, coalition or not. We have the balance of power in this government; we have the Tories by the short and curlies: we should have been bolder when negotiating the coalition agreement and we should have, from the start, had our MPs explicitly say which policies they won’t support. We gave the markets what they wanted: a stable government. Why can’t we give our voters what THEY wanted, then? Probably because the markets and their needs are now more important than the needs of the British people.
This whole debate about the NHS should not be happening anyway. We were PROMISED no top-down reorganisations.. I don’t know how much more clear I could get on this. Both Lib Dems and Tories said these reforms would not happen. The deficit was going to be cut, not the NHS. And we’ve entered into coalition with a man, worth millions, who claimed DLA for his sadly deceased son and now calls adults with the same condition as his son “workshy”.
I guess I am just not willing to change what I believe strongly in for a bit of power. If having principles and strong beliefs makes me a “member of the ivory tower brigade”, then I am a proud member of such brigade. I suggest a large part of our party (mainly MPs) are suffering from a sort of Stockholm Syndrome. Either that or they are simply no better than all the other MPs: in it for themselves and willing to do anything to keep their seats, even if it means neglecting what the voters who put them there actually voted for.
This will all end in tears anyway. The Tories will eventually betray us when we are no longer useful to them. Just have a look at ConservativeHome and they way they laugh at us and refer to our MPs as “useful idiots”.
“Simon Bamonte – it’s pretty clear that you’re one of the Ivory Tower “never sully my hands with actual power” brigade (go and say hello to David Allen)”
Hello Simon, and welcome to Tabman’s anti-fan club. If he has really enrolled you, as I know he has me, he will have installed some clever gizmo on his computer which alerts him to every post you make and prompts him to make an instant one-liner rebuttal, which will generally be long on rudery and short on analysis. It’s quite useful, actually. All your posts instantly get turned into double postings. One, in which you make your argument; and then a second, in which an opponent usefully explains what sort of person disagrees with you!
SB
– I just didn’t realise, at the time, how willing our party would be to, basically, let the Tories do what they want. I didn’t realise that so many Lib Dem MPs would be willing to not only vote for policies they were against before the election, but do so with glee.
Evidence? You’ve no idea what they were thinking when they were voted. Supposition on your part.
– Tuition fees,
A totally ludicrous poliocy in the first place.
– the VAT bombshell,
Which turns out to be more progressive than the alternative given that the most VAT is paid by those with higher disposable incomes, QED.
– disability cuts hitting very vulnerable people,
Disability benefits required reform, the inherited situation was a farce.
– NHS reform that was not on the cards,
Ditto NHS reform was required
– Clegg saying there would be riots if the Tories got in,
The Tories didn’t get in; there were riots. And … ?
– doing a 180 on our deficit reduction plans, etc.
The Coalition’s deficit reduction plans are in line with the spending reduction commitments we made prior to th election, and about £20bn less than that made by the Conservatives. Incorrect.
– My wife had a decent public sector job helping the disadvantaged find housing. Her job is gone now, she cannot find work at all (she’s always “overqualified” due to her degree) and she now will be stacking shelves at Tesco or Poundland next month for her benefits if she doesn’t find work.
I suspect this is the root of your disaffection.
Unfortunately, in a recession, people find themselves out of work. Its happened to a lot of people (me included, in the past). Clearly your wife is an intelligent woman and she should be able to (with assistance) identify the transferable skills she had with her previous job. With a little retraining she should be an asset to the workplace; unlike many of those in the private sector who found themselves out of work in 2008/9.
David Allen – I note you still haven’t replied as to who should now be leading the party, what they should be doing, and what would be different as a result.
It’s very easy to carp, but a bit harder to provide a positive alternative, isn’t it?
Tabman,
Our leader should not have signed the coalition agreement as it stands. First, given the (admittedly unwise) pledge on tuition fees which Clegg consented to sign, our leader should have insisted that our top priority had to be a freeze on fees, with other proposals such as the AV referendum being a negotiable lower priority. Second, as soon as the insincerity of the “agreement” became obvious – with the declaration of the Lansley health policy just two months after an “agreement” to no big NHS changes – our leader should have issued an ultimatum to Cameron – Either stick to the agreement, or else take responsibility for precipitating an election.
A new leader – who could for example be Huhne, Farron, Davey, or anyone else making a better case at hustings – would / will now have to dig themselves out from under the burden inflicted by Clegg’s mistakes. Only a new leader will credibly be able to do that. The party has recovered slightly since the aftermath of May 2011, when it finally found its voice, but the public remain generally suspicious, and will continue to do so if Clegg stays. (Their suspicion is justified. It would be nice to think that it was people like Evan Harris and Shirley Williams who persuaded the Lib Dems to find a backbone over the NHS “reforms”. Unfortunately, we know that the change in our attitude is, in fact, more due to Clegg’s shock and pique when Cameron double-crossed him over an issue of greater importance to Clegg’s personal career prospects, namely the AV referendum).
Recovery will now of course be fraught with difficulties. Clegg has thrown away a strong hand. Back in May 2010, we could and should have insisted that the price of our support was not all those Ministerial salaries, but the acceptance by Cameron that a minority PM has no authority to drive through an ambitious right-wing programme to roll back the State. Now, with barely 10-15% in the polls, we have a much weaker hand. A new leader can only apologise for the past mistakes, and take action to put a stop to the most blatantly extremist Tory policies as they emerge – such as the new proposal that NHS hospitals should be allowed to take up to 49% private patients!
Tabman,
you make some strong points, but you’re not making them in a way designed to convince.
This is politics, and politics is the art of the possible, so we’d do well to remember that making promises in politics is about the worst thing you can do. Circumstances almost always mitigate against being able to do in the future what you wanted to do in the past, so unless you’re presiding over a fait acompli you’re handing a stick to supporters and enemies alike to beat you with.
I agree that the ability to physically grasp power means mentally grasping that there is a balance which must be maintained, but your manner of expressing this assumes the inevitability of undesirable compromises in the interests of holding power.
I can therefore agree with David and Simon that it is justified to oppose those unexpressed assumptions because LibDem community politics puts the interests of the people before the interests of power, and we can rightly feel agitiated in wanting to hear how the actual compromises made are a better deal than the alternative compromises the party could have otherwise settled for.
So I can also disagree that the shopping list of complaints and their rebuttals are fairly constructed, which leads me to strongly disagree both with David that a change in leadership would be either desirable or beneficial as well as with you that the current leadership couldn’t have overseen more positive movement on the issues.
By no means am I a fanboy of his, but attacking Clegg for the mistakes in earlier party strategy is completely misfounded – partly because it disregards our collective manner of decision-making, partly because we have already seen a shift in balance as the current leadership has quickly learnt from the experience of being in government and partly because submitting to angry critics is no way either to calm them down or to win them over.
David’s claim that only a new leader would have the necessary credibility to shift from past mistakes is, frankly, incredible – because any mistakes weren’t Clegg’s alone. Additionally to overlook the evolving strategy towards ongoing internal coalition negotiations fails to acknowledge the real gains that have been made.
LibDems have started articulating clear policy differences with Conservative coalition partners (not least over Europe), so it is a perverse exhibition of self-immoliation to resort to dire criticisms based on the very personality politics which the party has long opposed.
Sadly, however, as we know all too well, politics is as much about perception as it is about fact, so I’d caution you and him not to permit a veil of anger to fall over the discussion… tempting as it may be.
Mark: Thanks for the link, but I’m afraid it provides precious little evidence that the Lib Dems were advocating bearing down on the deficit in the mid-2000s. In fact the article by Rob Blackie makes several claims which appear to be refuted in the documents he refers to, as well as in assessments of party policy by independent bodies like the IFS.
Let’s start with the 2010 manifesto costings. Rob says “our plans were for a cut in the deficit of over £8bn a year above Labour plans”. On the face of it, the costings do indeed show a net reduction in public spending of £8.7bn in 2011-12 rising to £10.7bn by 2014-15, while tax increases and tax cuts broadly offset each other.
However it is far from clear what baseline these figures are set against. Rob implies these are spending totals relative to Labour’s plans – but, as we know, Labour’s spending plans beyond 2010-11 were opaque and had to be deduced by careful analysis of the Treasury documents, since the totals were never explicitly set out and indeed were suppressed by Gordon Brown (hence the leaked Treasury documents in the last Parliament).
It was possible to calculate Labour’s outline plan for Total Managed Expenditure through to 2014-15, but these figures were not common currency even among economic commentators, so it would be bizarre for the Lib Dem manifesto to use them as a baseline without saying so.
The confusion is heightened when the manifesto adds, unhelpfully, that “all the savings we have identified are either instead of or additional to (my italics) proposals the government has already made”. So some of these savings turn out to be already planned by Labour, it’s just that the Lib Dems proposed a different means of realising them.
A key example is public sector pay, where the costing document explicitly states that the Lib Dem proposal for limiting cash rises to £400 for two years is an “alternative” to Labour’s plans for capping rises at 1%. So the £3.6bn that this measure saves is not a net saving relative to Labour’s plans, but merely a different means of saving a similar amount. Some of the proposed cuts in administration also resemble or overlap with measures Labour said it would implement. (And as an aside, it’s not clear why the proposed levy on bank profits should be categorised as a spending cut rather than a tax rise…)
Given the lack of an explicitly defined baseline for these figures, and of a breakdown of which measures were “alternative” cuts and which were “additional”, it isn’t possible to say by how much Lib Dem policy aimed to cut the deficit relative to Labour plans.
Certainly, the IFS didn’t believe Lib Dem plans involved cutting the deficit by £8bn per year more than Labour. Indeed in their election briefing document they complained that “the Conservative and Liberal Democrat manifestos do not even state clearly how big a fiscal tightening they would seek to achieve, and by when, assuming that the public finances evolve as the Treasury currently expects. And all three parties are particularly vague about the cuts in public spending that they all think should deliver the majority of the fiscal tightening.” They noted that Vince Cable had indicated that a much bigger fiscal adjustment would be required in a pamphlet for Reform that he wrote in September 2009, but added that “the Liberal Democrat manifesto expresses no such view”. (Link: http://www.ifs.org.uk/bns/bn99.pdf)
Indeed they noted that the goal set out in the manifesto to “‘at a minimum, halve the deficit by 2013–14” could be seen as less ambitious than the Darling plan, although the party apparently briefed them that this wasn’t the case.
The IFS said: “On the face of it, this looks like adopting the less stringent of Labour’s two legislative targets and therefore seeking a less ambitious fiscal consolidation than that set out in Budget 2010. But the party has told us that this pledge should be seen as ‘shorthand’ for pursuing the same consolidation path as Labour. We therefore assume that the Liberal Democrats have the same planned tightening and the same target for borrowing in each year as set out in Budget 2010.”
Tellingly, they added: “Again there is a contrast here with the views set out by Dr Cable last autumn, when he said not only that the adjustment would likely need to be larger than the government planned, but that it should also be completed more quickly than the government planned.”
As it turned out, the coalition’s policy response in the 2010 budget and spending review was remarkably similar in scale and timeframe to the one Vince advocated in the autumn of 2009 – but that’s another story!
In any case, my main point wasn’t about Lib Dem fiscal policy since the crisis, but rather the party’s acquiescence in Brown’s reckless mismanagement of the public finances between 2001 and 2007. (The Conservatives were guilty of this too for much of that period, I’m simply pointing out that Lib Dem claims of prescience are quite unjustified).
In the article Mark links to, Rob Blackie claims that “in 2005 we were planning to cut the deficit by £5bn a year”. Well the first thing to say about that is that in 2005 – after more than a decade of uninterrupted growth and with output growing above its trend rate – the government should have been running a surplus rather than borrowing almost £40bn per year; in that context proposing to trim the deficit by £5bn would have been woefully inadequate. (Orthodox Keynesians should be especially keen on running surpluses in the good times, since they see a key role for fiscal policy as a macroeconomic stabilisation tool and also need to create the headroom for the fiscal expansion they favour in a downturn.)
But in point of fact, the manifesto costings do not show that Lib Dem policy was to reduce the deficit by £5bn per year; what they show is a “cumulative contingency surplus” of £5.1bn by 2009-10. The actual difference between the spending and revenue proposals in that year is a mere £760 million – chickenfeed in terms of government finances. A contingency fund is not the same as a policy decision to reduce the deficit.
Also, in hindsight the forecast of how much revenue the 50p tax rate on incomes above £100,000 would bring in – £6.2bn per year by 2009-10 – looks pretty optimistic. So there’s a good chance that contingency fund would have been needed to plug the shortfall from that alone.
Rob tells us that “even as far back as 2001 we were planning to cut the deficit by hundreds of millions of pounds”. At that stage, in fact, the deficit was only just beginning to emerge, one year after Brown went into high-spending mode. (He had frittered away the surplus but the budget was balanced in the 2001-02 fiscal year.)
I don’t remember the Lib Dems arguing that Brown was being insufficiently prudent. Quite the reverse: the party’s Treasury spokesmen were persistently urging the Chancellor to spend the “war chest” he had built up through tax rises and economic growth between 1997 and 2000.
I can’t find costings in the 2001 manifesto, but a BBC article entitled “Do Lib Dem plans add up?” cites scepticism from the IFS over the projected revenue from a 50p top tax rate and increases in capital gains tax. Apparently the party’s Treasury spokesman Matthew Taylor also reckoned the Brown Treasury was being unduly pessimistic in its estimates of future tax revenues! (Link: http://news.bbc.co.uk/news/vote2001/hi/english/newsid_1331000/1331609.stm)
What is clear is that the policy pitch in 1997, 2001 and 2005 – through policies like “a penny in the pound” and the 50p tax rate on high incomes – was an increase in general taxation to pay for an increase in public expenditure, even after Brown’s spending spree was well underway. The party was not advocating a significantly different fiscal stance (either tighter or looser), but rather an even larger state (albeit only slightly) – until leading figures in the party finally acknowledged that position that had been overtaken by events, given the scale of the increase in spending since 2000.
The fact that Vince Cable correctly identified some of the imbalances in the economy (the twin bubbles in the housing market and personal debt) does not excuse the failure to diagnose the looming fiscal train wreck. In some ways it makes it less defensible, since tax revenues that were the product of a bubble economy were bound to be unsustainable, and spending plans needed to be adjusted downwards accordingly. Evidently the British public – and certainly the Lib Dems – were not deemed ready to face that particular music, however…
Alex Sabine,
“What is clear is that the policy pitch in 1997, 2001 and 2005 – through policies like “a penny in the pound” and the 50p tax rate on high incomes – was an increase in general taxation to pay for an increase in public expenditure … The party was not advocating a significantly different fiscal stance (either tighter or looser)”
You are of course broadly right, in principle. However, what you are overlooking is that all politicians have to persuade the public of the merits of their proposals, and that even those who try to be as honest as they can be often have to tell half-truths.
Just imagine what the reaction would have been if the Lib Dems had announced a policy of adding a penny in the pound to income tax, for which the public would get nothing whatsoever, apart from an assurance from us that it was time the State built up a surplus!
We sugared the pill. We said that we would use the money to provide better services. Nevertheless, we had been brave enough to make the case for a tax raise. Had we been a greater electoral threat, no doubt the Tories would have (correctly?) accused us of hiding plans for bigger tax rises.
I’m not suggesting that we deserve ten out of ten for our Keynesian policies a decade ago. More like 6/10, as against the Tories’ 4/10 and Labour’s 3/10. We weren’t entirely either honest or correct in our economic stance, but our position had a fair amount of merit.
Unlike the 2010 election, when all three parties lied massively about what they would do, and the commentators and the public knew it!
David: I agree about the lamentable posturing and dodging by all three parties in the 2010 general election, which amounted to a serious betrayal of trust. Subsequent breaches of promises were not simply a consequence of the coalition making compromise a fact of life, but of the evasiveness, bordering on dishonesty, of all three parties during the election campaign, when reckless promises about tuition fees, ring-fencing of departmental budgets, protecting almost all entitlements etc were made left, right and centre.
I do accept your point that – politically speaking – it is one thing to advocate putting up income tax to pay for a promise of better education, but quite another to persuade the public that they need to pay higher taxes to keep the public finances on a sustainable medium-term course when there was no imminent crisis.
I agree that in 2001 this would have been a “courageous” message (in the Sir Humphrey sense), since at that stage the underlying problem was quite manageable and could have been quietly addressed by Brown had he simply set a slower growth rate for spending in the 2001-05 Parliament (say 2% real growth per year rather than the 4-5% he actually went for).
However, well before 2005 it was clear that he had instead accelerated the growth in spending, accumulated a lot of debt, and run persistent structural deficits. Moreover, if the boom-time economic growth was as illusory as Vince Cable and others were by then proclaiming, then it should have been possible to make the connection between that and unsustainable public finances, should the party have been minded to do so. Instead I recall Vince saying on Question Time in 2005 that there was no problem with the public finances but only with the level of household debt.
For those reasons I can’t agree with your rankings of Lib Dem versus Tory and Labour fiscal policy during this period. The tax rises the Lib Dems were then arguing for were necessitated by the commitment to an even higher spending trajectory than Brown’s. If we leave to one side the quibbles the IFS and others had about the likely revenue from 50p tax and CGT changes, the party was planning to fully fund its additional spending commitments, but it didn’t see any need to question whether Brown’s existing spending was affordable.
Obviously, from my perspective the newfound commitment to fiscal discipline that the Lib Dems have shown in government – well articulated by the likes of Nick Clegg, David Laws and Danny Alexander – is a big improvement. But if this is to amount to more than mud-slinging at Labour, it requires a more honest narrative of where mistakes were made in the past and what the origins of the current fiscal crisis are.
The problem wasn’t (as Lib Dem spokesmen sometimes imply) simply that Brown went on a scorched-earth spending spree in 2008-10, from which the Lib Dems might more easily distance themselves. The real fiscal problem – alongside the other fundamental mistakes in bank regulation and monetary policy – was the whole 2001-07 period when Brown was Chancellor and recklessly pursued a huge pro-cyclical increase in spending that was only partially financed by increased tax revenue, which itself was largely a mirage.
And as I pointed out before, the necessity of fiscal discipline in the good times is particularly strong for Keynesians, ie advocates of active fiscal policy, since you need to create the “head room” in the years of plenty to enable an aggressive stimulus when the economy turns down.
That implies that in the good times the debt-to-GDP ratio should be kept so low that it will remain at reasonable levels even after several years of large deficits. The economist Roger Bootle, who takes a broadly Keynesian view of fiscal policy, reckons should be about 20% of GDP – half the UK level going into the recession.
As he says in his recent book “The Trouble with Markets”, the UK’s record of fiscal laxity during the good times “amounts to a gross dereliction of duty. It is the equivalent of a government leaving a country undefended against its enemies; in this case undefended against itself. It is all very well racing up huge debts as the result of a war for survival, as Britain did three times in the last 200 years…but the amassing of huge debt as the result of peacetime fiscal incontinence, especially to finance burgeoning welfare spending, is unforgivable.” This is a Keynesian perspective, remember…
By contrast, the Australian government ran surpluses for year after year during the long boom and actually eliminated its net public debt altogether in 2006, giving itself maximum room for manoeuvre to respond to the recession. (It also did a notably good job of regulating the banking system, but that is another matter.)
Oranjepan said:
“David’s claim that only a new leader would have the necessary credibility to shift from past mistakes is, frankly, incredible – because any mistakes weren’t Clegg’s alone.”
No doubt all failed leaders – Ian Duncan-Smith, Gordon Brown, Ed Miliband, etc – could similarly argue that others had shared in making mistaken decisions. Generally they don’t, since both leaders and followers have absorbed the truth of Harry Truman’s maxim – “The buck stops here.”
Additionally, any leader faces a particular credibility problem if he/she decides it is necessary to make a U-turn. Simply, the act of eating humble pie and making the U-turn damages the image of leadership, and makes it all too easy for opponents to challenge or ridicule the weakened leader.
That’s why the Lib Dem U-turn will have to be made by someone else. (Or, of course, we could just stick with the present course, and make sure all our paid staff and MPs etc train up for the alternative careers they will need after 2015).
David,
I would’ve thought you’d be looking for reasons to cheer an hour before the bells ring in the New Year.
You’ve claimed Clegg is driving an ideological shift in the party which has resulted in calamatous errors at the strategic and policy levels. You’ve claimed a complete reversal of direction is required and Clegg must sacrifice himself on the altar of your analysis.
Such ritualised blood-letting is meaninglessly arrogant.
You don’t present any details for what your alternative direction may involve, or even how you’d measure potential success against the current status. And you don’t suggest a potential name to replace him, why they would be any better placed, what positive difference they could make, how they’d be able to make a wider appeal across society or if there are in fact any challengers interested in the job.
For someone who makes as many regular contributions you simply restate your conclusive assertion without supplying any reasoned argument.
You’re banging your head against the wall of the bathhouse saying ‘the bathwater is cold and dirty, so let’s empty the bath’.
Be careful, one might get the impression you are a headbanger.
Happy New Year. Don’t overdo the heavy metal gigs.
Happy New Year, Mr Oranje.