...a blog by Richard Flowers

Tuesday, January 25, 2011

Day 3677: The Coalition Response Isn't Good Enough – Negative Growth Needs Positive Action


There's no avoiding the fact that the growth – or rather SHRINKAGE – figures for the last quarter of 2010 are a DISASTER.

Never mind that economies take YEARS not MONTHS to turn around, and that Great Britain was just TOO SICK after Labour's handling of the recession to get up again; never mind that the Coalition's spending review simply CANNOT have had TIME to be the cause of contraction. People, unfairly, will judge by what it LOOKS like.

And it looks like WE did this.

So we NEED to have something BETTER to talk about than the WEATHER.

Look, you KNOW what Hard Labour are going to say: it's an alliterative accusation that rhymes with WALNUT WHIP recession.

Sticking to Master Gideon's line of "it was the weather" and "no change of direction" will make us look SMUG and COMPLACENT and – worst of all – like we're doing this because Labour are right and it's IDEOLOGICAL.

And Labour are so very VERY wrong on this that we absolutely must not give them even the scantest figleaf of cover.

So we have GOT to show that we are FLEXIBLE and LISTENING and willing to take on CHANGES in CIRCUMSTANCE.

This comes hot on the heels of Sir Richard Lambert's well-timed accusation that the Coalition lacks a "vision for growth".

I think that that is UNFAIR. The Coalition DOES have a vision for a Britain that invests in new GREEN technologies to kick start the next phase in our economic cycle, and HAS announced policies intended to encourage growth, particularly Mr Huhney Monster's Green Deal. There's also the Green Investment Bank, a corporation tax cut for businesses, and Project Merlin to try and get the banks lending again.

But all of that rather got SWAMPED in the announcements of the spending round and then the small matter of a couple of tuition fees riots. Bad news makes better headlines.

Labour, of course, were very keen to throw Sir Richard's remarks in the Coalition's collective face.

Yes, first Labour accuse us of being IDEOLOGICAL. And then they accuse us of having NO VISION. And they see no contradiction in that.

Mr Potato Ed himself has recently been saying that economic growth is the thing we're leaving out of the account when bringing down the deficit, and this makes him look very wise and prescient.

If only he would TELL us how he would ACHIEVE economic growth.

In fact, EXACTLY this lack of clarity about Labour's own position added to the usual level of STAGGERING FRUSTRATION achieved while watching the Newsnight Show with Ms Kirsty Waaaaaark, last night.

Posing the question as: "can the private sector get us out of this situation" was screaming for someone to answer: "ONLY the private sector get us out of this situation; Governments don't create wealth, don't create growth – they just SPEND, to a greater or lesser extent, what other people MAKE!"

Don't get me wrong, Governments can do MANY GOOD THINGS by their spending, but CREATING the wealth that they spend is NOT one of them.

(Actually, before anyone else sticks an oar in: Governments pay for EDUCATION, both at school and higher education AND through retraining; the theory is that this leads to growth because the same workforce can now produce higher value goods (e.g. computer technology instead of raw coal or iron). This is the "ENDOGENOUS" theory of growth (meaning growth generated from within) that came after the NEOCLASSICAL theory which said growth can only be achieved by injecting more CAPITAL (i.e. by BORROWING).

Yes, it's true: Mr Frown lectured us on "post-neoclassical endogenous growth theory" and then went and built his growth on a (neoclassical model) borrowing spree instead. So much for knowing the theory.

But that's not important right now.)

Interviewing Conservatory Business Minister Mark "I'm going to spell this very carefully" Prisk and Labour's Shadow Chief Secretary Ms Angela "so I'll get this one wrong" Eggplant, Ms Waaaaaark repeatedly pressed Ms Eggplant to admit that new Shadow Chancer Mr Bully Balls has changed his mind on deficit reduction since the Leadership contest.

Which I'm sure is very FUNNY and all that, but is it the remotest bit RELEVANT?

The question that was BEGGING to be asked – and never was – was: "what is LABOUR'S vision for growth?"

Because if, as is their position, the country NEEDS some vision, then they should jolly well GIVE IT ONE.

Yes, superficially, there's shadenfreude to be gained from exposing their HYPOCRISY if they have to admit they haven't GOT one (blank sheet of paper and all that).

But actually allowing them to make a positive contribution to recovery ought to be more important than that.

I do need to say, though, "not doing the VAT rise" or "not doing the {insert specific named cut here}" do NOT amount to a "vision"; even "cut more slowly" is PROCESS not VISION. It's also stupid and wrong, but never mind that.

My suspicion is that in particular Mr Bully Balls would say that the government should BORROW more in order to INVEST in GROWTH.

It sounds such an OBVIOUS and SENSIBLE idea, particularly when he can point to the "obvious" effect on growth of the Coalition's deficit reduction plans.

This is NOT the answer.

Apart from anything else, all Governments have a notoriously bad record when it comes to investing in winners. But more than that, bunging money into the economy – even if more borrowing didn't make the whole deficit/debt crisis WORSE – just INFLATES it. But that's not the same as genuine GROWTH.

In fact, that's been Labour's problem ALL ALONG. For the last DECADE, they've DISGUISED the REAL levels of growth in the economy by adding cheap credit from abroad, making it look better in the boom, making it look not so bad in the recession. In the short term circumstances of the recession that helped people keep jobs so it's not all bad. But in the long term it just DEFERS the evil day when you have to let the inflation out of the system again like a hideous economic WHOOPEE CUSHION.

A GENUINE vision for growth means supporting people who want to put their efforts and ideas into creating something.

So what do WE need to do?

(For that matter what CAN we do? Remember: there's no money left!)

Well, one thing we can do is TALK.

It's all too easy simply to REJECT what people say when they say we are getting it wrong. But Governments ALWAYS do that.

Surely the ESSENCE of the Coalition's "New Politics" is openness to DISCUSSION.

So, we – and by that I mean Mr Dr Vince and Master Gideon – should start by ACCEPTING that we need a new plan for growth, and TALK to the CBI – and to the Federation of Small Businesses, and indeed to the PUBLIC – to brainstorm some IDEAS for what we are going to do.

Call it the BIG PLAN for the BIG SOCIETY, if you like.

We also need to admit that in some areas there is a CONFLICT between putting the country's finances on a sound footing and supporting growth. Some of the things that we have done to close Labour's deficit – in particular the VAT rise, but I'd say tuition fees as well – mean taking more cash OUT of the economy to cover Government spending, and money OUT of the economy means LESS money to invest in what the theorists call "capital" (like new machines or factories) that enable you to make more wealth.

So the second thing we should do is EXPLAIN a long term strategy to REDUCE the total amount of tax taken OUT by the Government, and why this would stimulate REAL growth in a way that borrow-and-spend doesn't. (And we should probably start by explaining that TO MINISTERS who have to go on telly and talk about this sort of thing).

We need to be planning to reduce how much the Government takes. From a Liberal Democrat point of view, that means reformulating how we abolish tuition fees by making cuts elsewhere instead of raising other taxes to cover it. From a Conservatory point of view it means at least putting a reversal of the VAT rise back on the table to be considered against future income tax cuts.

Yes, it's NICE to give people a tax cut, but tax cuts shouldn't be about just being NICE; they should be about BALANCING what the Government spends with what the economy can SUPPORT.

The SIMPLEST and MOST DIRECT way of investing in the economy is to give people their own money and letting them decide how to invest it.

This ISN'T the "Tea Party"; we're not about getting the Government "off our backs"; we're saying the Government is leaning too heavily AT THE MOMENT, that taking pretty much HALF of everything that is earned is too much, and people need MORE FREEDOM (over how they spend their own money) if they are going to create new businesses and new jobs.

We need to be clear we are not just cutting the deficit as a RESPONSE to the crisis, but that actually it makes LONG TERM SENSE.

Finally, it does us NO GOOD to dismiss these really very bad figures as because of the weather or a result of the continuing weakness of the American and the global recovery or the fault of the Labour Party's long term economic ineptitude.

Just because those things are TRUE doesn't make them sound any less like weasel words. And frankly, Master Gideon could look LESS like a weasel.

We WANTED to run the economy; we should MAN UP and accept responsibility for it.

And if we state with confidence that we can pull through this, then we just might.


Listening to Mr Dr Vince on the The Today Programme this morning, I thought that he sounded rather SUBDUED, even CHAGRINED. At the time I thought it was because he was still feeling roughed up over the Tell-lie-o-graph STING and the whole Murdoch business, which was bound to be discussed and indeed was. But with hindsight, I do wonder if he hadn't had a hint of the coming figures on growth.


Auntie Caron wanted me to have a go at explaining "Interest" and "Inflation", and I think that it is important to include what we mean by "Growth" in that list too.

But that's all a bit of a BIG topic, and I reckoned that it was more important to talk about how we TALK about these results first.

So more on that subject next time!


JohnM said...

that's a rather complex explanation. But it's simplistic crowd pleasing that got us into this mess and the same being offered as a solution by the other side so - thankyou! How to make complex explanations into snappy headlines?

Radar said...

"The SIMPLEST and MOST DIRECT way of investing in the economy is to give people their own money and letting them decide how to invest it."


Bernard said...

"So we have GOT to show that we are FLEXIBLE and LISTENING and willing to take on CHANGES in CIRCUMSTANCE."

And this is the problem.

What happens next is up to you. Contrary to the deterministic rhetoric, there ARE choices. There needs to be a Plan B.

It's not good enough to say "We are certain that our approach is the best one and if you don't agree, you are wrong. And by the way, if you want to blame someone, blame Labour".

Let's see