In a bizarre move last week, the Conservatives and Liberal Democrats held a joint press conference attacking the last Government’s economic record. At the same time the Conservative’s launched this video:
which seeks to pass the buck for its spending cuts onto the previous administration by rebranding them “Labour cuts”, a gambit I expect we’ll hear repeated ad nauseum in the near future. This kind of finger-pointing is nothing new, but the orchestrated nature of these publicity stunts still leaves a bad taste in the mouth, particularly as its main claims are built on rather shaky foundations.
The primary point made during the press conference (besides a rather pathetic swipe at the severance packages of former cabinet ministers) was that Labour had left the public finances in such a bad state the new government has “no choice” but to cut spending now. In the words of outgoing Chief Secretary of the Treasury, Liam Byrne, in an extremely ill-advised note to his successor, “there’s no money left”. The urgency of the cuts is predicated on the claim that the metaphorical bailiffs are practically at the door, bolstered by inappropriate and simplistic comparisons with the situation in Greece.
Unfortunately, this is complete rubbish. Due to the length of time until our debt matures, and our higher level of assets, the UK can survive with its current deficit for some time to come (although it is better if we reduce it in the long run). In fact, it is preferable to continue spending in the short term, to invest in industry and infrastructure, thus increasing and widening the country’s tax base, than cut now, while the economy’s still weak, creating a poisonous legacy of unemployment. The government’s oft-repeated mantra that “there is no alternative” to spending cuts only begs the question of its own preoccupation with perfectly balanced accounts. Gordon Brown may just as well have said that he had “no choice” but to spend at high levels during the nineties, because of the Conservatives’ prior neglect of public circumstances. In fact, Labour has often made that very claim, albeit with less zeal, but it is a fallacy. We could have limped on with decaying public facilities and substandard healthcare, just as we can now survive with a higher deficit, but for all its many, many faults, the Labour Government decided this was unacceptable.
It’s all about choices and values, and the Conservative ideology is fundamentally at odds with a large, proactive state, and so seeks to cut it back at the first opportunity.
The second sleight of hand the Coalition is seeking to perpetrate is to portray the recent high deficit levels as entirely a product of excessive public sector spending. This is an extraordinary rewriting of history. During the joint conference, Chris Huhne stated that:
Labour leadership candidates say that spending was not the problem, it was taxes. Nonsense. In just two financial years up to the election, public spending rose by 10% in real terms. That’s a rise after inflation of £59bn. Spending went from 44p in every pound generated by our economy in 2007 to 51p in 2009. Taxes went down by 1p in the pound.
This was for one reason, and one reason only: the multi-billion pound bailout of Britain’s beleaguered financial system after the economic meltdown. It’s a mark of the Cameron Government’s talent for image management that it has succeeded in expunging the significance of such a well-publicized crisis from the collective memory. In its place they are concertedly pushing their ludicrously counterfactual line that Labour tried to “buy” the last election, with a sudden spending splurge. All this is sustained by the constant conflating of the nation budget with the concept of a household budget. This idea is very intuitive and so has had a great deal of success with the public, but it is very far from the reality of the national and global economy. Paul Grignon’s excellent documentary “Money as Debt” gives a clear description of a very complicated subject, and is a must-view, although be warned: it will make you very angry.
A high level of government debt (that is the cumulative historical deficit) is unavoidable in the present economic system. The only solution is, ironically, to do what no party will consider, and completely nationalise money creation. This country was vulnerable to the crash, not because of high public spending, but an economy overly dependent on the financial sector. To change this governments need to invest in and protect British industry, something the Labour leadership is beginning to, belatedly, come round to. For now, we have every reason to be very uneasy about the future.
UPDATE: I’ve embedded the “Money as Debt” video into the blog as well, for ease of access. Cory.