“It’s the economy, stupid” was famously the theme of Bill Clinton’s 1992 presidential campaign against the incumbent, George Bush Sr.
George Osborne is now trying to use the same message to pretend that the scale of the planned public expenditure cuts are justified by the state of the British economy and the scale of the deficit that the Coalition Government inherited.
However, an article by the estimable Bill Keegan in today’s Observer demonstrates yet again that what is driving the Coalition Government’s stance on public spending is ideology not economics – a desire to finish the Thatcherite evisceration of the public sector. It is rather as though Thatcher’s children – aka Cameron, Osborne and Clegg – have a psychological drive not only to obtain parental approval, but a desire to achieve more than that parent – just as George W Bush seemed to feel he had to emulate his father’s invasion of Iraq and then take that invasion one stage further to regime-change and beyond.
Bill Keegan describes the Coalition Government’s economic policies as “fiscal masochism” and “Born Again Thatcherism” arguing that:
“The pretext for Thatcherism Mark One was the threat of accelerating inflation in 1979/80. The acceleration in inflation was assisted in no small way by some injudicious decisions taken by the Thatcherites, decisions that served to embed an inflationary shock emanating from the second oil crisis. This time the pretext is the fiscal deficit, the significance of which our new government has been grossly, and irresponsibly, exaggerating.
Last week, I pointed out how minor the public debt “crisis” of today appears when compared with the situation that faced chancellor Neville Chamberlain when he introduced his deflationary budget of 1932. Chamberlain, and the “Treasury View” that lay behind his budget strategy, have rightly been castigated by economic historians for that deflationary approach. Yet the debt problem facing our strange coalition is hardly on the same scale.”
He then takes the Coalition’s arguments neatly to pieces:
“The figures are worth repeating: the latest budget red book puts UK debt at 61.9% of gross domestic product in 2010/11 (against 177% in 1932) and debt interest at 6.3% of total public expenditure in 2010/11 (against 40% in 1932).
And the invaluable annual report of the Bank for International Settlements (the “central bankers’ bank”, based in Basle) contains some impressive charts and tables that suggest our new prime minister and chancellor, along with their Lib Dem collaborators, should be prosecuted under the Trade Descriptions Act for distorting the scale of our fiscal problems.
I give you chapter and verse: on page 68 (Part V) you will find that Britain is top of the league when it comes to the length of time before its debt has to be refinanced. The “average maturity” of the UK’s debt is 14 years; by comparison, other leading industrial countries, including the US and Germany, have maturities of under 9 years. This is not to say there is anything wrong with the US or German position – few can gainsay the fiscal rectitude of the Germans; and the US, whatever its fiscal problems, remains the pre-eminent reserve currency. But it shows how hysterical the debate in Britain has become.
Again, on the same page, the BIS report contains a graph comparing different countries’ dependence on overseas finance. “Non-residents” hold approximately 70% of Greek government debt, just under 50% of US government debt, and below 30% of UK government debt.”
So the debt is not as bad as suggested, the scale of the debt interest needing to be paid each year is not as serious as we have been told, and the UK’s vulnerability in terms of refinancing and of overseas debt holdings is far less than the Coalition Government would have us believe.
So it’s not the economy, but ideology. And Tory ideology at that.
I’ve mentioned before being told by a (slightly tipsy) Conservative MP before the election that the Tories’ political strategy, if they won, would be to declare that the state of the economy was much worse than had been expected and then embark on a programme of “Ridley-ite” cuts that would make Margaret Thatcher proud. And that was before the full scale of the global recession had kicked in.
And now as Bill Keegan reminds us even the markets are getting jumpy:
“While Osborne has been fomenting fears of how the markets might react to insufficient austerity, the theme of the market reports last week – following the commitment to fiscal masochism that emerged from the G20 meeting at the weekend – was that those financial markets that brought us the crisis and then called for austerity are now concerned about the effect this might have on economic growth – and hence on those budget deficits they seek to reduce!”