The big shrug

Daniel Finkelstein wrote a column in the Times today, claiming that Labour will have to face up to the need to make major cuts in public spending and welfare if it is to be a credible modern party.  Well, it’s Murdoch, I suppose, but it is sad to see this nonsense.  I’ve followed Mr Finkelstein’s columns with interest, and enjoyed the sporadic TV appearances: he is particularly good at the application of maths and statistics to everyday problems and beliefs, even in sport.  An example: he explains why sports teams get improved results when they sack a manager, and it’s the same reason accidents decline when a speed camera is installed on a busy road.  Namely, reversion to the mean – after a set of bad results/outcomes, the workings of normality mean you get a string of good outcomes.

However, he was a Conservative apparatchik – director of their research department – and, no matter how strong his commitment to rationality might be, he can’t get that out of his blood.  So, he doesn’t see that the major, even only issue at the moment is to encourage growth and drive up incomes, to reduce unemployment and create wealth.  It really isn’t to make government cuts.  The austerity v. growth debate is over, and the austerians have lost.  The research they relied upon has been thoroughly discredited – not just flawed, but (given the nature of the errors in the calculations) deliberately warped.  The IMF is apologizing for its mistakes, agreeing that the advice given to Greece was wrong, and their calculation of spending multipliers flawed. The recovery from the shock of 2008 is slower than the recovery from the Depression of the 1930s.  The budget deficit is regularly revised upwards, and we have not experienced the full horrors of the cuts yet.

It used to be the left who ignored the facts and theories that discredited their views.  Yet those days are past.  No-one nowadays is asking for a 98% tax rate, a command economy or widespread nationalization.  But the right seem unable to change their views in the light of overwhelming evidence: there appears to be nowhere that the Osborn/Rogoff/IMF measures have had any success.  The policy response to failure has been described by Paul Krugman as “the big shrug”.  In the case of Rogoff and co, the response is “ we are still right even though the evidence no longer supports us”.  Strewth: my economics degree is a Bachelor of Science, but to call that way of thinking scientific seems a stretch. Economics as homeopathy/astrology.

The Finkelstein article was sparked by Labour temporising as to whether they support specific government cuts or not.  Of course not every aspect of government expenditure can be justified in a changing world, and some programmes are ineffective.  Of course the Labour leadership is unimpressive.  The Shadow Chancellor Ed Balls is a blustering vote-loser – what would be called, in cricket parlance, a walking wicket.   He has the awful false smile of the bully who wants to be liked. He can’t seem to decide whether to oppose austerity, or say he would do it better.  But I suspect the reason he and others in the Labour leadership are mumbling about ‘tough decisions’ (ps. never trust a politician who speaks of tough decisions – they are always tough on someone else) is not because they think they’re a good idea, but because of the unanimity of press and TV that cuts are the only way forward, and the idea that, to be considered ‘serious’, commentators and politicians must ‘address the problem of the deficit’, and the way that plays with public perceptions.  But we have had deficits before, and massively larger national debt to GDP ratios: 120% in the 1920s, 250% in the 1940s (despite the claims of Eamonn Butler published uncorrected in the Times last week – see my letter to the press elsewhere in this blog).  We lowered those proportions by expansion and growth: I was born in 1945 and cannot remember my childhood or working career being blighted by an over-high national debt at any stage.  The proportion of debt to GDP was higher from 1940 to 1968, and lower from 1969 to 2010: this was never a matter of political debate, or made not the slightest difference to our national prosperity one way or the other.

Bringing forward a plan for recovery, and finding imaginative ways to fund the investment and job-creation is the priority, the only priority.  It  will be very difficult: actually, it will be tough.  But we are a  resourceful nation, and have a financial sector that is adept at creating new financial products.  Billions are fed into monetary easing, and there must be a way to use that to energise the economy rather than bloat the banks.  Simple initial measures could help.  Reinstate Educational Maintenance Awards.  Stop cuts to local government.  Support plans for improving the transport infrastructure in London and elsewhere.  Reduce VAT to shore up the standard of living of (sigh) hard-working families at a time when incomes are falling, and predicted to fall further.

I write to the Times regularly, and get published pretty often.  But no letter deviating from the austerity norm is permitted.  It would be nice, if far-fetched, to think of someone having a word with the editor to see if an article by somebody decent – Krugman would do – could be commissioned to counter the flood of nonsense we have to read on the other side.

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