The Tory quest for a fiscal Holy Grail is doomed

05 November 2008

Brown’s golden rules have been exposed as a sham, says Irwin Stelzer, but the Tory response has been feeble. Their target should be the PM’s feathering of Old Labour nests

The final casualty of Brown’s attempt to minimise the downturn is our understanding of the economics of John Maynard Keynes. Keynes did, as Brown argues, favour expanding government spending and borrowing during a downturn. But he was too much of a conservative to support such an expansion during good times. The great economist might not have been much of a believer in the teachings of the Bible, but his policy prescription was closer to the one Joseph recommended to the Pharaoh than to the one Brown and his Chancellor are recommending to British voters.

This uncharacteristic lack of intellectual rigour on the part of the Prime Minister is one with his analysis of the cause of the crisis. It seems Britain is the victim of a disease that originated in America, and magically crossed the ocean to infect perfectly healthy British banks — the very institutions that were writing mortgages valued at 125 per cent of the value of homes, issuing millions of credit cards and not checking financial statements of borrowers, all under the eyes of regulators attempting to implement the trifurcated regime created by then chancellor Gordon Brown.

Still, Brown has finally got it right. No use pointing out that a price will be paid in future inflation, higher taxes, slower growth and misallocation of resources. These costs will be worth paying if they save us from the still higher costs of a collapse of the financial system and a deep and protracted recession.

It was surely right to recapitalise the banks, as Brown led the world in doing. It is surely right to loosen fiscal policy, even though the starting point is a government budget already unnecessarily deep in the red. It will surely be right to cut some taxes to stimulate spending, which Brown is considering.

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David

November 6th, 2008 9:14am Report this comment

"Still, Brown has finally got it right"

I'm pretty sure Irwin has been telling us Brown has got it right every year for the past decade.

Tony Makara

November 6th, 2008 10:18am Report this comment

The Conservative leadership fails to understand the need for public works programmes as a way of keeping people in work at a time of recession. The cost in terms of welfare and social housing for those who lose jobs will be far greater in the long term.

David Cameron has talked about supporting the supply side with transport infrastructure and the recession now provides an opportunity for government to make that sort of investment.

The more people we can keep in work the more property owners will emerge from this recession. This is very important if we want to preserve the housing market and support social mobility.

perdix

November 6th, 2008 9:12pm Report this comment

Noone has a coherent economic policy and with shocks like today's interest rate cut it's not surprising.

Cogito Ergosum

November 7th, 2008 12:09am Report this comment

A former work colleague went out to Korea. In two years they turned a green field into a working power station.

We could do likewise if we really wanted to. Roads, power stations, military equipment...

Dwight Vandryver

November 7th, 2008 4:13am Report this comment

The welfare state costs the UK over £300bn per year, the NHS an extra £100bn per year. The list goes on. Collective personal debt is over £1 trillion. Brown has pledged half that to try to ameliorate the UK's banking crisis, on top of the ludicrously increasing government and PFI debt of his own making.
And Mr Stelzer tells us that Brown "has it broadly right" to spend his way out of recession? Mr Stelzer needs a rethink. If new contracts are put out for tender for "works benefiting the public", there is no guarantee that these would not be won by foreign firms employing their own staff. In fact, they probably would be, but the spin Labour would put on them would be tantamount to untruths. At the end of the day, Brown's spending spree will have to be paid back through taxation, and who wants to be around when the S hits the F? With this as a backdrop, it's no wonder that the Tories are somewhat reticent.

Ashley Slater

November 7th, 2008 10:26am Report this comment

The horrendous spectre of Brown spending another full term in office is on the cards after the Glenrothes by-election. In fact, I predict here and now it'll happen. Brown has buried us up to our necks in doo-doo but he'll get away with it because the people of this country still associate the failure of the financial institutions with the Tories. Fat cats are Tories and Cameron will never gain power as long as the Tories are seen as a bunch of Old Etonians. I'm sorry, you Old Etonians out there, but you're not everyone's cup of Earl Grey. Forget about fiscal policy, forget about the absurdity of Tory 'green' policy, forget anout any policy. It's image that matters, as Obama has proved, and the public image is one of George Osborne sipping martinis on a yacht. That's a very strong image. (Mandelsson is a Tory as far as most people are concerned so don't think his presence counts). But the most important point is that, for the vast majority of British people, Tories equal big business and right now big business is Public Enemy Number One, just ahead of Jonathan Ross and Gary Glitter. Brown, by single-handedly wrecking the economy, has unwittingly ensured his own survival. Genius! Joseph Heller couldn't make it up.

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