So David Cameron says there is ‘no magic money tree’. In his big economy speech today, the Prime Minister said:
‘Now of course there are plenty of people out there with different advice about how to fix our broken economy. Some say cut more and borrow less, others cut less and borrow more. Go faster. Go slower. Cut taxes. Put them up. We need to cut through all this and tell people some plain truths. So let me speak frankly and do just that.
‘There are some people who think we don’t have to take all these tough decisions to deal with our debts. They say that our focus on deficit reduction is damaging growth. And what we need to do is to spend more and borrow more. It’s as if they think there’s some magic money tree. Well let me tell you a plain truth: there isn’t.’
The Prime Minister was clearly swiping at those who favour a demand-led approach, such as Ed Balls and Vince Cable, and those in his party who have been calling for unfunded tax cuts.
But he seems to forget that he is sitting underneath a really big magic money tree, one so magic and mystical that no-one quite understands it. As Fraser explains in this week’s Spectator, Cameron and George Osborne are relying less on Budget announcements and more on monetary policy to work magic on the economy. The Bank of England’s quantitative easing programme has created £375 billion of magic money, which keeps interest rates artificially low, thus engineering a recovery, or at least the illusion of one.
But this sort of magic money tree is more at home in a Grimm’s fairy tale than a modern one where everyone is destined to live happily ever after.