Thursday, 22 December 2011

Does financial responsibility imply fiscal conservatism?

As policy-makers search for ways of sorting out western economies the term 'fiscal conservatism' has gained currency as a preferred synonym for financial responsibility; obviously by Conservatives themselves, but more surprisingly by many self-identifying progressives too.

While all sides agree that financial responsibility is a pre-requisite for good government there is less agreement about what this means in practise exactly and whether an economically right-wing approach is actually desirable for the economy.

Financial responsibility translates on the right as efficiency and plans to reduce state intervention and regulation, while on the left it means an effective policy on growth and stability with state welfare systems at it's heart.

For some, nostalgic for the boom years of the mid-1980s under Reagan and Thatcher, lower income taxes and axing wasteful policy totems are the incentive for investment and self-betterment. For others, nostalgic for the ka-boom years of the early and late-1980s under the same leaders, unemployment spikes, industrial strikes and the devastation done to state-dependent social infrastructure are the horrors they define themself in opposition to.

According to the IPPR's Adam Lent et al in their discussion paper, Labour faces a quandary, however, as uniform opposition to every spending cut allied to a determination to deficit reduction makes their aspiration for social justice through expansion of the welfare state incredible. The left's aim to 'protect living standards' therefore equates to their espousal of an ideological reversal.

Betrayal, you hear the cry!

But the battle passed its' boiling point when the public largely accepted the need for at least some austerity - whither the public, hence the politicians.

Co-author Hopi Sen picks up a selection of Labourite responses, most notably (and predictably) from Blue Labour's John Wilson - in which he self-conciously echoes Kinnockite mantra to specifically support the idea that "balanced budgets are a precondition for political radicalism."

Meanwhile, although several specific problems are quickly identified with the doctrinaire prescriptions these fresh converts deduced from their newly favoured ideological nostrums, the partisan spectacle of claims that "there is nothing right wing about fiscal conservatism" are almost too bizarre to be true!

So let's understand what we're talking about: fiscal conservatism means taxing less and spending less, or vice versa. Either way it means shrinking the state and shrinking state deficits, as one prong of conservative economic policy (which, we shouldn't forget, is designed to create a mutually-supportive relationship with conservative social policy).

Within that stricture variations between libertarians, supply-siders and deficit hawks can be found: libertarians profess a wish to 'starve the beast' of taxes as a form of crash diet for state spending; supply-siders argue for tax cuts as an economic stimulus which pays for itself; deficit hawks see spending cuts and tax rises as the best way to reduce deficits.

Yet this would hardly be of any interest if it weren't that the shift towards fiscal conservatism wasn't also a shift away from an opposing perspective.

The almost universal consensus which has existed since the depression of the 1930's that 'Keynesian' anti-cyclical deficit spending (ie on economic stabilisers and strategic infrastructure) is the way to boost growth is breaking down, while a similar consensus developed in the 1980s that stability could be ensured by gaining greater control over monetary policy has similarly been under attack.

Governments habitually integrate into their rhetoric some degree of supply-side reforms and Keynesian stimulus, offset by an undercurrent of raging war between the deficit hawks and doves according to conditions, while the economic libertarians tend to attach themselves to the supply-siders just as social democrats do to their Keynesian confreres in the hope of exerting a stronger influence. Their problem is that with huge monetary stimulus provided by recent tax-payer funded bailouts and quantative easing on top of already seemingly permanent deficits monetary policy tools have been largely exhausted thereby pushing the political focus back towards fiscal policy.

For LibDems traversing this policy challenge the shift has been painful. Not only did it mean forming a coalition with bitter rivals, but it meant trying to justify the change in approach. Though for me change provides the necessary counterpoint to the status quo of conservatism, the tenor of general opinion more accustomed to avoiding such paradoxes for the sake of maintaining perceptions of reassuring clarity was enough to create significant resistance at the polls.

Clegg and Cable have had their difficulties in defending the thrust of this new direction, but in one major factor they've proved their liberal credentials by rejecting outdated dogma irrelevant to the current needs.

Debts ballooned beyond the point of sustainability as conservative monetary policy allied to liberal fiscal policy under the delusion that unending growth had banished concern about stability, so as monetary policy was loosened by force in the face of the crisis fiscal policy required tightening to keep a handle on the deficit and prevent recession turning into depression: to be financially responsible did imply urgency for fiscal conservatism, but it certainly doesn't imply any necessity all other things being equal - it is merely one legitimate policy response useful under specific conditions.

All of which leads to the unavoidable conclusion that in their haste to remain electorally relevant Labour is now making the case for the LibDems. Remembering the overt tactic to demonise LibDem leaders, calling them a 'human shield' (among less glamorous epithets), this makes Ed Miliband's position increasing untenable - at least in moral terms!

Wednesday, 14 December 2011

Labour's shifting sands - from general election to general strike

Since the 2010 General Election delivered its' stunning no-result, commentators and strategists alike have been struggling to cope with the change this has wrought on British politics.

The outright dismay seen among LibDems at PM Cameron's schoolboy confusion between negotiating tactics and demands backed by a less-than-cast-iron veto is merely the latest episode of the reality saga - anti-europeans can continue to crow before the dawn of a closer Euro-state they perversely helped instigate, blind to the fact they will be left behind, weaker and more isolated as the economic storms rage about us.

But the main story remains as yet undisturbed - how is Labour coping with the fact of coalition?

In hindsight the seeds of this question were sown when Brown replaced Blair in an uncontested ballot to hammer the final nail in the coffin of 'big tent' politics and destroy the 'New Labour' coalition. Part-strategy, part-methodology, Blair's 'big tent' combined with his 'big conversation' to include dissenters and win votes - quite literally this helped the vibrant Blair reach the parts stale Brown couldn't.

So when Cameron and Clegg hatched the Conservative-LibDem coalition after Brown attempted to dictate terms to the junior party it was clear Labour's subsequent leadership run-off would need a real contest and a real debate. Instead, what the public got was the reassertion of the internal status quo distracted by sibling rivalry, as the real powers behind the party took their revenge, by fixing the nominations to purge the shadow cabinet of those they denounced as 'Blairites'.

During this period of the parliament the trade union-led opposition to cuts verged on extreme ideology, completely ignoring Labour's earlier 'Darling Plan' as the party turned inwards during the process. Even Roy Hattersley was quoted at the time criticising that "Too much time has been spent fighting the battles of the past and talking about the cuts."

Yet it wasn't until the attempted 'general strike' the day after Osborne's Pre-Budget Report this Autumn that commentators started to wake up to the fact Labour had sprung the political trap they'd set and had come away boasting a "tattered reputation for economic competence."

Labour's populist rhetoric on economic strategy has also run parallel with their stance towards LibDems. Ed Miliband effectively won the leadership as the figure most able to 'transcend the old factionalism', yet he did so by mutely echoing the unionist outrage at the new coalition occupying Downing Street and stating himself to be 'appalled by the Lib Dem surrender to the Tories', going so far as to state "They are a disgrace to the traditions of liberalism."

While he was correct insofar as liberals are a notoriously self-critical bunch and it was a simple task to play for sympathy along those lines, calling for members and ministers alike to jump ship and defect for the sake of progressivism, it was shocking for him to issue judgement on those terms considering he professes to believe in the fraternity of democratic socialism and he had only recently disposed of his own brother. Judge thyself, neighbour.

Such inconsistency was always liable to be unsustainable, and so it proved when opinion polls began solidifying showing Labour would require LibDem support in the event of a fresh election to hold a majority. Miliband's outright opposition began to be tempered by this reality, and rather than obsinate refusal to cooperate with LibDems because of apparent policy betrayals he conceded explorations of a future LabLib coalition, personalising his attacks and stating his demand for the resignation of Nick Clegg before a potential deal with LibDems in any future hung parliament.

This first shift in Miliband strategy was balanced by elevating Ed Balls to his shadow cabinet in order to press the argument that the coalition government was weak on economic growth because the coalition was dominated by 'ideological' voices determined to prosecute a policy of austerity and 'starve the beast' of state. But while the Eurozone crisis continued to grow so the threat of spreading contagion undercut internal Labour consensus as the spectre of the 'Darling Plan' returned to haunt them.

Now, with Europe dominating the meta-debate on the economy so a new shift in attitude towards the LibDems is becoming apparent as prominent figures see an opportunity to drive a wedge between Clegg-the-negotiator and Cameron-the-vetoer.

Seen in this light Douglas Alexander's 'genuine offer' to cooperate with LibDems represents a coded message that the balance of debate within Labour has moved away from Balls' political opportunism allied to trade union intransigence. The shadow Foreign Secretary's argument that "the public will reward politicians who show serious statesmanship, not shrill showmanship in the face of economic events" stakes his unspoken claim as a potential alternate leader, and Ed Miliband's appropriation of his line that "Cameron walked out having prevented nothing from happening and having failed to secure any of his demands; that is not called a veto - that is called defeat" is the perfect demonstration of who is really scripting those soundbites made at the despatch box.

Indeed, with the Labour leader's popularity among grassroots members collapsing since July due primarily to his position on the strikes and his tenure in the job increasingly being marred by his fundamental errors at a strategic level, questions are being openly raised about Ed Miliband's ability to take Labour through to 2015 and the next General Election - not least by brother David's comments that he may make another leadership bid to keep the rumour mill churning (albeit only in his home region), or from descriptions of his 'woeful performance' when offered an open goal at PMQs on Europe - from supposedly friendly sources!

Most jarring in Ed Miliband's lexicon is his insistence that his opposition "won't take lectures" on economics because he doesn't like who's giving them. It indicates the truthfulness of less-friendly reports that Miliband is overreliant on his shadow Chancellor: "Ed Balls is too stubborn or too vain to realise his strategy isn't working... The Labour Party is being sacrificed on the altar of his vanity." So say 'internal sources'.

Labour's underlying problem, however, is the longstanding division between their heartlands and their headlands - between voters who are predominantly northern and working-class and candidates who are predominantly southern metropolitan intelligensia. This tension is perfectly highlighted by the two siblings, progeny of Jewish emigre and Marxist theorist Ralph Miliband, and representatives for the relatively deprived and insular areas of Doncaster North and South Shields.

While these areas typify the still raw legacy of 80s Thatcherite social conflict the oft-quipped veritas that such  constituencies would elect a donkey if it wore a rosette of the right colour remain true, although so too does the sad fate of 'lions led by donkeys' into the brutal hailstorm of political debate.

Thursday, 1 December 2011

Striking for justice?

After two days of political spectacle, what have we learnt?

Well, there's a number of things which are being said and several things which should be said in response, so if you're not sick of reading about it already, here's my take.

The strikes were not a demonstration of opposition to public sector pension cuts - the important facts are that strike votes were taken months ago before the first pension deal was offered and the strike occurred while discussions are still ongoing. In reality the strike was timed to coincide with the Chancellor's autumn PBR, and was designed as a political tool to express more general opposition to the coalition's austerity programme which George Osborne laid out in his statement to the House of Commons.

2m people think the country didn't vote for the coalition - in an electoral system under FPTP nobody votes for a coalition, yet it is certainly true that more people voted for the coalition parties than the opposition parties. The main question falls on whether LibDem supporters voted for austerity, but it would also be fair to ask whether Labour supporters voted for the disruption their backers have instigated when turnout among trade union members on the subject also suggested strong divisions. Polling bears out scepticism towards striking, indicating the political motive has overriden the economic motive.

The private sector debate does influence the public sector debate - while private sector workers have traded job security and benefits such as employer pension schemes for higher pay, public sector workers have traded higher pay for security and benefits. Equalising the status of one with the other sounds wonderful in theory, but the reality is that the conditions of each have created a divergent dynamic, and their respective status is already balanced: pension and benefit cuts for those in the public sector are being matched by pay cuts and increased job insecurity in private companies.

In a democracy you deserve the government you get - public sector workers have fooled themselves into the assumption that Government promises are worth anything more than promises made by parties in opposition: governments change and policies change with them, conditions change and parties adapt too. We know that state income has always been treated like a political slush fund to favour the latest interest group, and pensions are no different. If you make a demand for a promise which you know can't be kept, it makes no sense for you to then complain after those willing to tell you that it can find out that, actually, it can't.

The state pension has been under pressure since it was first conceived. While the bods in Downing Street sold us on their moral missions, those clever beancounters over at the Treasury did not concede to introduce it out of any moral compunction, but because they saw an ability to recycle cash and increase the nation's credit-worthiness to enable increased spending across the board according the the standard Keynesian model.

This model has broken down. It did so because where the additional spending could previously be justified on economic grounds to 'get things moving again' during declines, it began to be used during periods of relative economic health under Gordon Brown's Chancellorship from 1999, and increasingly so as he angled to become PM after 2003, thereby blunting any effect during the following downturn as the totals became unsustainable.

Keynesian economics uses the term 'anti-cyclical deficit spending' for a reason, it means spending on a rainy day and infers saving for it.

So if you haven't saved for it, there's nothing in the kitty when you need it.

Which is just as Liam Byrne explained.

While Callaghan was wrong in principle when he stated "it is no longer possible to spend our way out of recession" he was however correct in practice that this depends on your national credit rating - so we should be very wary about managing interest repayments by breaking the other of Brown's rules, to borrow only to invest.