Though Cowards Flinch

Stephanie Flanders, of the BBC’s  Stephanomics blog, said some very interesting things the other day in her reflections about Cameron’s speech in Davos, in which he said there wouldn’t be “swingeing cuts” in public spending in 2010.

In particular she drew a distinction between what she thinks Cameron’s and Osborne’s real views on deficit management are, and how they have been presented:

I’ve been wondering why Messrs Cameron and Osborne hadn’t made more effort to dispel the idea that they would put deficit reduction before economic growth.

Rightly or wrongly, both men believe that cutting the deficit quicker and deeper than Labour plans – starting in 2010 – could actually help the recovery, by preventing a costly run on government debt, and sharply higher long-term interest rates as a result. By and large, they’ve struggled to get this highly respectable – but deeply counter-intuitive – idea across to the British people. But yesterday, Mr Cameron had a bloomin’ good try.

This may be read as a “softening” of the Tory rhetoric around cuts. In some ways it is. But I don’t think the substance of the Conservatives’ post-election Budget plans has changed much in the last six months. What has changed is that they have finally decided to confront the “risking the recovery” argument head-on.

This is an interesting defence, but it is wrong in one important respect. 

Cutting the deficit quickly and deeply may be counter-intuitive to Flanders, a trained economist with an understanding of currently widely accepted Keynesian logic. 

But it is not counter-intuitive to a lot of people.  To people untrained in counter-cyclical conceptions of economic management, it makes perfectly decent sense to cut the deficit as quickly as possible; for many people, there is a ‘commonsense’ link between household economics (where ‘you only spend what you have’) and macro-economic management.

That is, of course, precisely the problem that Labour has had in setting out its Keynesian case for continuing spending to ‘lock in growth’, and the reason why till now they have been the party to distrust.  Stephanie and I might get Keynes.  Iain Dale and his followers do not and do not want to.

Now, though, the boot is on the other foot.   Everyone with a half-decent understanding of ‘real’ economics is advising Cameron and Osborne that they simply can’t cut the deficit as quickly as their political needs would have them, or they really do risk damaging the economy in the long-term.  They know, at one level, that they should try to do the right thing. 

Forced into this corner – where economists tell you one thing and your political strategist tell you another - Cameron has attempted to modulate his position, in a way which brings him much closer to Labour’s fiscal position.  As Flanders says in a subsequent post:

Once you strip away the debate about timing and possible cuts in 2010-11 – which, as I have said many times, has always been about rhetoric more than a big difference of policy between the parties – once you strip away that debate, this election could end up being fought over a difference of around 1% of GDP in medium-term spending plans.

That’s all very well for Flanders to say, but Cameron and Osborne can’t simply “strip away the debate”, because it is a debate which is raging within their party and amongst their core vote.  They have come too far with their appeal to their supporters’ “intuitive” belief in quick cuts – linked to a discourse about a wasteful public sector – to turn back  now. 

When they do try to modulate their position, as Cameron tried this weekend, all hell breaks loose in their ranks.  Just look at the Telegraph reader reactions here, and take a look at Conservative Home if you dare.   Cameron and Osborne are not even near the top jobs yet, and the ‘true believers’ are calling for their heads.  The talk is of betrayal of core values. of vacillation in the face of the enemy.  It is not talk of economic subtleties.

While Labour have been able, with reasonable effect, to turn the logic of Keynesian counter-cyclical spending to their advantage, by selling it to the public and their party as a move back to the needs of their core vote, the Conservative leadership has no such option in its attempt to come to terms with the economic realities they face.

As James Forsyth at the Spectator suggests, Cameron and Osborne are now hostage to a right of the party which cares little for the economic reality of what will happen if cuts come too quickly, either because they do not understand, or because they do not care:

They will come to regret this if (as polls suggest) a Conservative government is returned with a majority of less than 60. In these circumstances, a relatively small group of Conservative MPs — 30 or less — could cause the leadership real trouble. The Cornerstone group of traditionalist Tories MPs has more than 30 members and there is already talk of a ‘Cornerstone whip’, which could put pressure on the leadership on various issues.

The die is cast for Cameron and Osborne.   Whatever their private misgivings, it is quite clear that they will be dragged towards economic stupidity by the right of their party; the furious reaction to Cameron’s ‘backsliding’ in Davos confirms just that.

And there’s the terrible logic for Cameron and Osborne.  

By trying to come to terms with economic reality – by trying in some ways to the do the trustworthy thing - they have proved that they cannot be trusted.  

They have made their bed.  They must now lie on it.