Prediction result: I win 1-1
From my admittedly pretty overblown and flowery prediction last night:
The LibDems have softened their line on the demands for electoral reform, saying that the national interest and the need for stable government comes first…..
By mid-morning, Tories and LibDems will be out before the cameras saying that the crisis that they had foreseen is coming and it’s coming fast, and that they are now working against the clock to reassure the markets that they will bring stable government, and deal with the deficit.
Iain Dale, 11.49am ‘When national interest trascends party’, commeting on his mid-morning appearance before the cameras:
If party interest was paramount, coalition would be out of the question, but now both sides are putting national interest first so the rules of the game have changed…..
In normal circumstances I’d be arguing vociferously against entering a coalition, but we are not in normal circumstances. A stable government is an absoluet pre-requisite to bringing about a stable economy and tackling the deficit.
I was wrong about the markets, but right about the Tory narrative.
So that’s 1-1 to me.
Memo to Iain Dale: the economy is stable. It’s just that people like you are trying to destabilize it for reasons that not in the national interest, if you count a nation as being lots of people in the same country.
“debtabilise”
Superb typo.
Just testing
The economy might even be growing strongly – who knows?, it is often yonks before anyone can date these recoveries.
In which case, the right policy IS to start cutting. The sign of weakness that ‘the markets’ don’t like is government that CAN afford, macroeconomically, to cut spending, but doesn’t have the political will to put up with its offended interest groups.
Offended interest groups? Are we talking about poor people, or the millions of staff who have spent their lives training to provide services for people, against whom a lot of these cuts are likely to be vented, in the interest of some abstraction to which apply the label ‘national’?
It’s all very well saying the markets don’t like a government that can ‘afford, macroeconomically’ to cut spending – but not all spending is about the macroeconomic intervention which the government made. Or, put a different way, governments can always make cuts. The question is where the cuts fall: if they should fall on services now, why not ten years ago? Why were such services ever implemented?
It’s a question about longer term provision of wealth redistribution and services, and encompasses the debate about what role taxation should have in our society – an argument conspicuously absent what you’ve just said there Giles.
Hi Dave
Do you ever think about the interest group that has lent £167bn in just one year to keep this all going? W Munchau puts it rather well discussing another context in the EU:
“We know from the history of European financial crises that politicians are ill-equipped to communicate with the financial markets. They are happy to take the bondholders’ money to finance their excessive deficits, and then act outraged when those bondholders retreat and push up interest rates. But look at this from the perspective of bond investors. Over the past nine months, they had to put up with the news that Greece had cheated for years, that a German chancellor was making political commitments without the readiness to back them up, and a Spanish prime minister in denial over his country’s deep structural problems. The bondholders know that the southern Europeans cannot get out of the mess through higher nominal growth. The rise in southern European interest rates is not the consequence of a speculative attack or a sinister plot. It is a belated realisation of an underlying misalignment”
To quote your question:
“The question is where the cuts fall: if they should fall on services now, why not ten years ago? Why were such services ever implemented?”
Now the answer looks like being: incompetence. It is of course tragic that Brown 7-3 years ago allowed such people to be hired on the false promise that they could be permanently afforded.
I am all in favour of us putting up some taxes – say, from 35-39% of GDP – and regularly fight against the Right wing fiction that everyone is overtaxed. But even after all cyclical swings have returned and all feasible taxes are raised, there will be a large structural deficit. The answer to ‘why now?’ is because “now is when the structural deficit has emerged”.
I do think of that interest group, Giles, but then I remember that they are adept at looking out for themselves, being placed at the confluence of serious political power and serious wealth. I also remember that it wasn’t “Greece” that was lying, it was the Greek government, ably assisted by various pillars of the financial markets, one should note, and pressured by those very markets – a pressure few sovereign nations can resist.
To bring matters back to my question, the structural deficit has not emerged in response to Labour’s spending on public services. So why should public services bear the brunt of the cuts? This all comes back to the same sort of one-nation pap that Cameron is talking, about how we’re all in it together and all should face up to our economic responsibilities.
Which mean completely different things for people like me, earning a pittance, and the owners of all this capital, who are now speculating on the difficulty the government will have in amortizing or refinancing its debt, thus making it harder to refinance the debt, and pay it off long term through a tougher tax regime, rather than through immediate cuts in services. Instead workers in both public and private sector will be pushed to work for less, as wage growth is restricted, or ‘flexible’ practices are introduced and unions are attacked for daring to represent their members.
Meanwhile, as we’ve seen, there is an ever-increasing concentration of wealth into fewer and fewer hands.
‘Adept at looking after themselves’ Well I assume that you mean the bond managers, the big swinging dicks, not their principals – the pensioners and so forth that would be hurt by lending money that does not come back?
Look up how much people lost in the 1970s when inflation was used to expropriate bondholders. I am not a lobbyist for the savers lobby, anyone knows that – but there are limits! While wealth IS distributed unevenly in this country, I suspect bond wealth is most that of pensioners, not whitecatstroking plutocrats.
“it wasn’t “Greece” that was lying, it was the Greek government, ably assisted by various pillars of the financial markets, one should note, and pressured by those very markets – a pressure few sovereign nations can resist.”
Um, the Greek government was pressured by its own internal politics to buy off certain groups within its borders. Read Charlemagne
http://www.economist.com/blogs/charlemagne/2010/04/euro_crisis_0
and
http://www.economist.com/blogs/charlemagne/2010/03/empathy_short_supply
“Andreas Papandreou (father of the current prime minister, George) to use public sector jobs to bring Greeks of the left into the mainstream of Greek life, after years of exclusion”
You left wingers are often highly imaginative in seeing connections between economic and political moves when it is the sinister Right. Here it was straightforward left stuff, using borrowed money. No, none of the recipients of this cash are responsible for this, but they were the recipients, and now it is clear that it is not affordable – not because of some amazing plot from the markets, but because of this thing called ‘maths’. Receipts minus outgoings = big negative number.
In Britain, a similar thing happened for far less insidious reasons. Brown overestimated how much the economy could stably produce through the cycle. Everyone did. The man is not a villain, just hubristic. I argue ferociously with Andrew Lilico about when the spending had to be curtailed, and disputed his analogy here, but I think it is worth reading:
http://freethinkingeconomist.com/2010/03/24/a-cute-little-village-anecdote/#comment-2535
The problem we had, at first, was a collapse in revenues. But that does not mean those revenues can easily return, and in the meantime we are like the banker with the Jaguar he can’t afford.
As a nation, we are out of balance. We have to do more for less. How is politics, but we can’t dispute the maths.