Tuesday, 3 May 2016

Snake oil economics and betraying Chancellors.

On occasion, when not flabbergasted by the inanity and evil of contemporary politics, it is possible to fall into a reflective vein.  Focusing on ignorance and bigotry, in the context of both electoral tussles and the more significant attempt to lie the United Kingdom out of the European Union, permits the politics of the soundbite and the narrowly-partisan to dominate, rather than taking a considered view. A throwaway comment on social media last week started rumination on the failures of economic policy over a long period.

Reflecting on Chancellors of the Exchequer, in the last forty years there have been three distinguished occupants of the post.  Against the conventional, self-serving wisdom, this does not include those who have self-identified with the desire for promotion but rather those who have inherited crises and malfunction either from their predecessors or from beyond the boundaries of their competence.  This does not include either Nigel Lawson, whose disastrous tenure of the post was followed by the rapid turnover that led to Major being supplanted by the risible Lamont or Gordon Brown, whose inability to capitalise on a benign political and economic environment was a partial catalyst of the 2008 crash.

Indeed, I would argue that the period 1983-1993 marked the nadir of British economic policy.  The first of my successful Chancellors is Denis Healey, whose inheritance of hyper-inflation, the misplaced 1973 Tory dash for growth in the face of reality and a country which was moving into psychic meltdown is seldom remembered.  Bringing price inflation under control was an achievement, and many of the more sensible policies were pursued by Geoffrey Howe - an indifferent Chancellor whose first and reckless gamble was to stoke inflation by hiking up VAT - despite his reputation at that stage as a hard-core Thatcherite.

The second success was Kenneth Clarke, whose legacy was the Lawson boom and the humiliation of an over-valued, self-important sterling exit from the European Exchange Rate Mechanism.  Through stabilising and a lack of flashy policy the general economic legacy that he handed to Labour in 1997 was relatively benign.  My final nomination goes to Alistair Darling, whose actions in stabilising the financial sector staved off a worse collapse, given the extent to which the British economy was built on sand under the policies of the previous 25 years, with a mildly-honourable cap-doffing to Gordon Brown who collaborated - although the subsequent corporate welfare dependency has distorted both politics and economics.

What these three have in common is more than stabilising in the event of a crisis, but a greater recognition that activity in economic policy is not in itself a good.  It may be a necessity, but it does not mean that the standard syllogism applies - doing nothing may be a less bad outcome than the tendency to tinker.

No Chancellor, however, has tackled the fundamental lunacies or illogicalities at the heart of the system.  Nobody has been bold enough to stand up and state that the function of government is not to print money, nor to distract the population from the realities of their individual and collective situation.  Instead we have the showman approach, with which Osborne, Brown and Lawson have had the most time to do damage - tinkering, smoke-and-mirrors and a lazy intellectual and moral dishonesty over the timeframe within which their chickens will return to roost.

Standing up to announce that taxes are not inevitably bad, nor that they need to fall, is seen as an act of weakness (or supreme political courage).  Ensuring that, whatever the economic justification, there are no losers in client groups takes precedence - hence the ongoing wealth transfer going on within British society towards property landlords, pensioners and those whose parasitism is enabled by their wealth, and who can escape the consequences of their actions.  The hollow laughter that greets the "we're all in this together" justification for further redistribution to the top echelons has a basis both in perception and the reality.

Where successful Chancellors score is by a degree of honesty.  Brown raised taxes by stealth and through increasing complexity.  Osborne has been only to happy to continue this, while presenting headline cuts that are always some distance into the future.  The client groups of big business love loopholes and avoidance - so a complex tax code supports them - while at the same time there is no attempt to make the case that raising revenue for the common good is at least as tenable a position as the atomised lunacy that the extreme right continue to peddle as a panacea that works for them, or at least the groups who can escape the consequences of their actions.

Add to this two elements of short-termism.  For most of the last four decades inflation has been the Chancellor's friend - reducing the real value of debt at the same time as it eats away at the real value of savings.  Now that inflation cannot be relied upon, the get-out-of-jail card is much harder to apply. This has taken a very long time to sink in - and the expectation of growth is transferred to bubbles elsewhere which the current Chancellor has taken immense pains to inflate - rather than manage - as the rentier class benefit at the expense of wider societal interests.

The second is the attempt to fund current expenditure through asset sales.  Privatisation is not an inherent evil, but Harold Macmillan's phrase resonates thirty years on - the short-term influx of cash does not make up for the flow of future income, and you can bemoan the fate of the family silver without being able to do more than hand-wringing.  Add to this the craven idiocy of many PFI schemes, and the failure of nerve that did not result in the depression yielding cheaply-funded public works to modernise infrastructure, and in the context of a cargo cult that outsourcing to private sector companies whose objectives are, even when merely maximising shareholder value, usually at odds with the users and funders of services, and you have a recipe for a state that cannot support the level of activity required in a modern society.

A Chancellor who got up and said that we need to have a long-term economic objective would be howled down by his or her own supporters (notably the post has resisted female occupancy) - especially as some of the choices about the kind of society that we might want would imply the potential to increase taxes.  A Chancellor whose proposals were for the greater good would be unable to resist the siren calls of the client groups, and who in removing anomalies and the chance to steal from the common pool would be depriving the economic perverts of their pleasure and self-entitlement.

Economic policy is not just about gimmicks, or the application of theory.  All three identified above were eclectic and pragmatic, rather than bound to whichever third-rate guru or financial Ponzi merchant was bending their ear at the time.  Osborne might still aspire to mediocrity, but he continues all the short-termism and the third-rate ring-master role that distinguishes most Labour and Tory policy over the last decades.  Britain's people, nations and communities still deserve better.

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