Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 15 February 2019

The Tory party lost its way from 2010, not 2016


“I have had it up to here with the Conservative party.” So writes a one time editor of the Spectator, Matthew d'Ancona. It is a good read: for example
“A chilling populism is now creeping into the language of mainstream Toryism: the language of treachery, snarling tribalism and impatience with anything that smacks of prudence, compromise or caution.”

He is talking about Brexit of course, and he is entirely right. What he misses, in my view, was that this problem did not begin with the EU referendum, but six years earlier, with the Tory ‘modernisers’, Cameron and Osborne.

I think d’Ancona gets to the heart of the problem when he writes
“By tradition, the strongest claim the Tories have had to office is a belief that ideology should be subordinated to reality. Even Margaret Thatcher – the most explicitly ideological of Conservative prime ministers – was ousted to stop the poll tax and to salvage Britain’s relations with Europe.”

Thatcher began neoliberal hegemony in the UK and a lot of the policies she introduced were popular, at least at the time. Her revolution was introduced with some caution, and when her caution ran out she was deposed. That caution, at the level of senior ministers or the party, had gone by 2010. The clearest indication of that is austerity.

Sound public finances, which d’Ancona says he supports, should never apply in the middle of a recession. We have known that since Keynes. As a result, in every post WWII economic downturn the government has focused on recovery and not the rising deficit. The single exception before 2010 was under Margaret Thatcher in her infamous budget of 1981. But that austerity was very different from 2010 for three reasons, in ascending order of importance.
  1. The deficit was not targeted for its own sake, but in a failing attempt to hit a money supply target.

  2. The deficit was mainly reduced by raising taxes rather than by cutting spending, which is more demand friendly. 2010 austerity preferred spending cuts to tax rises.

  3. The austerity experiment was short lived and quickly reversed.
I do not want to minimise the damage done by the 1980/2 recession. My point is just that Thatcher and her ministers saw that monetarism was not working and they ditched it. Not soon enough but it was reversed. To use d’Ancona’s words, ideology was subordinated to reality.

The contrast with the austerity that began in 2010 is clear. As I never tire of saying, almost every first year economic undergraduate around the world is taught that in a recession you stimulate demand. Nowhere do the textbooks talk about worrying about the resulting deficit at the same time, because that implies austerity rather than stimulus. Unlike Thatcher, in 2010 there was no runaway inflation. The debt funding crisis that Coalition politicians were so fond of telling us about was a figment of a few City economists’ imaginations.

By 2012 it was obvious that austerity was a huge mistake. The recovery was nowhere in sight, and a key reason for this were large cuts public sector investment. It is no good complaining about the Eurozone crisis when you are cutting spending while interest rates have fallen by as much as the MPC dare. That is a schoolboy error. An imminent funding crisis implies rising interest rates on UK government debt, but by 2012 those rates were falling. The majority of academic economists who predicted that austerity would damage the recovery had been proved right. But did Cameron and Osborne change their policy, as Thatcher had done, and switch to fiscal stimulus? Of course we know they did not. Reality did not get a look in.

In economic terms austerity was the most damaging aspect of reality denial by the 2010 Tory based government. I calculated that austerity cost the average household £10,000, but the true figure may be much more if we allow for the damage austerity did to the supply side of the economy. It is certain that cuts to social care and the NHS cost lives: it is just a question of how many thousands of lives we are talking about. Austerity represented political deceit at its worst. Voters accepted nonsense pushed by the government about its credit card, and this allowed Tories to achieve an ideological goal of a smaller state which was otherwise unpopular.

If that was not bad enough, austerity also helped sow the seeds of Brexit. When people in communities that had been left behind voted for Brexit they said things couldn’t get any worse, and they said that in part because of austerity. But this was not the only grand deceit of this Tory led administration. They established a target for immigration that they had no intention of meeting because they knew the damage meeting that target would do. But their rhetoric that immigrants were responsible for the ills caused by austerity was a major reason that Cameron lost his referendum. A Prime Minister who had falsely told the nation why it was essential to reduce immigration had no answer to those who pointed out it could not be completely controlled because of Freedom of Movement.

Cameron did not just make a mistake in allowing a referendum in the first place. Through his ruinous policy of austerity and his demonisation of immigrants he ensured that referendum would be lost. d’Ancona is right that Europe brings out the worst in the Tory party. It shows how Tories can elevate ideology and party above the interests of the country. But that did not start in 2016, but with the destruction it has sown since 2010.

8 comments:

  1. Your penultimate paragraph could be stronger. There is evidence that austerity caused Brexit: https://blogs.lse.ac.uk/politicsandpolicy/did-austerity-cause-brexit/

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  2. Ancona writes ... "the strongest claim the Tories have had to office is a belief that ideology should be subordinated to reality". Yes. But the problem is that the EU is increasingly an organisation which believes that ideology should rule over reality, specifically the ideology of a federal state that exists to restrain German expansionism should dominate over the reality of flatlining economies and punishment of nations such as Greece. So the only way to continue with "a belief that ideology should be subordinated to reality"is to leave the EU, which is, as we have seen, exactly the kind of disruptive step change that is anathema to Toryism. And, so, here we are ...

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    Replies
    1. I have to agree with Dipper, if we take a look at Europe from 30 years ago, it's much different now because they have employed all the Neo-Liberal policies of the Tories. Not surprising of course because there is predominance of right wing parties throughout Europe.

      People who support the EU do so in the belief that it's still a social democracy which in reality it isn't anymore. It is no accident that we see riots in Paris and marches in countries like of all places Germany - against poverty.

      When we look at the current attacks on a Venezuela, that has been democratically elected by the fairest system in the world, branded by Trump and European leaders as a dictatorship, we see the very same build up that overthrew Saddam Hussein for exactly the same reasons, and highlights the unanimity between those Neo-Liberal leaders who have lost any semblance of integrity - yet think they are untouchable pursuing power politics to its extremes.

      This whole thing is about corporate political capture and an out of control elite that thinks it's winning, meaning we are all the losers.

      It really is time for all decent people to set aside petty differences and unite against the real tyrannical politicians who forcing their populations into poverty and serfdom just so that a few can become obscenely rich and powerful.

      Every time I see Trump at a podium, it reminds me of film footage of Mussolini and his mannerisms.

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  3. Good take. I'd add that Cameron then contributed to the problem by changing the alliances the Tories were in over in Europe back in 2011. Since then, the gulf between the Tories and the rest of the EU has only grown, meaning neither side truly understands the other's priorities.

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  4. I think your perspective on the problems of the Tory party is too short term. My understanding is that the Tory party lost its way on the issue of tariff reform and never recovered. The key year here is 1910 not 2010 and we should be blaming Arthur Balfour and not David Cameron.

    On a more current note German 2018 Q4 GDP growth was 0% in Q3 it was -0.2%. The fact the figures were compiled by German statisticians tells me the zero was not juked. Only a downward revision is needed to cast the mighty German economy into recession.

    If president Trump can have an emergency round of golf this weekend surely the BMF could organise an emergency fiscal stimulus.

    The schwarze Null cannot hold.

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  5. Although what you say is, in my view, correct it is so "only up to a point Lord Copper".

    Secular underlying forces have been chipping away at growth and prosperity for some time and were well underway in 2010. Of course the dysfunctional policies of the Tories undeniably made a bad situation worse.Countering these secular forces will take a good deal more than more sensible macroeconomic policy but leaving the neoliberal mindset behind is a good start.

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  6. There's another difference between 1981 and 2010. The earlier recession was policy created - although the monetarists believed that just decreasing the money supply growth rate would bring down inflation, it seems to me that the 1981 policy makers realised their goal of low inflation through a recession. And letting the dificit go up then, would mitigate the recession and thereby reduce the effect that monetary policy had on killing inflation. In 2010, the recession was an accident and Cameron/Osborne could have mitigated it but instead used the opportunity to reduce public spending.

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  7. have you read danny dorlings new book, rule Britannia? he points out that it is middle class tories in the shire that voted for brexit and not the northerns

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