I have always
written that the arguments in 2010 for focusing fiscal policy on
reducing debt were understandable. They were wrong, but you could
understand why reasonable people might make those arguments. In
particular at the time the problem of the recession appeared to be
over, recovery was under way, and the Bank of England seemed
confident in the power of unconventional monetary policy. It seemed
reasonable to move attention to the deficit.
So when 20
economists and policy makers wrote
in February 2010 apparently supporting George Osborne’s deficit
reduction plans, I was not surprised. The majority of
macroeconomists, like me, disagreed, and we were right, but I could
understand where they were coming from. One of those signing that
letter was Lord
Turnbull, head of the Civil Service and Cabinet
Secretary between 2002 and 2005. By August 2012 around half of those
that signed the letter had the good sense and honesty to backtrack
on what they had written. The Chancellor may also have (wisely)
revised his original plan to end the current deficit within 5 years,
but his zeal to bring down debt rapidly by cutting government
spending had not disappeared. When he was re-elected in May, it was
for a programme of renewed austerity.
But the story does
not end there. A few days ago Lord Turnbull had the opportunity to
question the Chancellor on his drive for further austerity. This is a
part of what he said.
“I think what you are doing actually, is, the real argument is you want a smaller state and there are good arguments for that and some people don’t agree but you don’t tell people you are doing that. What you tell people is this story about the impoverishment of debt which is a smokescreen. The urgency of reducing debt, the extent, I just can’t see the justification for it.”
A former head of the civil service, who had initially supported
Osborne on the deficit, was now accusing him of deliberate deceit.
Big news you might have thought. And quite a turnaround in just 5
years.
Yet it is not surprising. Osborne’s fiscal plans really have no
basis in economics. That leaves two alternatives.
Either Osborne is just stupid and cannot take advice, or he has other
motives. George Osborne is clearly not stupid, which leaves only the
second possibility. It is therefore entirely logical that Lord
Turnbull should come to agree with what some of us were saying
some
time ago.
What a strange world we are now in. The government goes for rapid
deficit reduction as a smokescreen for reducing the size of the state. No less
than a former cabinet secretary accuses the Chancellor of this
deceit. Yet when a Labour leadership contender adopts an anti-austerity
policy he is told it is extreme and committing
electoral suicide. Is it any wonder that a quarter of a million
Labour party members voted for change.
