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Who’s honest about the economy?

Posted by Richard D North in Interrogating the Media / Media / Money / Politics / Rights on 25 November 2008

Why we posted this: What’s the right response to the financial crisis? Are commentors and politicians speaking their minds or are some spouting conveniently compassionate guff? 

The original story:
Goodbye to New Labour
Philip Stephens
The Financial Times
25 November 2008

Darling’s step into the unknown
Anatole Kaletsky
The Times
25 November 2008

Summary of the stories:
Philip Stephens argues that Chancellor Darling’s budget – a fiscal stimulus – is more or less the right thing to do in the present recession. But it may not work and poses big problems. The alternative, says Mr Stephens, is too much pain to contemplate. So, he says, the Tories are “half right” in their claims, and Labour is “half right” in theirs.

Anatole Kaletsky argues that we can’t know whether Mr Darling has done the right thing until we know what the economy does next and that a little economic growth (however we get it) will make a big difference to paying back the borrowing required for the fiscal stimulus. And he concedes that the Tories’ alternative analysis may be right as well.

livingissues comment:

Mssrs Stephens and Kaletsky are both very respected. Mr Stephens is one tad more supportive of Mr Darling than Mr Kaletsky. Neither is exactly fulsome in their praise of either Labour or the Tories.

As Mr Kalestky notes, Mr Darling didn’t have the luxury of admitting that he didn’t know what to do for the best. None of us do (know what to do for the best). The Chancellor had to make one gamble or another. To do them credit – it might be added – the Tories have also gambled: they insist he’s wrong.

Many commentators have noted that we are in new territory. Labour and Conservative policy-makers are headed for their ancient heartlands. Labour borrows (and taxes the rich) to be help people. The Tories says it isn’t kind to borrow (and clobbering the rich doesn’t help the poor).

Labour have put in place a tax-and-spend fiscal stimulus, and for various reasons nearly everyone thinks they may be right to do so. Of course, it is almost equally possible that they may not. The measures may be too weak (that’s very possible). They’ll certainly be very expensive. Their expense may be of two different sorts. The economy will need a double-strength recovery to pay for the recovery plan. But the expense may make money-markets suspect Britain’s financial strength and that perception may impose costs of its own. On the other hand, if the measures help the economy recover, the debts will eaily be repaid.

This is importantly a political matter. If the economy does well, Labour will claim their measures did the trick (which may or may not be true, but hard to prove either way). If the economy does badly, the Tories will claim that Labour’s measures didn’t work (ditto).

A few commentators are prepared to argue that forcing, helping or exhorting banks to lend more money (theirs and the taxpayers’) is the only serious option and that other forms of help (the fiscal stimulus) are illusory.

This is very nearly the Tory position. The Tories have not quite got the nerve to say that we should not waste energy on avoiding present pain. Instead they suggest they have sort-of-stimulus measures sort of in mind though they mostly think ( and this they say more forcefully) that it is measures to help bank lending which matter far more.

It is very hard to know which of these positions is right. But it seems fair to look more closely at what commentators are saying. Even supporters of the Darling plan seem to believe that it is not likely to make much positive economic difference. It is worth asking why Tory-minded people do not more thoroughly promote the idea that the recession holds the seeds of its own remedy in a weak Pound helping an export-led recovery; low prices for consumers leading to more spending; and low interest rates leading to better prospects for house-purchasers and businesses.

Perhaps neither commentators nor politicians can bear the thought of saying out loud that (beyond a welfare safety net) helping people doesn’t help them and pain is good for economies. If this is true then it isn’t analysis or even compassion but cowardice which is lurking in much of what people are saying and refusing to say.

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