I forward here two articles that deal with the economic stance of the Cameron Conservatives, neither of them from media of Conservative persuasion.
Of the two the more clear-cut is the first from the Economist which is calling for greater economic consistency. I personally find myself in agreement here and unsympathetic to the ‘facing-both-ways’ stance of expenditure and cuts.
The second from the Guardian takes the same view as a starting point but since it is ideologically antagonistic to Cameron’s philosophy it could hardly point the way for a Conservative prime minister. But then , is Cameron a Conservative?
In these dog-days of August it is good to see that people are thinking seriously even if one disagrees with their stance! This will be the battleground of political argument for some time to com (provided we don’t go bankrupt first!]
Christina
ECONOMIST
20.8.09
Step forward, Dave the brave
What David Cameron needs to do between now and the general election to prove he is ready to govern
SCANDALS may erupt. Terrorists could strike. Leaders can fall under buses or victim to party coups. Economic systems occasionally implode. One way or another, British politics may yet be convulsed before the general election that is due by next June. But at the moment it looks likely that the Conservative Party will win it (despite the huge electoral swing it requires), and that David Cameron, the Tory leader, will be Britain’s next prime minister. It is less clear that he is ready to deal with the challenges that would confront him.
Considering all of the recession’s other casualties, there may not be much compassion left over for inconvenienced politicians. But in his own way, Mr Cameron has been a victim of the credit crunch and the downturn too. Before they struck he was merrily marketing himself as an updated version of Tony Blair, pledging to pursue many of the ex-prime minister’s policies, only more determinedly. After the frustratingly electable original Blair made way for cack-handed Gordon Brown, and with voters increasingly sick of Labour, this pitch looked enough to see Mr Cameron into Number 10.
Suddenly, with unemployment heading for 3m, a huge deficit and national debt nudging £1 trillion ($1.7 trillion), he faces a different and more daunting task. Contrary to his expectations and perhaps his temperament, Mr Cameron must be bold.
Where the axe falls
The Tories’ performance over the financial crisis and the recession has been decidedly mixed. They seemed self-interested and querulous over Northern Rock, the first British bank to wobble. They mistakenly opposed part of the government’s fiscal stimulus.
As Prime Minister Cameron, however, would probably inherit a recovering economy rather than a contracting one; and some of the Tories’ ideas for this scenario, on bank regulation for example, have been more convincing. Asked about Barack Obama’s experience in our interview , Mr Cameron suggests the lesson may be that new leaders can’t pursue too many goals at once. His priority, he claims, will be to shrink Britain’s deficit and reduce its debt.
A sound aim—a shame, then, that he has yet to explain how he would go about it. Compared with Mr Brown, who pretends that public spending can magically continue to rise (despite Treasury forecasts to the contrary), Mr Cameron has been frank about the need to trim it. But his candour is only relative.
He has said his emphasis would be on spending cuts rather than tax rises (though those are not ruled out). He and George Osborne, the shadow chancellor, have identified a few programmes to axe, such as Labour’s pointless identity-card scheme, some costly databases and the odd quango: things few people cherish or would miss. Yet the implied savings are tiny beside the task Mr Cameron has set himself. The Tories have some sensible plans for the public services, notably schools; but these are unlikely to save cash for several years, and will require upfront lubrication. They have talked toughly but vaguely about reining in public-sector pay and pensions; it remains to be seen whether they have the gumption to face down the union-led unrest such a squeeze would provoke.
Mr Cameron, in short, has not yet grasped the opportunity that the crisis has bestowed on him. It once seemed that, with the liberal economic model apparently undermined, this political opportunity was principally for the left. In Britain’s dire fiscal circumstances, it is now clear, it is instead a chance for the right—a chance to revise the dimensions and functions of the state. Yet in public, at least, Mr Cameron is thinking more in terms of penny-pinching efficiencies than about structural reform. For example, he has questioned whether tax credits should extend as far up the income scale as they now do. He should also ask whether other welfare payments, such as child benefit, ought to be paid to the well off. Welfare should become more a safety net and less an indiscriminate bonus. Under Labour the state has acquired new legions of servants, such as the 200,000-odd teaching assistants who have made no discernible difference to exam results. Mr Cameron should ask whether Britain can live without them.
This is not to deny that he has some good ideas (as well as some bad ones, such as his gloomy notion of the “broken society” and his stringent Euroscepticism). But he still seems too wedded to the mild, incremental model of Conservatism that he has long espoused.
Mr Cameron deserves more credit than he sometimes gets for his achievement so far. For a decade before he took over in 2005 his party looked incapable of governing, even when it was still nominally doing it. Now it is set to oust Labour after what will probably be 13 years in office. But to transform Britain for the better after the election—and to earn the support of The Economist before it—Mr Cameron must be braver.
GUARDIAN 21.8.09
If Cameron takes his cues from Black Swan man, the Tories are in trouble
A pick-and-mix approach to economics, embracing the idea of banks' creative destruction, hardly befits a future prime minister
On Tuesday night David Cameron warned that Labour's mismanagement of the public finances meant Britain might default on its debts. Yesterday he pledged that the Conservatives were now the party of the NHS because only they were prepared to deliver real increases in health spending in the next parliament.
The opposition has been allowed to get away with this egregious opportunism for far too long. Labour has taken plenty of flak in the last two years – much of it deserved – but the Tories have been given an absurdly easy ride. Cameron could be prime minister in nine months' time, but we know precious little about what he would do, or even what he really thinks.
Over the past few months, the Conservatives have claimed to be the party of progress and berated Gordon Brown for failing to hit Labour's child poverty targets. On the other hand, they have pledged to take the axe to the budget deficit and reduce the size of the state. The Conservatives believe in market economics yet want to clamp down on City bonuses. They want to hand financial regulation to the Bank of England but are opposed to breaking up the banks. They want a bigger state when it suits, and a smaller state when it doesn't. They want to both concentrate power and devolve it. This is not a policy; it is an incoherent mishmash of ideas designed by focus group.
The debate over public spending is a case in point. Cameron is right to say that the public finances are in a dreadful state: yesterday's dire figures showed the deficit on course to hit £200bn this year. The opposition leader is also right when he says Labour was too profligate in the years before the crunch. But the logic of Cameron's position is that spending should be cut across the board, with no exemptions for health and international development, the two departments that have seen the most generous settlements under Labour. As a recent study by the King's Fund and the Institute for Fiscal Studies showed, a ring-fencing of health will inevitably mean deeper cuts elsewhere – in education, in transport, law and order and defence – or it will mean tax increases.
The economic rationale for this approach is questionable: the long-term interests of the country might, for instance, be better served by greater investment in education and skills rather than health. But Cameron's approach has little to do with economics and everything to do with decontaminating the Conservative brand. This process was put at risk by last week's comments from the Conservative MEP Daniel Hannan that the NHS was a 60-year mistake; hence Cameron's subsequent clarification.
The opinion polls suggest that voters remain unconvinced by all this. To be sure, the public is fed up with a government that for the last 13 years has seemed keener on controlling individuals than on controlling high finance.
But it is suspicious of Cameron, and is right to be suspicious. The opposition has an identity crisis: does it want to be a traditional one-nation Conservative party based on paternalism, patriotism and support for the mixed economy; a radical free-market party that believes in privatisation, globalisation and a small state; or – in the spirit of Tony Blair's third way – a bit of both?
Nowhere is the intellectual confusion more apparent than in Cameron's source of economic ideas. A few months ago the buzzword was "nudge", a reference to a book co-authored by the economist Richard Thaler, which argued that with help from government and private organisations, individuals could be persuaded to make better lifestyle choices. Cameron's championing of Thaler was meant to show that there was a softer alternative to Labour's big state approach to every problem.
That was then. Now the phrase du jour is Black Swan, the title of a book by Nassim Nicholas Taleb. Cameron shared a platform with Taleb earlier in the week and said the book "confirmed his own prejudices". We can only speculate on which prejudices these might be, since they have a distinct pick'n'mix quality. Taleb is an interesting thinker, but he has an entirely different view of the world to Thaler and would not last five minutes in the new, soft-focus, all things to all people Conservative party.
Taleb's argument is that the world can be turned upside down by events that lie outside the realm of what people expect but which have an explosive impact. The internet was one such Black Swan, the 9/11 attacks another. The reason we are in this mess, Taleb says, is that the old mixed ecology of small and individualistic financial institutions has been replaced over the last 20 years by a small group of highly concentrated mega-banks dominated by group-think. All used the same models and behaved in the same way, resulting in "gigantic, incestuous, bureaucratic banks" that fall like dominoes when one fails.
In the UK, the Tories were responsible for the development of this dangerous monoculture. Financial deregulation, Big Bang, the decimation of manufacturing and the encouragement to building societies to turn themselves into aggressive banks resulted in the economy being soaked in debt and driven by an over-mighty financial sector. This was the Tories when they were dominated by a radical Thatcherite faction which remains a powerful force in the party.
To be consistent to this tradition, Cameron should now accept Taleb's solution – firmly in the tradition of the Austrian school – and allow banks to go to the wall. "We would be far better off if there were a different ecology, in which financial institutions went bust on occasions and were rapidly replaced by new ones, thus mirroring the diversity of internet businesses and the resilience of the internet economy," Taleb says in The Black Swan.
The idea that the banks should be subject to "creative destruction" is an honourable intellectual position, but as a political proposition it's a non-starter. The US authorities dabbled with creative destruction when they allowed Lehmans to fail last September, and the upshot was that within a month the entire global banking system was on the point of collapse. The practical consequence of the government allowing RBS or HBOS to go bust would have been that consumers would have been unable to withdraw money and businesses would have been starved of credit.
Would Cameron countenance that? Clearly not. Would he go for what Taleb would probably consider the next best option – breaking up the banks so that they are no longer too big to fail? Apparently not. The opposition leader believes in Progressive Conservatism, value for money, extra investment in the NHS, discipline over public spending, less consumer debt and tougher City regulation. If he wants people to take him seriously as a potential prime minister it is time he fleshed out what all this means. Otherwise, heaven forfend, they might suspect he is a charlatan.
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