Monday, 9 February 2009

Politicking and the financial crisis

While not trying to absolve new Labour from blame with regard to the economic crisis or excuse Gordon Brown's less than candid or even delusional stance on this, on the other hand in broad terms I've been supportive in respect of the Government's interventionist fiscal policies and also defended the somewhat crude criticisms of the particular issue of the VAT cut. And, of course, while there are varying opinions on the nuances and efficacy of individual policies, the 'fiscal stimulus' approach has widespread support between parties and indeed throughout the world.

However, French President Nicolas Sarkozy is the latest to criticise the UK Government's VAT reduction, saying that cutting taxes has "absolutely not worked" and that "consumption continues to decrease". Of course, one problem with an analysis like this is that the official figures for such indicators aren't known until some time after the event. On the other hand, though, Mr Sarkozy is hardly sticking his neck out in this regard, and it would be very surprising indeed if consumer spending hasn't in fact continued its downward trend.

As for the specific claim about the cut in VAT not working, how precisely does he know? Was he really expecting that measure and other action to overnight take us from the edge of the economic abyss to a land of milk and honey where the past year or so would be quickly forgotten? Of course not; the recession was always going to be long and difficult, and evaluating action taken to reverse the downturn similarly demanding, particularly since to a large extent it's uncharted territory and the normal economic forecasting tools and assumptions simply can't be relied upon.

And when the upturn finally arrives, how will we know to what extent the measures taken have hastened its arrival or mitigated the depth of the recession? Or to what extent the doom-mongers have exacerbated the situation by further deterring consumer spending, thus affecting profits and ultimately costing jobs and businesses in a vicious circle of human gloom and economic depression? Well, even the economists won't agree on those questions, never mind the politicians.

(For a couple of recent articles on the limitations of economic theory and forecasting, see Anatole Kaletsky in The Times, and Sir Alan Peacock in The Scotsman.)

But on the point about doom-mongering, to what extent are the positions of politicians on these issues based on true conviction and principle, as opposed to politicking and political expediency; for example, opposition for the sake of it?

The Conservatives at the UK level have lambasted Labour's proposals on the basis they would result in a massive future overhang of public debt which would hamper the country and its taxpayers for years to come. But, writing in yesterday's Scotland on Sunday, Tory leader David Cameron waxed lyrical about the "interests of the Scottish people" and getting them the "best deal":
...town centres the length and breadth of the country will benefit from £60m worth of regeneration. 150,000 small businesses will have their local taxes cut or abolished. The elderly will get the care money they deserve. There will be more police on the streets, and bus fares will be lower.
Which basically sounds like a watered down tartan version of the kind of fiscal stimulus excoriated by Mr Cameron and the Tories nationally. Of course, the difference is presumably that at a national level the criticism is used as a stick to beat the Labour Government with, whereas at Holyrood the concessions from the SNP government were a "massive achievement" resulting from Conservative "hard work" and "shrewd and tough" negotiations.

But why didn't the Tories use their skills to make Alex Salmond's government forgo this extra spending and thus reduce the national debt - every little helps! Of course, the obvious answer to this is that the SNP would have merely spent the money on something else, but at least the Conservatives' principles would have been intact.

Which leads on nicely to more politicking, namely the last fortnight's Scottish Budget crisis, where the usual juggling of principle with political opportunism and expediency was very much on display. Thus Finance Secretary John Swinney had the Tories in the bag with a bit of mini-Keynesianism, while Labour and the Lib Dems indulged in a bit of opposition for the sake of it, presumably on the assumption that the Greens would vote with the Government and, with principles intact, it would all be quickly forgotten about and normal service resumed. Of course, the apparently shambolic nature of the engagement between the Government and the Greens meant that the latter didn't play ball when it came to the first vote, resulting in the Budget proposals being defeated.

Panic thus ensued, and Labour and the Lib Dems knew that their mix of principle and posturing had dug them into a hole of public opprobrium, thus Mr Swinney had to concede little to extricate them from it. And the Greens could thence be punished for their audacity.

Therefore the Budget mess was born of politicking and was resolved by way of political expediency, with the substantive financial position almost wholly unaffected; the disputed spending only made up something like a trifling 0.3% of the total. Thus once again a process unlikely to endear politicians to the public.

"It's the economy, stupid" - this slogan, used in Bill Clinton's 1992 presidential campaign, alluded to how important voters consider economic issues. "It's the party, stupid", is probably closer to what the politicians think.

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