As the Conservative-Liberal Democrat coalition embarks on Margaret Thatcher's Economic Experiment Part Two, and Lloyd George, Roy Jenkins and the departed members of the generation of "wet" Conservatives turn in their graves, I am occasionally asked whether I regret having been so hostile to Thatcherism, Mark One. The answer remains a resounding "no".
When the subject was raised the other evening, there came to mind a conversation I had with a former cabinet minister after the fall of Thatcher in 1990. He was a senior figure, and certainly not in the wet bracket with my friends Ian Gilmour, Peter Walker and Jim Prior. "She must be suffering," I ventured. My interlocutor stared hard at his lunch and picked up his glass. "Yes," he replied, "but is she suffering enough?"
This particular politician had once been a believer but was horrified by the extent of the social damage. It had not been as easy as he thought to reform the public sector without pain; and the simple monetarism he had espoused turned out to be seriously flawed. Now, it appears, it is a case of "here we go again", with our new chancellor congratulating himself in public for "taking the necessary courageous action".
Whatever one's view of the prospect of Born Again Thatcherism, you have to hand it to this lot for their consummate propaganda skills. The way in which they have transformed the public debate from discussing whether there should be such a savage attack on public spending as to how it should be conducted makes New Labour's spin doctors look like raw amateurs.
The pretext for Thatcherism Mark One was the threat of accelerating inflation in 1979/80. The acceleration in inflation was assisted in no small way by some injudicious decisions taken by the Thatcherites, decisions that served to embed an inflationary shock emanating from the second oil crisis. This time the pretext is the fiscal deficit, the significance of which our new government has been grossly, and irresponsibly, exaggerating.
Last week, I pointed out how minor the public debt "crisis" of today appears when compared with the situation that faced chancellor Neville Chamberlain when he introduced his deflationary budget of 1932. Chamberlain, and the "Treasury View" that lay behind his budget strategy, have rightly been castigated by economic historians for that deflationary approach. Yet the debt problem facing our strange coalition is hardly on the same scale.
Prosecuted
The figures are worth repeating: the latest budget red book puts UK debt at 61.9% of gross domestic product in 2010/11 (against 177% in 1932) and debt interest at 6.3% of total public expenditure in 2010/11 (against 40% in 1932).
And the invaluable annual report of the Bank for International Settlements (the "central bankers' bank", based in Basle) contains some impressive charts and tables that suggest our new prime minister and chancellor, along with their Lib Dem collaborators, should be prosecuted under the Trade Descriptions Act for distorting the scale of our fiscal problems.
I give you chapter and verse: on page 68 (Part V) you will find that Britain is top of the league when it comes to the length of time before its debt has to be refinanced. The "average maturity" of the UK's debt is 14 years; by comparison, other leading industrial countries, including the US and Germany, have maturities of under 9 years. This is not to say there is anything wrong with the US or German position – few can gainsay the fiscal rectitude of the Germans; and the US, whatever its fiscal problems, remains the pre-eminent reserve currency. But it shows how hysterical the debate in Britain has become.
Again, on the same page, the BIS report contains a graph comparing different countries' dependence on overseas finance. "Non-residents" hold approximately 70% of Greek government debt, just under 50% of US government debt, and below 30% of UK government debt.
We need to aim to balance the books in due course, and former chancellor Alistair Darling set out a perfectly reasonable plan for gradual reduction in a manner that was designed not to harm our economic growth prospects. I say "perfectly reasonable", though I was concerned that even Darling's plan was taking risks with the recovery; how much more so when it comes to Thatcherism Mark Two.
While Osborne has been fomenting fears of how the markets might react to insufficient austerity, the theme of the market reports last week – following the commitment to fiscal masochism that emerged from the G20 meeting at the weekend – was that those financial markets that brought us the crisis and then called for austerity are now concerned about the effect this might have on economic growth – and hence on those budget deficits they seek to reduce!
The US government was the lone voice in the crowd in Toronto – where, in my view, the Canadians offended against the rules of hospitality by being so keen to preach austerity for others. When Canada combined belt-tightening with growth some years ago, they had the advantage that the US economy, to which Canada is largely an appendage, was booming. The message now is of slowdown in the US and China, and renewed fears of a double-dip recession. Thus, at the annual meeting of the Society of Business Economists in London last week, Trevor Greetham, asset allocation director of Fidelity International, said in no uncertain terms: "The best tonic for deficit reduction is growth – it is a misreading of the situation that people want to see more aggressive fiscal tightening."
By the way: the phrase "double dip" implies delayed recovery. The nightmare would be prolonged stagnation as a result of misguided fiscal tightening.
Sourced from The Guardian
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