Gordon Brown is like a “drunk who has woken to the most appalling hangover, and who reaches for the whisky bottle to help him dull the pain”, says Boris Johnson in The Daily Telegraph. He is betting we will respond to his £20bn fiscal stimulus package like a bunch of “overweight and exhausted lab rats shown one last bit of cheese” – but the public is not “entirely idiotic”. They can see that even as they “tiptoe towards the cheese”, Alistair Darling is “waiting with his cosh” of higher taxes. Why has Brown taken this huge gamble? Because a general election must be called before June 2010 and he needs the economy to “perk up fast”.
He does, agrees Michael Brown in The Independent. The cut in VAT, hikes in child benefit, tax credits and pensions all reveal that a “quick dash to the polls is uppermost on the Prime Minister’s mind”. It goes some way toward explaining why this Pre-Budget Report (PBR) is the “most irresponsible and profligate I have ever heard”. The notion that borrowing on such a scale can ease a recession has “always been nonsense”. Darling’s claims that the books will be in balance by 2015/2016 are absurd, agrees Jeremy Warner in the same paper, resting as they do on assumptions that we will have returned to sustained annual growth of 3% by 2011.
What is certain is that the state of the economy and political landscape hinge on whether this package is judged to have achieved its aim. Quite so, says Anatole Kaletsky in The Times. If Darling’s boost plus the Bank’s rate cuts and fall in the pound manages to revive economic activity fairly fast, then Labour will be re-elected, the national debt will remain manageable and some of the announced tax rises may never be imposed.
If they don’t work, Labour will lose and the Tories will inherit a disaster. There are economists who say the PBR is the “only sensible response” to a severe recession, but it’s hard to see customers, already offered 20% discounts by retailers, responding to a 2.5% cut in VAT, says Max Hastings in the Daily Mail.
The VAT cut (which accounts for £12.5bn of the £20bn boost) is unlikely to help much, but Monday won’t be remembered for the fine print, says Polly Toynbee in The Guardian. Rather, history will judge it as the point when “Labour unfurled its old battle banner for social justice and the Conservatives chose to ride full tilt against it”.
The choice between the parties is still not as clear as it should be, says Brown. Labour has successfully painted the Tories as the ‘do nothing’ party and unless they pull their finger out, the “only choice at the next election is which party voters prefer to increase their taxes”. They should be given credit for opposing the Government, says Andrew Porter in The Daily Telegraph. By arguing against a fiscal stimulus, they have set themselves against the IMF and the Bank of England.
But they must go further, says Simon Heffer, also in The Daily Telegraph. The Tories should promise to cut public spending and use the savings to cut debt and taxes. They will win by telling their constituency (“middle-class, private-sector workers whose taxes are set to rise to pay for Labour’s stupidity”) that it will reward them for their contribution to the British economy. “If the Conservative leadership lacks the guts to seize this opportunity then their party will secure, and will richly merit, a fourth successive defeat.”
Forget Keynes; let’s get back to Thatcher
John Maynard Keynes is back, says Will Hutton in The Observer. Having been invoked by Alistair Darling, newspaper profiles of the 20th-century economist continue to mushroom. Most of these articles describe him as the “original, big-spending liberal” who said that countries should “spend their way out of recessions by allowing public borrowing to rocket”.
“Sorry, I must have missed the day in class when we were taught that Keynes suggested that when you were in a hole you must stop digging and start digging an equally large hole somewhere else,” says Kirsty Buchanan in the Sunday Express. Quite, agrees Peter Oborne in the Daily Mail. Even during the worst of the Great Depression – to which the Keynesian solution was applied – government borrowing did not exceed 1% of GDP.
Keynes was “an austere fiscal Conservative” compared to Gordon Brown, even in his so-called prudent era. And even the idea that Keynesianism ended the Great Depression is a myth, says Dominic Sandbrook in the Daily Mail. President Roosevelt’s “unprecedented welfare spending” may have protected Americans against poverty and unemployment, but “did nothing to bring recovery”. That came about with the outbreak of World War II. If anything, the New Deal was a “terrible advertisement” for big government.
No wonder so many believe the shift to Keynesianism will be a “disaster”, says Archie Bland in The Independent. Sixteen economists wrote to The Sunday Telegraph recently, stating that the Government ran the risk of “misallocating resources”. If anything, taxes should be cut to let the market “determine which parts of the economy shrink and which flourish”. This reflects the thinking of governments such as Margaret Thatcher’s, which believe that the way to “escape economic crisis” is to get a grip on the money supply, cut taxes, control wage inflation and accept that, short term at least, unemployment, is necessary.