And so to David Cameron, who is crusading against debt and spending, because “We're in this mess because of too much debt”.
Well, not quite. We’re in this mess because of the sudden, massive fall in the availability of debt. Certainly, having borrowed a fair old whack over the years up to 2007 has made us more vulnerable to a credit crunch, so ‘less spending fuelled by borrowing’ might have been decent advice back then.
But now the horse has bolted and the credit has crunched.
And Cameron is raging with ever shriller incredulity against Labour’s open-stable-door policies, demanding that the stable door be slammed shut and barricaded now, not held open even wider!!! And if you don’t think too carefully, it can strike a chord. But it’s utterly wrong.
The normal operation of a market economy requires a regular flow of borrowing – by individuals to buy houses, by businesses to embark on new ventures. It’s not an evil. And, given the current drought, increasing it back nearer towards normal (rather than superabundant) levels is a precondition of recovery.
His proposal to use the tax system to motivate more saving should be seen in this light. Just as opposition to more borrowing means opposition to more spending, so support for more saving means support for less spending. Which means even less economic activity. This might be a decent policy for a few years from now – other things being equal, I have nothing against more saving – but in the middle of a recession it’s only going to make things worse.
He might do well to remember what Keynes had to say on the ‘paradox of thrift’, back in 1931:
For take the extreme case: suppose we were to stop spending incomes, and were to save the lot. Why, everyone would be out of work. And before long we should have no incomes to spend and the end would be that we should all starve to death.
Or from a more contemporary observer, Carl Emerson of the Institute for Fiscal Studies:
The issue is that the Conservatives are proposing taking money that definitely would have been spent in the economy on public services and putting it in people's pockets. To the extent that those people save that money, it will be taken away from the economy next year.
This is a terrible policy. I almost can’t believe that it’s actually intended to be implemented; rather, it’s a proposal spewed out to create a certain impression of the Tories (saving good, debt crisis bad) – the details to be swiftly forgotten.
One of the tactical advantages of being in opposition is that you can produce new policies more quickly than the governing party, safe in the knowledge that they’ll get less forensic scrutiny – and it makes you look like you’re ‘leading the debate’. However, when events change quickly, this approach can make you look like you’re all over the place. And so it is.
Compare this new policy with Cameron’s urging, back in November, that lower interest rates – not tax cuts, not public spending – should be the tool to fight the recession. But rate cuts are exactly what hurt the savers that he now seeks to reward.
And what happened to the six-month cut in NI contributions for small employers that they were proposing back in the autumn? That at least had the merit of being likelier to protect some jobs, even if only on a piddling scale.
That the Tories’ policies (at least, today’s) are bad is clearly the more important point; that their strategy has degenerated into sub-Blair ‘initiativitis’ plus moralising is perhaps more interesting.