Friday, March 08, 2013

Cameron opposes faster cuts. But why?

The hole in David Cameron’s economy speech is telling. Here it is:

Some say cut more and borrow less, others cut less and borrow more. Go faster. Go slower.  Cut taxes. Put them up. We need to cut through all this and tell people some plain truths. So let me speak frankly and do just that. There are some people who think we don’t have to take all these tough decisions to deal with our debts. They say that our focus on deficit reduction is damaging growth. And what we need to do is to spend more and borrow more. It’s as if they think there’s some magic money tree.

His argument against slower deficit reduction is pretty feeble. But his argument against faster deficit reduction is non-existent. After the brief initial mention of people who take this view, that’s it.

There’s a reason for this. Any argument he makes against faster public-spending cuts is an argument that Labour (or Vince Cable, or the Economist, or anyone else) can quote against his policy.

In exactly this way, the general points in his argument against slower cuts are used against him by people who are urging faster cuts. But clearly, he feels either that those people are politically insignificant or that he doesn’t have the strength to fight on two fronts.

Cameron, Osborne and Clegg have created an arbitrary timetable of cuts and then nailed themselves to it.

For instance, in 2013/14, the government plans to borrow £99 billion. Why is that the correct number? Why would £109bn or £119bn cause a market panic while £99bn is OK? Why would £89bn or £79bn stifle the recovery while £99bn is OK?

As Cable says, “nobody knows how the markets might respond” to a change of plan. “The balance of risks remains a matter of judgement.”

I’ll leave it to others to make the case for faster cuts. But the case for slower cuts is not the insanity he presents it as: “They say that by borrowing more they would miraculously end up borrowing less.”

The case can be summarised simply: more haste, less speed.

If you fire public-sector workers and scrap investment projects and cut benefits too quickly, the economy suffers. Cameron knows this, which is why he opposes faster cuts. By making less haste at cutting the deficit, he hopes to make more speed.

The argument for slower cuts is the same, only more so.

Nobody knows the optimum speed. But Cameron asks us to trust that the plan he worked out with Osborne and Clegg back in the summer of  2010, based on economic forecasts that reality has torn to shreds, managed to get it right.

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