Tuesday, 15 July 2008

Cameron's half-baked economics

Having chided the Shadow Chancellor yesterday for focusing too much on trendy social psychology and think-tank-esque ideas rather than getting on with his day job, I guess I have to comment on David Cameron's economic strategy as outlined today in a speech to the CBI. I didn't hear the speech just read it so I can assume that he didn't say the following with any hint of irony:

The more you look at [the Government's economic plan], the more you realise that it isn't an economic strategy, it's a political strategy."

Good one David. His speech is actually more interesting for its political meaning than as an expression of economic policy. Not because it could in any way be described as an economic strategy. It's not. It's a rag-bag of loose ideas that are chucked in the economic sack and fail to meet the challenges they set themselves. What marks the speech out though is a wicked sting in the tail. The Spectator has been spitting feathers at the proposals to introduce a British version of the US bankruptcy protection, Chapter 11. So Cameron has given up on creative destruction. He might well get another visit from Margaret Thatcher soon.

That's not the real sting in the tail though. What The Spectator did not comment upon was the policy of massive state intervention that Cameron appeared to sneak in under the radar.

"Businesses need the infrastructure to succeed. And I mean infrastructure in the broadest sense of the word. Transport. Education. Skills."

Wow. That seems to imply major intervention. Are the Tories finally reconciled to post neo-classical endogenous growth theory? Governments do boost economic growth after all. This is a complete accommodation of the economics of new Labour. Perhaps that's something for Gordon Brown to celebrate?

I'm afraid on the specifics, the speech was sorely lacking. Just some examples:

- His welfare to work policy is basically a copy of Labour's with public sector providers excluded. Why, for example, would you exclude further education colleges from provided basic skills? It's what they do, it's what they have expertise in delivering, and they are trusted by local communities.

- Taking first time buyers out of stamp duty. Fine at the margins. But surely David you've read about the credit crunch and its impact on the mortgage market? Stamp duty is not what is holding people back in the housing market, it's the availability of affordable mortgages. You've missed the point.

- On the cost of living, he says, "Of course, many of the problems families face come from abroad." You may be revealing your little Englander instincts there David. We are part of the global economy. Our demand contributes to global demand as does our supply.

- Funding corporation tax reductions by reducing complex reliefs and allowances. Well, (i) firms are interested in their overall tax burden not necessarily just the headline rate; (ii) Does this mean abolishing measures such as R&D credits and how does this sit with promoting hi-tech investment?

- Shire Pharmaceuticals and United Business Media have not left because of the 'burden of regulation.' Most regulation is European so applies pretty much anywhere they HQ.

I was sceptical about the fair fuel stabiliser but I think it's worth having a closer look at for one major reason. It would have an impact on inflation which would mean that interest rates could be more focused on the real economy rather than the price of oil. Though notice that the oil price has increased relative to other EU nations due to the depreciation of the £ vis-a-vis the Euro. There is something you could do about that David......

So this is not an economic strategy at all. There are some good ideas, many just copied from the Government (did I mention underwriting all deposits up to £50,000? There are others....), and there are some largely irrelevant ideas. There is nothing in it to reduce the cost of living in the long-term as his conclusion claims. It confirms my view that George Osborne needs to spend less time on extra-curricula activity and more on economic policy. If you really believe that you are going to form the next government, time to get serious about economic policy, Dave and George.

No comments:

Post a Comment