Sunday, 26 September 2010

Economic stimulus still an option for Lib Dems

Conference are all very well with there set piece speeches in the main hall but it is on the fringe that the real debate and exchange of idea usually  happens. There are a couple of fringe meetings from Liverpool that I want to reflect on, firstly the Adam Smith Institute/IEA and secondly in a separate posting the Social Liberal forum.

The Institute of Economic Affairs has 'history' with the Liberal Party. In the 40s and 50s the party had been racked by attempts of a small group to capture the party. William Wallace reflected on those times in a letter to the Liberal History Journal:

'The group of free-trade Liberals that included S.W.Alexander and Oliver Smedley had drive, financial resources, and a clear sense of Liberalism in a libertarian, minimum-state interpretation. The almost anarchic structure of party assemblies allowed for such groups to exert real influence.
RRG, (Radical Reform Group) as I recall, provided the most coherent alternative definition of Liberalism – much closer to the radical Liberal tradition, and to the nonconformist beliefs which a high proportion of its members held. It helped enormously that Jo Grimond as leader was naturally sympathetic to the RRG perspective; but the existence and activities of RRG, and the arguments of its members on the Party Executive, made Grimond’s task in reorienting the party much easier.

Battle was joined and Social/Radical Liberalism won the day. Like then the state minimalists are not short of a bob or two.  And listening to the hangers on from the IEA -young men in expensive suits with even less experience of life tan Ed Milliband-I felt we were being taken back in time. I initially dismissed Richard Grayson's suggestion that a new minority group were trying to take over the party and move it in a direction at odds with its members. I remember discussing those battle with Desmond Banks. He had no doubt that the party took the right path under Jo Grimond's leadership. It seems we shall have to be watchful for fear that they will try to scramble back on board now we are successful..William concluded his letter :

Arthur (Seldon) had ‘left the party over free trade’ and was engaged with others of that group in finding an alternative vehicle for their ideas – which became the Institute for Economic Affairs, through which free-market liberal ideas later influenced Margaret Thatcher and her advisers '

Let's give that madness a miss. Plenty of it was on display at the IEA meeting. An interesting panel had been assembled. Amongst them Paul Staines (alias right wing blogger Guido Fawkes, formerly of the SDP) Professor Stephen Hassler (another exSDP man) who taught me Politics when I was an undergraduate, Professor Richard Grayson (formerly Head of Research under Kennedy) and chaired by Mark Littlewood.

There was much debate focused on whether the deficit reduction policy of the Government were correct. The two Professors were extremely sceptical. Hasler in particular was scathing. he argued that with fiscal tightening going on simultaneously across Europe demand was shrinking everywhere. He felt that the new(and proper) obligations being laid on banks to to rebuild and expand their capital reserves meant there was little money left for them to lend and thus he foretold doom. Mass Unemployment and social breakdown would haunt us, He felt we should get on board with Obama and go for a stimulus. Grayson rehashed his arguments first made in his pamphlet for Compass , namely that a small group of ideological 'small staters' had captured the party's thinking on these issues with out reference to the membership and against the grain of the party.

I'm fairly pragmatic about these matters.I am uncomfortable with a big state throwing its power around and interfering and regulating in areas best left to individuals and communities, mind you that goes for big private  corporations as well. I was signed up for deficit reductions well before the election. It seemed to me correct to stimulate the economy and to nationalise the banks but equally that borrowing ought to be paid back and should never have got into the current account. Keynes believed that government should stimulate demand at the pit of a recession but as David Grace said in his speech at Liverpool 'the last Labour Government spent its way out of a boom'.
left to right Stephen Hasler, Paul Staines, Mark Littlewood and Richard Grayson
The question that remains is how quickly that reduction should take place and over how long? I found Chris Huhne convincing on this matter in another fringe meeting that was also reported by Steve Richards in the Independent firstly he acknowledged the real political situation:

The Liberal Democrats gained quite a lot from the Coalition negotiations, but made one substantial shift in the defining area of policy, the speed and depth of spending cuts. Those at the top of the party insist they did so out of conviction, but it was a change nonetheless and not a minor one. There is a big difference between Labour's plan to cut spending by £80bn, already ambitious, and Cameron/Osborne's plans to cut £120bn. The parliamentary arithmetic propelled Nick Clegg towards the Conservatives after the election and he played his limited hand with immense skill, but he has signed up to an economic programme that is highly risky.

before he went on to the substance of the situation:

Huhne's response to questions about the deficit also conveyed the pragmatic instincts of a trained economist. He compared the current economic policy to steering a boat across the Mersey, arguing that, if the conditions change, the direction of travel will change too: "You assess these things as you go along". In other words, if Cameron/Osborne's rush to wipe out the deficit has an adverse impact on growth there could be a change of course. I have heard other Lib Dem Cabinet ministers make the same point in private. I wonder if their more ideologically committed ministerial colleagues will be so flexible.

I understand by that if Stephen Hasler's prediction come to pass the party is at liberty to change policy to suit the economic circumstances. It follows that Keynesian style stimulus is still a club we carry in our policy bag and we have no ideological objection to using it if needs be.

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