First of all, forget the polls. It’s not that they don’t matter, it’s that they’re less important than events in deciding how popular the government is.
In the last six months, we’ve seen the Government be fifteen to twenty points behind in the polls, get back to virtually even to fifteen then quickly fall fifteen to twenty points behind again. Were either the initial decline, subsequent recovery or the following decline foreseeable by examining the entrails of the polls themselves?
I argue not. Looking at the polls tells you only what is happening now, not what is going to happen or what might happen in the future. For that you have to look at the impact of events, crises and decisions leaders take.
That’s where I want to focus. For a start…
…personally, I didn’t get too excited by our polling recovery last November. I was pleased it happened, of course but wasn’t convinced it could last. This was because what we were seeing was support for the governments action in stopping a banking collapse and keeping the economy going.
Despite wide support for those decisions, and the Tory policy being utterly risible, we knew that the economy was going to be hard for several months, that there would be a sustained period of bad economic news (increased unemployment, bankruptcies and falling house prices) to come.
In those circumstances, the credit you get because you stopped things from being even worse is bound to run out pretty quickly. So it’s proved. I therefore have a surprising degree of sang froid abut the current numbers. It’s what I expect. When the countries in recession people get annoyed with the government. Fair enough.
The question is not what we’re going to do about being unpopular, but about what we do about the recession. Get that right and the polling numbers will probably look after themselves (with a little help from skilled media communicators). Get the recession wrong, and no amount of political prognostication will save us.
So, despite being a tedious political hack, I’m not worried about the poll numbers. I’m worried about the inflation numbers, the unemployment numbers and the export numbers. I very much hope the cabinet and our MPs share this philosophy.
As a result, the question I keep asking is are we going in the right direction economically as a government?
Broadly, yes. Despite all the sound and fury over bank bonuses and Lloyds, I don’t think there’s much serious argument that allowing Lloyds and HBOS to merge and keep their debt private ws a worse idea than nationalising HBOS, which was the alternative.
We’re still seeing the aftershocks of a collapse in asset value on Banks, but the Bank of England seems to be doing a lot to ensure the banks are able to lend if they wish. They’re not lending though, and I want to come back to why in a moment.
Interest rate policy is sound, if increasingly irrelevant. The VAT cut my be mocked by conservative politicians, but as the credit crisis turns into a global demand crisis, it’s doing a valuable service in increasing consumer purchasing power.
I’m also glad the pounds been free to depreciate. I know this is heresy, but when export markets are collapsing and deflation is a risk, in the short term I’d rather have a currency that made my products cheaper and imports more expensive than a currency that made imports cheaper and exports expensive.
Yet things are still pretty awful.
Companies are complaining that they can’t get their existing lending refinanced or rolled over. Large companies and their suppliers are finding markets drying up and customers rare. If banks have the money to lend again, it’s less clear which businesses would be a good idea to lend to.
After all, who is sensibly thinking of investing in major capital expansion now? Instead, lending seems to be needed for short term tiding over purposes – keeping factories open and workers employed during a sudden and shocking decline in sales, or because businesses have built their business models on low cost credit availability and are really struggling when the cost of credit rises a little. Supporting these businesses is not in any meaningful term providing commercial credit – it’s a stimulus by another name.
Which is why I keep wondering to what extent this now a credit crisis, and to what extent it is a demand crisis.My attitude is that it is fundamentally now the latter, and the role of government in the short term has to be to do all it can to stimulate domestic demand and encourage others to do the same.
If we look at what’s happened over the last eighteen month you can estimate that global asset values have fallen some twenty trillion dollars. As far as I can tell, that means the global economy is twenty trillion dollars poorer than it was a year or so ago. Now, I’m willing to be corrected about what that means, but my starting assumption is that as people, companies and nations get poorer, they spend less. They buy fewer companies, pay lower salaries, employ fewer people and those people buy fewer cars, pay down debt if they can, postpone holidays. Which in turn…. yeah. You get the picture.
Which could explain why it’s the people who sell things and make things who are suffering horribly now.
All of which takes me back to where I think political and economic strategy co-incide.
If the problem is no longer simply a credit problem but a demand problem, we have to act to encourage demand. That means giving direct help to those who are most likely to spend their money, and spending money directly where it will provide jobs and hence purchasing power. (Of course, at some point we’ll have to reverse that, but only when demand no longer needs stimulating)
That means a programme of public works, explicitly sold and marketed as job and wealth creating. Houses, schools, airports, trains, ships, IT networks and green cars. Scientific research spending needs to go up, as should university and vocational spending.
That means introducing tax changes that put money directly into the hands of low income families that will spend it.
That means taking the unemployed and as a short term measure supporting their families with extra financial support to get them through retraining and upskilling- especially where they receive little or know redundancy payment.
Finally, it means being prepared to be bold, to move quickly, to seize opportunities to save companies and invest in industries.
If I have one concern it is that we are as a party and as a government too locked into an incremental-ism and a gradualism that i precisely the right policy for normal times but totally wrong for moments of economic crisis.
We’re in a fight. We’ve got to pitch it as such, big. bold moves that stand out, surprise and make people behave differently.
Will the Tories like it? No. Will the press and the commentariat? Probably not. But frankly, I don’t care. The only people I want to hear from are first, people who might be encouraged to buy things, second, companies that want to make things, and finally, economists who know what might help the first two lots buy and make things.
As far as I can tell, the worries of each of these three groups is that not enough is being done, not that too much is being done.
Economically, I don’t think cautiousness can cut it. P politically, it has no chance.
So, over the next two months, I want to see the Government tell the British people it has a plan coming.
Tell them it’s a big, audacious plan to stabilise the banks, support struggling busineeses, then co-ordinate with other countries to drive forward demand by giving a lot of help to families and busineeses directly, while putting investment into projects that will prepae Britain for the future and employ people today.
Let people argue about the plan, let them fightover it. criticise it, whinge about it and complain it’ll never work. Make it the centerpeice of every political debate and every discssion of our economy.
Do all of those things, but make it big, make it bold, and make it Labour.