Saviour -- or destroyer?

phil

Melanie maybe you read my piece on !who is right" before your appearance last night -it does reflect what I said but I think anyone with a bit of foresight should see it anyhow .The Tory way is wrong and I feel it is because they need to be different as the gap between them and labour is narrowing -they need to wake up before it is too late both for them and us

maas101

The Tories are playing the long game and staking out their turf for a 2010 election.

If we are still in recession at that time they can make the point that Brown recklessly raised the National debt to no effect.

If by some miracle Britian is climbing out of recession they can point to the impending tax rises to pay for the Keynesian intervention. Whether the recession would have been longer or deeper without the intervention would be a moot point.

The only way the strategy can backfire is if Britian emerges from recession faster than other countries. Brown can then claim success for his measures. However, given the state of our economy relative to others (despite Brown's protestations) that is spectacularly unlikely to happen.

To agree with Brown now, even if his course is favoured by economists et al would give validation to all of his blundering and leave them in a real hole come election time.

Robin

I have to agree with most of that. The Tories are a joke. They lack front-benvh spokespeople with experience & gravitas.

The thought of yet more tax credits appalls me. It's of no help to people with no children or whose children are over 18. I know people who do nothing whilst receiving benefits. They're all capable of work. As in earlier times, the Government needs to sponsor employment. The crumbling construction industry is an ideal field.

The Cameroons need to become much more precise and convincing.

Stephen Rothbart

Melanie, I am a great fan of yours but I think you are wrong on this.

The predictions are for more than 2 million unemployed and that is probably a conservative estimation, if you will forgive the expression.

What makes you think, as our esteemed Prime Minister clearly does, that someone getting a tax rebate is going to go down the shops and buy a new toaster or another new car? Do you not think that perhaps, scared witless by their own prospects for unemployment as the trickle down economy implodes, this person will prudently put the money by for a rainy day?

I know what I would do, and from the empty restaurants and hotels in Prague where I live, I can tell you - the British are NOT coming!

And at a time when people are suffering from reduced revenues and losses of jobs, the government announces their latest initiative! Anyone driving fast twice will be banned. Many people unable to work without having use of a car, either to get them there or to use for their work, will thus lose their jobs, but clearly Brown is talking about tax cuts while piling on stealth taxes as usual.

Talk about getting priorities right.

The Tories do not agree with his policy and they are right to say so, even if that makes them unpopular.

No one knows how far down and how long this downturn is going to last, but you can not buck the markets. The Pound is in free fall and may not survive. This is because the Markets can see what this Prime Mnister is doing, and they don't like it.

So all I can say is he has been doing a poor job up and until now, and he is still. Trying to convince a bunch of useless European leaders that he has a plan, which they have followed like sheep has made him think he is now a great man.

However the markets continue to fall and the Pound sinks ever lower.

Ian C

It did not work in Japan in the 90's and we are experiencing what they went through - a debt bubble bust. There was no recovery there until the bad debts were finally written off. There will be no recovery here for the same reason. Write offs have to be massively increased.

And until the other half of the bail out that is missing is implemented (yes borrow money for this) there will be no change in market incentives and hence its psychology. The other half of what? The original Paulson plan was to spend $700bn on removing toxic debt. For this to work new capital was also needed to be put into the banks also. He only presented the one half of the plan and then was persuaded to change it to the other half, instead of a mix of both.

The withdrawal of the hope for a market in mortgage debt meant the price of mortgage backed-securities fell to new low levels heightening the toxicity problem because they have instantly devalued the new capital injected into the banks.

So little has been achieved so far and explains why politicains on both sides of the Atlantic are jumping up and down at banks who have pocketed the cash injection. What else could they do without worsening their situation?

If the pillock politicians would stop trying to help with their incomplete ideas until they are told what they can do to help, such crises would never be so bad. Instead, history tells us that they make it much worse before they learn how to make it better.

This will be a deep and long one unless and until the toxic debt is sorted. All the other actions that have been contemplated will just add to the pile of problems which will just be adding to politically motivated government waste programmes that will drag us deeper into the mire. I am surprised Melanie you cannot see that.

It is true that the Tories are not yet angling their case this way and have missed many tricks due to the inexperience of their team.

jimbob

brown has spent and wasted billions of pounds on PFI, massive state sector pensions, pointless quangos, id cards, sold gold at rock bottom, sold HMRC buildings to mapeley steps, filched out of private pensions, cooked the books to hide the true PSBR .... i could go on.
I am truly SHOCKED that you could have backed global saviour brown's economic "materplan"

off to the new statesmen with you !

Daniel

As usual, Melanie, you are spot on in your analysis, and you have expressed the argument for a Keynesian fiscal stimulus far more eloquently than I could have done. It's a subtle argument which, unless carefully expressed, can be mis-read as a defence of Gordon Brown (despite all his mis-deeds). What I find deeply troubling, however, is that the Tories just don't seem to have grasped that the world has changed. They are addressing the issue as though it were a purely domestic problem, caused by the typical mis-management to be expected of any Labour Government, and for which traditional Thatcherite remedies are therefore appropriate.

Unless we avoid a deflationary slump, and restore confidence in the US economy / US global leadership, what chance do we have of defeating the West's ideological enemies?

I don't always agree with you - I think you have been too harsh on Obama for example (though it's early days so you could be proven right). But you are 100% right on this. However, that means you will be inundated with critical comments from Spectator readers who still think the world's major economic problem is Gordon Brown.

roger in florida

Well we are all in a right pickle, the whole developed and most of the developing World have been hanging on the teat of the American consumer for years now. But gravy train has come to an abrupt stop. The exporting nations need to stimulate domestic demand to soak up their own products and the US and Western Europe need to give the "golden goose" some mouth to mouth by cutting Govt. expenditure, reducing regulations, cutting corporation and income taxes. Screw the hangers on, the benefit dependents, people pretending to work in cushy Govt. jobs. We need to get some people out of the prosperity cart and back to pulling it! Do you think Gordon Brown, or Cameron, will do this; you are sunk bros.!

bill40

For a lot of people any tax cuts will go directly to reducing debt from loans and credit cards. The many of us with debt will go bankrupt if we dont.

Government spending alone cannot provide the stimulus required. Brown has indeed ruined us as will become clear sooner rether than later.

bill40

For a lot of people any tax cuts will go directly to reducing debt from loans and credit cards. The many of us with debt will go bankrupt if we dont.

Government spending alone cannot provide the stimulus required. Brown has indeed ruined us as will become clear sooner rather than later.

jdude

"old fashioned liberal moralist" I'm assuming then we could call you a modern day conservative?

Herbert Thornton

O.K., Melanie - Labour are useless and the Tories no better.

Your paranoia about thin blue wedges and the faint sounds of breaking glass seems to preclude - at least for you - even considering the Unmentionable Party.

So where can people turn?

Neil Turner

I think where NewLab are winning at the moment is that their front bench seems to demonstrate more experience than the Tories.

Whether this is a good thing or not is irelevant - the average person wants to know there is a "safe pair of hands" holding the wheel.

New Lab have destroyed just about everything I love in my country. I'd like to see David Cameron rearrange the Shadow Cabinet to bring in some big hitters, such as Ken Clarke. Whether Osbourne is out of his depth or not, he "appears" so, which is a big problem for DC. The gruff voiced Clarke could be very useful to him right now

Nate

Herbert: The Lib Dems, or those plonkers that misplaced their membership list?

David Raynes

jimbob is right with his list that shows Brown's extraordinary economic illiteracy. Quite staggering. Melanie is right too that if Brown's fiscal stimulus is tax credits we will be even deeper in the mire. Tax credits are an abomination, terribly expensive to administer and many people do not claim them or thier lives get messed up by reclaims. She is right that the Tory response has been appalling, Osborne's intellect and approach seems to rise no higher than the sixth form debating society, he is seriously winged by his Russian Yacht incident, an unbelivably crass action. He really ought to step aside, Ken Clarke should take on Brown & Darling (if he could be persuaded to do it-which is by no means certain). Yes, sadly, however overborrowed Brown has become, some fiscal stimulus is probably necessary, it needs to be carefully targetted. First time home owners need to be encouraged, that stimulates an awful lot of the economy, from banks and estate agents, solicitors, removers, through to retail, DIY, and appliances. One simple step would be lowering the first tranche of stamp duty and smoothing, making more gradual the rest of stamp duty. Perhaps time limit the first tranche reduction for three years (though smoothing should stay). Raise the starting point for income tax too. Increase the ISA allowance to £10000 (stocks)and £5000 cash. Something to stimulate the pension industry. What is needed is a combination of measures, some to stimulate economic activity, some to encourage more fiscal PRUDENCE (remember that word?) by the population. They are not mutually incompatible. Everyone seems to be assuming deflation but lots of the goods we buy are imported, the Brown inspired (international lack of confidence in him and his spending) devaluation, is going to mean an awful lot of things get more expensive next year. There are lots of public sector savings that could be made, most of the Civil Service is very badly run and some of the Brown inspired activities are designed to be expensive but secure votes. How about paying winter fuel allowance for example by just giving extra pension in November? The only way I can see that it is done the way it is, is to remind people how NuLabour looks after them! Deeply cynical.

Ken

But deflation may not be total evil: http://mises.org/journals/qjae/pdf/qjae6_4_3.pdf
and
"This monograph addresses a critically important issue: the prevailing view that deflation (falling prices and/or falling money stock) is a catastrophe that must be stopped. Jorg Guido Hulsmann shows that deflation is nothing to fear. The government should permit it to happen as a path to economic recovery and even as a tool to reform. Institutions that are liquidated in deflation need to be liquidated, and that includes banks and other financial institutions as well" - http://tinyurl.com/6dpyfv

D .Smith

Price deflation of manufactured goods is a normal response to falling sales. A necessary response in fact. It releases capital and keeps companies in existence. But it never lasts for ever and in our position with a collapsing pound and reliance upon imports it means that new stocks must rise sharply in price otherwise companies will be selling at a loss and their existence becomes pointless. So I see deflation followed by rapid inflation, and in this country which no longer makes consumer goods in quantity this will be a real problem.
I expect up to 40%price rises in 2009.
Also raw materials will have to go up- timber( I know about this I can assure you) maybe 25%.
Throwing money at the economy is not going to make any positive difference. It will just add to inflationary pressures.
This depression has been a long time coming. We should just endure it and let it run it's course.No bail outs, no subsidies but cut that which must be cut- the waste of our money by a profligate and inept state.

hadrian

Tax cuts for those on low and modest incomes? I've got news for you-it simply never happens!
A little old lady in a P.O. queue recently was discussing her woes at the hands of the NHS with a sympathetic younger woman; you know what? They both concluded the system stinks and a privatised service that you PAY for affords a far better service!! These were working class ladies.
I maintain anything more than 10% of your income that any government of any hue wants is nothing less than state theft and makes us ALL 'dependent'. The Tories simply aren't radical enough.

Roy

It might be good advice to always but a bit away for a rainy day. If families and nations alike would take more trouble when times are good to put something by, rather than live from week to week, they would be better able to withstand hard times which surely do arrive. The answer also lies in the soil. No joke. When a population is allowed to grow and grow without a similar growth in its ability to grow sufficient food reserves it is heading for disaster. A good agricultural base is always a good buffer, and in the past Britain has always had this. It wouldn’t surprise me to find there are no farmers in Parliament, other than gentleman farmers who use the land as a tax sink, and never intend to dirty their hands. Look after your agriculture Britain, and like they say about pennies, the rest will take care of itself.

Jack R

Melanie, you are definitely on the right lines. There is no ideological reason why the 'K' word - KEYNES, should be taboo for Tories. The Roger Bootle article you cite could be a useful educational tool for the Tory leadership.A well-informed Tory leadership could then see to it that Labour does not misapply 'Keynesianism'.

Ian C

Those endorsing Melanie's (and the Govt's) line here need to be of the opinion that there is time for all this to work. There is not. Had these intentions been announced and implemented this time last year when the Northernn Rock run occurred they would have been in time, just. Instead Mr Bean and his Darling have been pretending that it was alright and all America's fault. Politically, they got away with this because America moved to the next phase in the middle of a Presidential election and Bush got all the blame.

But you cannot revive a corpse that has no lifeblood - savings. We are into a Depression because expectations are of lost jobs and lower prices if you hang on to your cash. Until the full effects of that are clearly visible in the rear-view mirror (i.e. it is too late to avoid it and deny it is happening, the latter of which is the case now) we will not get the right action. That is the way Government that is dependent on election works. They cannot admit problems until they are undeniable. By then the next phase is already happening.

A month ago I thought otherwise. The financial tea-leaves are forecasting something much worse than is in the political betting price at present.

Sam Armstrong

from john redwoods diary:

"This morning the Today programme kept repeating that the Conservatives have done a U turn on public spending.
Instead what they did was do exactly what they promised - agree to Labour spending up to 2009, and then review it. They have now reviewed it and decided spending has to be lower than Labour plans thereafter - and rightly so.
We were also told the Conservatives do not know what to do about the banking crisis - yet I heard them say, again rightly, the government needs to change the terms of its massive bail out package, because it is not working."

Geoff M

Dont worry, the more Labour borrows and spends the greater the eventual collapse.

They cannot reinvent economics.

Debt has to be paid for.

Through tax income.

A country mired in debts will have a falling currency, making it even harder to repay them.

A falling currency, for a country that relies upon massive imports of food, energy and technology, will suffer great hardships.

Nationalised banks, forced into making further loans to failing business's and an over borrowed public, will rack up further debts and write off's to be paid for by prudent and hard working people.

A country with a failing economy will not have the tax receipts to repay its debts.

Massive cuts in a bloated public sector will be required to save money. Labours base will shrink as all those whom Labour has employed are laid off or increasingly taxed.

The coming year will be interesting.

If the British public are stupid enough to be bought off by tax cuts paid for through loans they will have to repay themselves they may well re-elect Labout in mid 2009.

What a confidence trick!

I am just glad I emigrated.

Anthony

Ambrose Evans-Pritchard comes from the same position as Melanie on this:

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3503056/There-is-really-no-choice-we-must-back-Gordon-Browns-blitz.html

EC

I finally got around to watching QT on iPlayer. A solid performance Melanie and I would not want to dissent from anything you said, but on the economy we are in unknown, deep, dark Brown murky waters. Flip a coin?

Speaking of coins when you said ...

"The key thing is to encourage people to spend, because if they don’t we will slip into the quicksands of deflation."

... does this mean that you intend to join the front lines on the retail front? What should we buy? I would also like to do my bit and go shopping next weekend. But there's a slight snag. I was wondering if you could see your way to lending me a couple of thou ? Thanks very much. (the usual address please)

Sally Roberts

Mrs Phillips you deeply disappoint me - you seem such a natural Conservative! Your stance is unhelpful and will mean we could be cursed with Labour Governments for evermore...

James Murphy

"I suppose I regard myself as an old fashioned liberal moralist from the progressive wing of politics"... - What, you too Melanie? But then on reflection I'd say I was more of an old-fashioned Whig, liberal-cum-progressive, social democrat,forward-facing new Tory, UKIP, kind of back-to-basics, Conservative, free-market, anti-Keynsian interventionist sort of a radical.... Oh now I've confused myself. Know what I mean, Melanie?

Conservative Cabbie

Sally Roberts

Not to fear, without wishing to speak for Melanie, I suspect that she almost perfectly fits the profile of an original neoconservative; a progressive liberal disgusted by the behaviour of the feral modern day left (the ones Reagan said "acted like Tarzan, look like Jane and smell like Cheetah").

The classic neoconservative tend to take a meliorative approach to society, see religion as providing a moral guide (they need not be religious themselves) and take a forceful democracy encouraging approach to foreign affairs. If that sounds like Melanie then she is not apart from conservatism, just the Conservative party.

Jan Maciag

When I listened to the projected huge figures for government borrowing being trotted out I realised for the first time that this country is effectively heading for bankruptcy. The Keynesian fiscal stimulus amounts to 20 billion but the borrowing is projected to be about 1 trillion pounds. That huge difference is the cost of an ever increasing state sector relative to a shrinking private sector.

If we carry on thinking that the NHS and the Welfare State are untouchable ‘jewels’, those revered institutions will suck the entire economy into their own death spins. And yet is anyone suggesting cuts (not just limiting growth) in public spending?

Jim

I lived through the deflation in Japan, from 1999 to the present, and it was great, unless you had over borrowed. Prices kept going down, that's what is supposed to happen under capitalism.
As for the stimulus, it won't work. People might buy stuff on credit cards, but that is the next shoe to drop in the states, massive credit card defaults.
The problem is lack of manufacturing jobs, which are the only true source of wealth.

Herbert Thornton

Nate -

So suffering the misfortune of the theft of a membership list is more heinous than encouraging the unnecessary inflow of immigrants, many of whom have the aim of turning Britain into a country run by intolerant, extremist theocrats?

I don't think that makes much sense.