This evening I am speaking at a Centre for Policy Studies fringe event in conjunction with Tullett Prebon in Manchester at the Conservative Party Conference called “Be bold for cuts”.
I’ve just been listening to the Chancellor’s Conference speech in which there was much to both agree with and with which to differ.
It was good to hear George Osborne acknowledge ‘You can’t borrow your way out of debt’. This point has yet to register with Ed Balls and the pseudo Keynesians who have not figured out that we are in a debt crisis and that further deficit spending will have less and less effect in stimulating the economy. They ignore Einstein’s maxim that to repeat the same actions and expect a different result is insane.
It was also good to hear him acknowledge that the Government was not willing to increase deficit spending and so gamble with its credibility in financial markets, although it may be a mistake to assume that those markets will continue to allow us the luxury of reducing the deficit as and when it suits us.
I thought his views on interest rates were less sound. ‘Nothing would be more fatal for an economy as indebted as ours than a sharp rise in interest rates.’ He went on to say that ‘because banks are damaged they won’t lend at the current low rates’. This confuses two concepts-whether the banks can raise deposits to lend at these low rates, which they clearly can’t and the damage which has been done to their capital bases and creditworthiness by the crisis. Low rates do not adversely affect banks’ capital or creditworthiness, but since no sane depositor would put money in a bank at the current virtually zero rates, raising rates would help banks to gather deposits and lend them. It is worth bearing in mind that 20 years of low rates do not seem to have done much for the Japanese economy.
George Osborne’s solution to this weak bank lending so-called ‘credit easing’ or government guarantees of some business loans is totally misconceived. If you thought the banks were bad at lending, wait until you see what happens when the government try it.
It was, however, good to hear him say ‘I’m a believer in tax cuts’ even if no meaningful cuts can be forthcoming until the deficit has fallen significantly. The surest way to stimulate an economy is to leave as much money to be spent by those who earned it.
He is right ‘For generations to come, people will say: thank God Britain didn’t join the Euro.’
He was also right that the public sector unions are wrong to strike for pension rights which are more generous than those of their paymasters-those of us who work in the private sector.
But it was disappointing to see the Chancellor join the ranks of the warmists with his statement that ‘climate change is a man made disaster’. Assertion Mr Chancellor is not the same as scientific proof. The taxpayer and business can ill afford more totally irrational subsidies to wind farms, solar power and biodiesel or support for the frankly fraudulent carbon trading scheme. Stick to the day job: make some real cuts, get the deficit down and then cut taxes to stimulate the economy. Leave the weather forecasting to others.