Six reasons why Cameron is wrong on the economy

It is increasingly clear that the PM is out of his depth and out of touch. This is "nothing for noth

In a speech on the economy yesterday that was 2,235 words long, an out-of-touch David Cameron only mentioned jobs and unemployment once each. He didn't mention the young at all in a week when youth unemployment hit the million mark. It is becoming increasingly apparent that Cameron is a) totally out of his depth when it comes to the economy; b) has no clue what to do to fix the problem; c) has little sympathy for those who are less fortunate than he is. He just doesn't care. Cameron has failed to recognise that his government's economic policies are in complete disarray, and all he can do is resort to spin and obfuscation. Austerity in the UK has failed.

The part of the speech that really struck me was this:

[T]here are some who seriously try to argue that additional spending and borrowing will actually lead to less debt in the end ... despite the fact that no evidence supports this assertion. These arguments are just a way of avoiding difficult decisions ... the kind of something for nothing economics that got us into this mess ... which is why no indebted European country is taking that path. Nor are there any major European opposition parties in high deficit countries arguing for additional borrowing -­ except here in Britain.

It is about time we put this joker straight.

1) Actually, additional spending would stimulate growth and that would increase tax revenues, as it did in the US under the Clinton boom. In case you haven't noticed, Dave, your pal Osborne slashed spending and raised taxes, which increased borrowing. That is why you are in such a mess. What if the government borrowed £100bn that was funded by the MPC through QE, and used the money to say, build ten nuclear power stations. That would lower the cost of fuel, employ people and help masses of small and large firms. It would raise productivity and in the long-run lower our debts, wouldn't it? If not, why not, Prime Minister?

2) There is an enormous amount of evidence to suggest that fiscal and monetary stimulus can increase growth. There is actually no evidence from anywhere in the world to support the ideology you have been following of an expansionary fiscal contraction, especially when it is not possible to lower interest rates. Such a view is "oxymoronic", as Larry Summers has said.

3) These arguments are not a way of avoiding making difficult decisions. They are what has to happen, because your government made the wrong decisions by imposing austerity before the recovery was fully established. You can't blame the eurozone, as it was clear when you formed your government that there were major downside risks to UK recovery from the European periphery and European banks. You just chose to look the other way and go forward with your mistaken policies, wilfully disregarding the potential dangers for the British people.

4) "Something for nothing economics" is a nice phrase but is totally meaningless. If I recall, Dave, you matched Labour's spending plans, supported deregulation and opposed rescuing the banks. It looked like you may have to do the latter if things continue the way they are. Lloyds and RBS are in trouble again. What you did was slash and burn hoping for growth, but you killed off the tender shoots of recovery. The policies you have undertaken without a growth plan is "nothing for nothing economics".

5) "No indebted European country is taking this path." Well, actually, most other European countries grew faster than the UK did over the last twelve months. GDP growth was as follows. Belgium 1.8 per cent; Germany 2.6 per cent; France 1.6 per cent; Netherlands 1.1 per cent; Austria 2.8 per cent; Finland 2.8 per cent; and the UK 0.5 per cent. The eurozone is headed into recession because they are stuck in monetary union. Portugal this week went to the IMF and asked for more stimulus as austerity has failed there too. Austerity doesn't work when banks aren't lending and your major export market is heading into depression. The German central bank, the Bundesbank, today cut its 2012 growth forecast to between 0.5 per cent and 1 per cent, from a June prediction of 1.8 percent. It said a "pronounced" period of economic weakness can't be ruled out if the crisis worsens.

6) "Nor are there any major European opposition parties in high deficit countries arguing for additional borrowing -­ except here in Britain". Denmark has lower bond yields than the UK and lower unemployment, and its new government is introducing more fiscal stimulus. These other countries would do this if they could, but they are stuck in a fiscal and monetary straightjacket. That is why there is talk of the eurozone breaking up.

Dave, you are in a big mess on the economy. What are you going to do if the crisis worsens, as it looks like it might? Panic, I guess.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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Should London leave the UK?

Almost 60 per cent of Londoners voted to stay in the EU. Is it time for the city to say good by to Brexit Britain and go it alone?

Amid the shocked dismay of Brexit on Friday morning, there was some small, vindictive consolation to be had from the discomfort of Boris Johnson as he left his handsome home in EU-loving Islington to cat-calls from inflamed north London europhiles. They weren’t alone in their displeasure at the result. Soon, a petition calling for “Londependence” had gathered tens of thousands of names and Sadiq Khan, Johnson’s successor as London mayor, was being urged to declare the capital a separate city-state that would defiantly remain in the EU.

Well, he did have a mandate of a kind: almost 60 per cent of Londoners thought the UK would be Stronger In. It was the largest Remain margin in England – even larger than the hefty one of 14 per cent by which Khan defeated Tory eurosceptic Zac Goldsmith to become mayor in May – and not much smaller than Scotland’s. Khan’s response was to stress the importance of retaining access to the single market and to describe as “crucial” London having an input into the renegotiation of the UK’s relationship with the EU, alongside Scotland and Northern Ireland.

It’s possible to take a dim view of all this. Why should London have a special say in the terms on which the UK withdraws from the EU when it ended up on the wrong side of the people’s will? Calling for London to formally uncouple from the rest of the UK, even as a joke to cheer gloomy Inners up, might be seen as vindicating small-town Outer resentment of the metropolis and its smug elites. In any case, it isn’t going to happen. No, really. There will be no sovereign Greater London nation with its own passport, flag and wraparound border with Home Counties England any time soon.

Imagine the practicalities. Currency wouldn’t be a problem, as the newborn city-state would convert to the euro in a trice, but there would be immediate secessionist agitation in the five London boroughs of 32 that wanted Out: Cheam would assert its historic links with Surrey; stallholders in Romford market would raise the flag of Essex County Council. Then there is the Queen to think about. Plainly, Buckingham Palace could no longer be the HQ of a foreign head of state, but given the monarch’s age would it be fair to turf her out?

Step away from the fun-filled fantasy though, and see that Brexit has underlined just how dependent the UK is on London’s economic power and the case for that power to be protected and even enhanced. Greater London contains 13 per cent of the UK’s population, yet generates 23 per cent of its economic output. Much of the tax raised in London is spent on the rest of the country – 20 per cent by some calculations – largely because it contains more business and higher earners. The capital has long subsidised the rest the UK, just as the EU has funded attempts to regenerate its poorer regions.

Like it or not, foreign capital and foreign labour have been integral to the burgeoning of the “world city” from which even the most europhobic corners of the island nation benefit in terms of public spending. If Leaver mentality outside the capital was partly about resentment of “rich London”, with its bankers and big businesses – handy targets for Nigel Farage – and fuelled by a fear of an alien internationalism London might symbolise, then it may prove to have been sadly self-defeating.

Ensuring that London maintains the economic resilience it has shown since the mid-Nineties must now be a priority for national government, (once it decides to reappear). Pessimists predict a loss of jobs, disinvestment and a decrease in cultural energy. Some have mooted a special post-Brexit deal for the capital that might suit the interests of EU member states too – London’s economy is, after all, larger than that of Denmark, not to mention larger than that of Scotland, Wales and Northern Ireland combined – though what that might be and how that could happen remain obscure.

There is, though, no real barrier to greater devolution of powers to London other than the political will of central government. Allowing more decisions about how taxes raised in the capital are spent in the capital, both at mayoral and borough level, would strengthen the city in terms of managing its own growth, addressing its (often forgotten) poverty and enhancing the skills of its workforce.

Handing down control over the spending of property taxes, as set out in an influential 2013 report by the London Finance Commission set up by Mayor Johnson, would be a logical place to start. Mayor Khan’s manifesto pledged to campaign for strategic powers over further education and health service co-ordination, so that these can be better tailored to London’s needs. Since Brexit, he has underlined the value of London securing greater command of its own destiny.

This isn’t just a London thing, and neither should it be. Plans are already in place for other English cities and city regions to enjoy more autonomy under the auspices of directly elected “metro mayors”, notably for Greater Manchester and Liverpool and its environs. One of the lessons of Brexit for the UK is that many people have felt that decisions about their futures have been taken at too great a distance from them and with too little regard for what they want and how they feel.

That lesson holds for London too – 40 per cent is a large minority. Boris Johnson was an advocate of devolution to London when he was its mayor and secured some, thanks to the more progressive side of Tory localism. If he becomes prime minister, it would be good for London and for the country as a whole if he remembered that.  

Dave Hill writes the Guardian’s On London column. Find him on Twitter as @DaveHill.