Keynes and the coalition: the great economic debate

Vince Cable’s claim that Keynes would have backed the coalition has enabled a more honest debate.

Vince Cable's attempt to reclaim Keynes for the coalition is the subject of both a Guardian editorial and Larry Elliott's economics column today. In his essay (which you can read in the current issue of the NS), Cable argues that the Master would have sided with the coalition, not Labour, on the critical question of deficit reduction.

Cable, as Elliott notes, is right to demolish the myth that Keynes believed governments should run deficits as a matter of course. Rather, he argued that governments should run surpluses in times of plenty in order to allow them to increase spending in times of want. As he succinctly put it: "The boom, not the slump, is the right time for austerity at the Treasury."

Keynes would not have approved of the 2-3 per cent structural deficit with which Labour entered the crisis, a fact the left should not feel uncomfortable about. It was New Labour's failure to make the honest case for higher taxation that meant spending first galloped ahead of revenue. There is a left-wing, as well as a right-wing, critique of excessive deficit spending. (None of which should be used to obscure the fact that the record deficit was caused largely by a collapse in tax receipts and higher welfare spending due to increased unemployment.)

But in other areas, most notably employment, Cable's Keynesian defence of the coalition's austerity drive looks shakier. Were he alive today, Keynes's principal concern would be the effect on demand of high unemployment (2.5 million at the last count).

As Elliott writes:

[W]ould Keynes really be standing shoulder to shoulder with Cable and Osborne if he were alive today? More likely he would say that Britain has an unemployment problem rather than a deficit problem; that the impact of monetary policy is impaired by the problems of the banks; that the squeeze on consumer spending from tax increases and spending cuts will choke off private investment; and that the lesson of the US in the 1930s is that premature efforts at balancing the budget risk a double-dip recession.

Yet the merit of Cable's essay, as the Guardian's editorial notes, is that it elevates debate above the cynical falsehoods and clichés ("maxing out the nation's credit card") employed by David Cameron and George Osborne. The Business Secretary's piece is the only serious intellectual contribution any cabinet minister has made to economic discussion.

Keynes's biographer Robert Skidelsky and David Blanchflower will respond to Cable's essay (itself a response to Skidelsky's original critique of the coalition's fiscal retrenchment) in the next issue of the NS.

George Eaton is political editor of the New Statesman.

Getty
Show Hide image

After a year of chaos, MPs from all parties are trying to stop an extreme Brexit

The Greens are calling for a cross-party commission on Brexit.

One year ago today, I stood on Westminster Bridge as the sun rose over a changed country. By a narrow margin, on an unexpectedly high turnout, a majority of people in Britain had chosen to leave the EU. It wasn’t easy for those of us on the losing side – especially after such scaremongering from the leaders of the Leave campaign – but 23 June 2016 showed the power of a voting opportunity where every vote counted.

A year on from the vote, and the process is in chaos. Perhaps we shouldn’t be surprised. The Leave campaign deliberately never spelled out any detailed plan for Brexit, and senior figures fought internal battles over which model they preferred. One minute Britain would be like Norway, then we’d be like Canada – and then we’d be unique. After the vote Theresa May promised us a "Red, White and Blue Brexit" – and then her ministers kept threatening the EU with walking away with no deal at all which, in fairness, would be unique(ly) reckless. 

We now have our future being negotiated by a government who have just had their majority wiped out. More than half of voters opted for progressive parties at the last election – yet the people representing us in Brussels are the right-wing hardliners David Davis, Liam Fox and Boris Johnson.

Despite widespread opposition, the government has steadfastly refused to unilaterally guarantee EU citizens their rights. This week it has shown its disregard for the environment as it published a Queen’s Speech with no specific plans for environmental protection in the Brexit process either. 

Amid such chaos there is, however, a glimmer of hope. MPs from all parties are working together to stop an extreme Brexit. Labour’s position seems to be softening, and it looks likely that the Scottish Parliament will have a say on the final deal too. The Democratic Unionist Party is regressive in many ways, but there’s a good chance that the government relying on it will soften Brexit for Northern Ireland, at least because of the DUP's insistence on keeping the border with Ireland open. My amendments to the Queen’s speech to give full rights to EU nationals and create an Environmental Protection Act have cross-party support.

With such political instability here at home – and a growing sense among the public that people deserve a final say on any deal - it seems that everything is up for grabs. The government has no mandate for pushing ahead with an extreme Brexit. As the democratic reformers Unlock Democracy said in a recent report “The failure of any party to gain a majority in the recent election has made the need for an inclusive, consensus based working even more imperative.” The referendum should have been the start of a democratic process, not the end of one.

That’s why Greens are calling for a cross-party commission on Brexit, in order to ensure that voices from across the political spectrum are heard in the process. And it’s why we continue to push for a ratification referendum on the final deal negotiated by the government - we want the whole country to have the last word on this, not just the 650 MPs elected to the Parliament via an extremely unrepresentative electoral system.

No one predicted what would happen over the last year. From the referendum, to Theresa May’s disastrous leadership and a progressive majority at a general election. And no one knows exactly what will happen next. But what’s clear is that people across this country should be at the centre of the coming debate over our future – it can’t be stitched up behind closed doors by ministers without a mandate.

Caroline Lucas is the MP for Brighton Pavilion.

0800 7318496