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.

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Forget the progressive alliance - it was the voters wot won it in Richmond

The Labour candidate on how voters have acted tactically for decades.

The Richmond Park by-election is both a triumph and a setback for the concept of an anti-Tory progressive alliance. As the Labour candidate, I was bombarded with emails and tweets saying I ought to stand down to prevent Zac Goldsmith being re-elected long after it was technically impossible for me to do so even if I had wanted to. I was harangued at a meeting organised by Compass, at which I found myself the lonely voice defending Labour's decision to put up a candidate.

I was slightly taken aback by the anger of some of those proposing the idea, but I did not stand for office expecting an easy ride. I told the meeting that while I liked the concept of a progressive alliance, I did not think that should mean standing down in favour of a completely unknown and inexperienced Lib Dem candidate, who had been selected without any reference to other parties. 

The Greens, relative newbies to the political scene, had less to lose than Labour, which still wants to be a national political party. Consequently, they told people to support the Lib Dems. This all passed off smoothly for a while, but when Caroline Lucas, the co-leader of the Greens came to Richmond to actively support the Lib Dems, it was more than some of her local party members could stomach. 

They wrote to the Guardian expressing support for my campaign, pointing out that I had a far better, long-established reputation as an environmentalist than the Lib Dem candidate. While clearly that ultimately did little to boost my vote, this episode highlighted one of the key problems about creating a progressive alliance. Keeping the various wings of the Labour party together, especially given the undisciplined approach of the leader who, as a backbencher, voted 428 times during the 13 years of Labour government in the 1990s and 2000s, is hard enough. Then consider trying to unite the left of the Greens with the right of the Lib Dems. That is not to include various others in this rainbow coalition such as nationalists and ultra-left groups. Herding cats seems easy by contrast.

In the end, however, the irony was that the people decided all by themselves. They left Labour in droves to vote out Goldsmith and express their opposition to Brexit. It was very noticeable in the last few days on the doorstep that the Lib Dems' relentless campaign was paying dividends. All credit to them for playing a good hand well. But it will not be easy for them to repeat this trick in other constituencies. 

The Lib Dems, therefore, did not need the progressive alliance. Labour supporters in Richmond have been voting tactically for decades. I lost count of the number of people who said to me that their instincts and values were to support Labour, but "around here it is a wasted vote". The most revealing statistic is that in the mayoral campaign, Sadiq Khan received 24 per cent of first preferences while Caroline Pidgeon, the Lib Dem candidate got just 7 per cent. If one discounts the fact that Khan was higher profile and had some personal support, this does still suggest that Labour’s real support in the area is around 20 per cent, enough to give the party second place in a good year and certainly to get some councillors elected.

There is also a complicating factor in the election process. I campaigned strongly on opposing Brexit and attacked Goldsmith over his support for welfare cuts, the bedroom tax and his outrageous mayoral campaign. By raising those issues, I helped undermine his support. If I had not stood for election, then perhaps a few voters may have kept on supporting him. One of my concerns about the idea of a progressive alliance is that it involves treating voters with disdain. The implication is that they are not clever enough to make up their mind or to understand the restrictions of the first past the post system. They are given less choice and less information, in a way that seems patronising, and smacks of the worst aspects of old-fashioned Fabianism.

Supporters of the progressive alliance will, therefore, have to overcome all these objections - in addition to practical ones such as negotiating the agreement of all the parties - before being able to implement the concept. 

Christian Wolmar is an award winning writer and broadcaster specialising in transport. He was shortlisted as a Labour mayoral candidate in the 2016 London election, and stood as Labour's candidate in the Richmond Park by-election in December 2016.