Leader: The perils of Ricardian-Osbornism

The trouble for Osborne is that every economic indicator is heading in the wrong direction.

By Staff blogger Published 24 March 2011

When George Osborne declared that "Britain has a plan and we are sticking to it" during his Budget speech on Wednesday 23 March, it was a statement of the ideological zeal that underpins the coalition's decision-making. The Chancellor's Budget speech attempted to shift the discourse from austerity and cuts to growth and enterprise. But there was no escaping the shadow of the harshest fiscal retrenchment in modern times. There will be no turning back.

Conviction in politics can be seductive, offering clarity of thought and action. It also brings boldness. Mr Osborne is very much the conviction politician and, in a superficial age, we admire him for it. But conviction is not enough, especially when too often it can tilt towards dogma. What we wanted to see from the Chancellor was flexibility and a willingness to adapt to changed economic circumstances. As John Maynard Kenyes remarked: "When the facts change, I change my mind." What do you do, Mr Osborne?

The facts have changed. The trouble for the Chancellor is that every economic indicator is heading in the wrong direction - growth has turned negative, unemployment is rising fast, inflation is at its highest rate for 20 years, consumer confidence has collapsed and average earnings are falling. Indeed, the Office for Budget Responsibility, set up by the coalition, has been forced to downgrade its growth forecasts for this year and next, as we predicted at the time of the last Budget in June. More disturbing still was that this Budget offered little hope for the unemployed, especially the 974,000 young people out of work. The Chancellor's obsession with deficit reduction has narrowed his mind.

In an essay on page 32, Robert Skidelsky, the pre-eminent biographer of Keynes, writes of the influence on government economic policy of the 19th-century economist David Ricardo. "Ricardian-Osbornism," he observes, "would be an excellent cure for unemployment if there were no unemployment to cure."

There has been a great deal of praise for Mr Osborne this week: adulatory newspaper profiles, cheers from the Tory back benches and talk of him as a future prime minister. But he will be judged ultimately on the success or failure of an economic strategy that is unnecessarily draconian and could well lead to more social unrest and years of hardship.

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Tags: Budget 2011 George Osborne

3 comments

Sun, 2011-03-27 19:05 — Archer2

Osborne, a case of the worst full of passionate intensity? So it seems. He is an ideologue, being praised to the skies by ideologues, or by those who reap the benefits of ideology. He and his policy will fail badly, and none too soon.

Fri, 2011-03-25 20:22 — Eddy S (not verified)

the problem for the west in general, is that it has lived beyond its means for the last decade, if we expect boom and bust as part of the economic cycle then we can plan for it and put something aside when times are bad.

unfortunately we thought we had solved boom and bust even when there was many warnings as far back as 2003 in relation to excessive leverage. these voices were largely ignored as no one wanted to be the party pooper and booming tax receipts from property and finance sectors enhanced the feel-good factor further. there was no need to put any money aside either as boom and bust was solved.

the financial problems of 2008 were solved by even more debt, printing money and near zero interest rates this has made the underlying problems worse and will lead to the next crisis.

if we had a different solution to the 2008 crisis we would have had a necessary adjustment in asset prices e.g. house prices and a quicker, faster recovery but this would have led to more unemployment in the short term - this was unpalatable before an election.

regardless of the circumstances the west faces a decade of lean years and a severe crash in the near future to clear the underlying problems (i.e. excess leverage) that were not addressed in the previous decade.

Mon, 2011-03-28 10:09 — writeon1

Osborne's economic 'strategy' is merely redundent dogma. The 'triumph', or perhaps that should be degeneration? of ideology over rationality. Faith-based politics are ghastly. It's like living under Stalinists. If the country doesn't fit into the ideological slipper, we'll cut off a bit of the heel, or a couple of toes, and force the foot inside. Then by magic we'll walk up onto the sulit hilltop of economic recovery and prosperity.