Cameronomics, the verdict - simples...?

As the general election draws ever nearer (or, depending on your view, the seemingly never-ending campaign season drags on...), some very clear dividing lines are beginning to emerge between Labour, the Conservatives and Liberal Democrats. I've written a post on a policy area close to my heart, that of science policy, which you can read here. In this post I want to explore issues that underpin not just science policy but all government activity, issues that shape the direction our nation will take as we exit the most prolonged economic crisis in living memory - it's the economy, stupid...

Johnann Hari has commented on David Cameron's approach to the economy, and how it would likely result in even greater strife for so many in the UK (Nobel prize-winning economist Paul Krugman broadly agrees with this analysis so it's probably a safe bet...), akin to what Ireland has suffered in recent years. Hari contrasts Cameron and Osborne's stance - cut public spending deep, fast and across the board - with Brown and Darling's handling of public finanaces, placing their actions in the Keynsian camp of deficit spending to offset the dearth of demand in the private economy. So far, so Economics 101.

Indeed, nobody knows where we would be had we followed the 'Cameronomics' line of letting the recession runs its course without 'interference' from the government, nor is there much predicting the effects of paying down the £178bn pubic sector debt as fast as possible as George Osborne seems determined to do - given that we're in the longest-running and deepest economic downturn since records began despite billions of pounds of public bailouts, it's hard to imagine.

And yet, I'm not convinced that it's as simple as painting the current crisis, and the paths we have before us en route to recovery, as the plain dichotmoy that Hari describes - Keyenes versus cuts, as it were. He and many others seem to assume that just because cutting indiscriminately before the risk of a double-dip recession passes would be irresponsible, simply opening up the taps and spending indiscriminately, being the opposite, would achieve the opposite - that the policies Brown and Darling have pursued must be right as the most talked-about alternative on offer is wrong.

Take, as an example, the recently expired cut in VAT, much championed by Labour's economic heavyweights and thought to have cost £12.5bn - accordng to the previous analysis this would qualify as a Kenysian measure, but how are we to judge the outcomes of this policy? The idea (as Lord Drayson spelled out to last week's science debate) was to inject cash into the economy with immediate effect, and not with a significant delay that, for instance, a house-building initiative or some such 'public works programme' would involve. The same argument was, of course, made in favour of the quantitative easing that the Bank of England resorted to last year - that an immediate cash injection was a) preferable to doing nothing, and b) the best route out of negative growth. A year on from the VAT cut, and there's not really a great deal to say on (a) other than doing nothing was never an option given the greatest market failure in living memory.

As far as point (b) is concerned, it's fair to say that in the long run the VAT cut will probably be seen as one of many policies that simply didn't deliver - 12 months on we are still in recession, aside from which any technical, GDP-related exit from the downturn won't be much comfort to the thousands of families affected by the insecurity and uncertainty that lies ahead.

My point is simply this: seeing matter economic as straightforward tax-and-spend versus slash-and-grow just doesn't hold up today - it matter so much more on whom the tax burden falls, what to spend on, what to cut and how to grow.

And so we come to the Liberal Democrat approach to economic management, which, as economist Giles Wilkes tells us, is gaining traction amongst the great and the good in the world of finance. Ask not how much to tax the nation, but rather ask how - by raising the tax take from those who can well afford to pay more, thousands would be free from tax altogether and millions would benefit to some degree. Ask not how much the government can spend overall, but rather how that expenditure can be made an effective tool in delivering clear priorities - sustainability, freedom and above all fairness. Ask not how much cash can be slashed from the Treasury's coffers, but rather how we can rid ourselves of costly white elephants such as Trident and focus on what the country needs - effective public services for instance. Ask not how we can contrive a return to the inequitable, speculation-fuelled growth-for-some status quo ante, but rather how we can use the route away from recession to create a truly fair, balanced and green economy.

Remember, after all, why Keynes supported deficit spending in the first place. Not because the private economy, left to its own devices, would never recover; not because he advocated centralised statism in the long run; nor because of some ideological preference for fiscal exapnsion in times of strife. A true Keynsian would see that the state picking up the slack where markets fail can be the most effective way of ensuring that the most vulnerable don't get ravaged by the harsh consequences of economic collapse, but can only be so if it's done with clarity of thought and purpose - which we haven't seen from Labour, so no matter how wrong Cameronomics may be we must look elsewhere for salvation.