Thursday, 26 January 2012

Cameron & øsbørne should head lesson from the past on Plan B

George øsbørne and David Cameron should heed this advice, from an illustrious former chancellor...but which one?...

"The Treasury has never, it seems to me, faced the profound significance of what Mr Keynes calls 'the paradox of unemployment amidst dearth'. The Governor shows himself perfectly happy in the spectacle of Britain possessing the finest credit in the world simultaneously with a million and a quarter unemployed. Obviously if these million and a quarter were usefully and economically employed, they would produce at least £100 a year a head, instead of costing up to at least £50 a head in doles".

....A certain Mr Winston Churchill, who gave this advice when he was Conservative Chancellor of the Exchequer in 1925!

Times may change, economic conditions may change, but his basic thesis was right then and it is right now. The similarity between his analysis then and that of Ed Balls and Labour now, is uncanny.

Conservatives often like to bask in the reflected glory of the former leader of their party (and Liberal Cabinet Minister, let's not forget). Let's not let them be overly selective.

The quote comes from Roy Jenkins' biography of Churchill. Jenkins explains its context as being a letter written in retort to those advising him to return Sterling to the gold standard. Something he was vigorously opposed to, but with the Opposition, the trades unions, his Cabinet and virtually all economists apart from Keynes lined up against him, even this great man couldn't resist the weight of establishment received wisdom.

In 2012, Cameron & Co.s Plan A for Austerity is failing. Unemployment is tragically high, growth has flat-lined and now ceased and the Government seem ideologically opposed to taking the necessary steps required to stimulate growth. A good starting point would be Labour's 5-point plan for jobs and growth. Unlike Churchill in 1925, there is nowhere near unanimous agreement that the Conservative-led Government's economic policy is the correct one. When a ratings agency like Standard and Poor's even caution against over-reliance on fiscal austerity, you know that the Government is digging a hole for itself and cannot stop digging.

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