Ireland has bowed to the inevitable and accepted the necessity of a bailout. There will be a lot written about the causes and blame for the sorry state of affairs. Take your pick: Reckless bank lending, reckless corporate and individual borrowing, reckless State spending, reckless lack of regulation, etc. Folk will write very studious books on these events. The headline conclusions will be the same old broad themes they have been after every financial crisis in history. Initially people will earnestly take on board these lessons and kick off the new economic cycle. The age old truth that the ‘collective memory’ is shorter than the ‘economic cycle’ will then slowly kick-in. As time passes people will forget the lessons and again rationalise that the laws of economics ‘are different now’. The whole thing will rise and collapse again – probably more than once or twice in our lifetimes. It was ever thus.
Back in the here-and-now there are political points being scored as the Irish brown stuff hits the whirly thing. An argument gaining currency amongst leftist commentators is that the Irish humiliation shows that austerity measures (read government cuts) do not work. There is one example here. This needs to be taken head-on.
At first pass there does sound a clear logic to their argument. Ireland hit breaking point first so went first with austerity measures . The measures manifestly haven’t done the job given the need for this bail-out. Therefore, ‘logically’, austerity measures do not work. Therefore, ‘logically’, they would have been better to keep pumping more state money around the economy to avoid this final meltdown. Therefore, ‘logically’, the UK must take note and course correct.
It is a compelling narrative. It is also dangerous. If you stop and think about it this argument is no more or less a ‘logical’ as saying “A man was in a hole, he stopped digging, he found he was still in a hole, therefore he should have kept digging”.
We cannot let their spin distract us from the fundamental issue: the nation was spending four pounds for every three that it brought in. We have an unsustainable debt and government spending polices were making it worse. You don’t solve a problem and delaying the inevitable for longer. When you have a bubble – sadly you have to let it burst. Pouring more soap into it doesn’t let it down gently – it just makes for a bigger bang when it comes.
New Labour used to do this thing. If they wanted to do something they knew would be unpopular with the Unions they would ‘leak’ that something far worse was in the planning. Once it was time to officially announce the policy they would then ‘retreat’ from the position that had been leaked to what they always wanted to do in the first place. So if they wanted tuition fees of £3000 they would first leak that they would be £6000, let people rage about it for a couple of months, and then announce the £3000 figure. Folk would think that this didn’t sound so bad and it would feel like a compromise. The passion would then be taken out of any opposition. They could then implement exactly what they had always planned. They did it again and again throughout their reign. It was quite a trick.
I can’t help but wonder if the Coalition has learned well from this technique. For months we’ve had this 40% figure of expected cuts out in the wild. Today we learned the figure is actually 19%. It really doesn’t sound that bad now does it?
The more tribal Labour supporters have had 20th October circled on their calendars for months. It was supposed to be the day that the ‘True face of the evil Tories’ would be demonstrated by these ‘savage 40% cuts’. Winter fuel for pensioners would go. Schools and the NHS would be slashed. October 20th was going to be Armageddon. If you believed the hype they have been spouting then today was supposed to be about the Tories rolling back the state all the way to Feudal times. Instead, we find out that the intent is merely to roll back the state all the way to the public spending we last saw way back in……………. 2008. Yes, for all the bluff and fluster public spending is going back to the same level it was at after 11 years of Labour rule. School spend is protected. NHS spending will increase.
The appropriate response today from all the doom-mongers should be relief and a slight feeling of churlishness. Not a bit of it. Instead a quick search of the blogosphere shows they are wallowing in a curious mix of disappointment and denial. My personal hopes that a spell of Coalition government would edge us away from our tradition of tribal politics sadly seem as unlikely now as at any point since May.
Our failure to pull everyone into a new ‘grown-up politics’ means that for our politicians the ‘X-Factor’ still matters. This is a problem for Osborne. He has little love from the press or public and his delivery today was cursed by a frog–in-the-throat that we haven’t seen since IDS was in his pomp. In comparison Alan Johnson stood up and was a Mr Charisma Snake-Oil salesman. If you were to score Osborne and Johnson you would give a 10-nil win to Osborne on substance, but you would have to give Johnson a 10-nil win on style. In 2010, for right or wrong, style impacts the voters more. We should be pleased that AJ did not stand for the Labour leadership as he has an almost Blair like capacity to get the public to trust and like him. I even, strangely, like him myself – I couldn’t help but chuckle at his shot at Clegg about his change of mind ‘between the close of polls and opening of ministerial car doors’. And on a chuckling note, I also laughed out loud at some random lefty’s ironic twitter shout that “We need these cuts so that people like the contestants in the Apprentice don’t leave the country”.
All said, the medicine has been dished and it doesn’t seem as bitter as we have been steeling ourselves for. Time will tell if we have held back too much and perhaps should have cut deeper. The challenge now having announced the cuts is to get out there and deliver them and get this country back on its feet quickly.