Tory madness

David Cameron has just made a speech justifying swinging austerity measures to bring public spending under control:

The prime minister made his most gloomy remarks since taking office as he declared that Britain's public finances were in a worse state than expected and were forcing the coalition government to take "momentous decisions" in the "urgent task" of cutting the deficit.

Interest payments on the debt are currently £42bn a year.

Cameron said the looming cuts would affect Britain's entire population as he laid out the importance of taking "the whole country with us" in dealing with the debt crisis.

In a speech at the Open University in Milton Keynes, he said the figure of around £70bn was drawn from calculations by the last government.

"Let me explain what it means," Cameron said this morning. "Today we spend more on debt interest than we do on running schools in England. But £70bn means spending more on debt interest than we currently do on running schools in England plus climate change plus transport. Interest payments of £70bn mean that for every single pound you pay in tax, 10 pence would be spent on interest."

Cameron stressed that the deficit would not be cut "in a way that hurts those that we most need to help". (1)

Let's forget the glib lie that cuts wouldn't hurt the most needy and vulnerable. It isn't even worth wasting time addressing such an obvious untruth.

Cameron refers to "calculations by the last government," but as far as I can see these figures haven't been published, even though he is using them to justify a massive program of cuts. As British people are the ones who are going to have to endure these cuts, it is only fair that they are shown why they are so necessary. If the government won't publish them, it suggests strongly that it is scaremongering.

Second, even an economic numptie such as I can grasp that spending needs to be maintained until the economy is robust enough to sustain cuts. this basic truth seems to have been forgotten by the Tories in their desperate need to placate the market. Paul Krugman has just published some thoughts on this theme:

... cutting stimulus would weaken the economy, it would reduce revenues — that is, a substantial part of the debt growth the IMF attributes to stimulus would have happened even without stimulus, through lower revenue. Second, for the US at least the core reason for long-run budget concern is rising health care costs — in fact, health cost control is the sine qua non of long-run solvency — which has nothing whatever to do with how much we spend on job creation now.

So how much we spend on supporting the economy in 2010 and 2011 is almost irrelevant to the fundamental budget picture. Why, then, are Very Serious People demanding immediate fiscal austerity?

The answer is, to reassure the markets — because the markets supposedly won’t believe in the willingness of governments to engage in long-run fiscal reform unless they inflict pointless pain right now. To repeat: the whole argument rests on the presumption that markets will turn on us unless we demonstrate a willingness to suffer, even though that suffering serves no purpose.

And the basis for this belief that this is what markets demand is … well, actually there’s no sign that markets are demanding any such thing. There’s Greece — but the Greek situation is very different from that of the US or the UK. And at the moment everyone except the overvalued euro-periphery nations is able to borrow at very low interest rates.

So wise policy, as defined by the G20 and like-minded others, consists of destroying economic recovery in order to satisfy hypothetical irrational demands from the markets — demands that economies suffer pointless pain to show their determination, demands that markets aren’t actually making, but which serious people, in their wisdom, believe that the markets will make one of these days. (2)

And, unlike me, Paul Krugman knows a bit about this whole economics thing.

David Cameron bumbled his way to power by seeming nice and non-ideological, but in less than a month he's using the ongoing problems of the economy as an excuse to hack bloody great chunks out of public spending - the old Thatcherite obsession.

I always thought the neo-Thatcherites would show themselves in time, I just didn't expect it to be this soon, or this cynically, or in such a dangerous way.

1 - "UK debt interest bill will rise to £70bn without action, says David Cameron," by Hélène Mulholland, Nicholas Watt and Terry Macalister. Published in The Guardian, 7th of June, 2010. (http://www.guardian.co.uk/politics/2010/jun/07/cuts-change-british-way-of-life-david-cameron)
2 - "Madmen In Authority," by Paul Krugman. Posted on the Conscience of a Liberal, 7th of June, 2010. (http://krugman.blogs.nytimes.com/2010/06/07/madmen-in-authority/)