Intergenerational equity and the perils of groupthink

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As the implications of what it appears that the coalition is about to do in the upcoming budget sinks in, I have to admit to growing increasingly concerned. No-one – outside of the Labour leadership contest anyway – denies that the structural deficit needs to be tackled or that we don’t face some unpleasant spending cuts over the next few years. But I’m mystified by the economic strategy behind what the government apparently has planned.

If the government does have a game plan, thus far it has not been spelled out. Nick Clegg’s speech on Monday was remarkably void of much of an argument, resting as it did on two points:

1. There is no alternative: “to do anything else would not only be irresponsible, it would be a betrayal of our progressive values”.

2. It is a matter of intergenerational equity: “There is nothing progressive about condemning ourselves and our children to decades of debt, higher interest rates, fewer jobs.”

Nick Clegg and company keep emphasising how shocked they were by the state of the country’s finances, but thus far – despite all the welcome transparency – they have offered nothing to explain why they were quite as shocked as they were. The report of the Office of Budget Responsibility was mixed: it suggested that the structural deficit was worse than we’d thought but that public spending was actually under better control. Clegg himself keeps talking about this meeting he had with Mervyn King and how it made him see the light; it is almost as if he has come back from Mount Sinai carrying tablets of stone. But Mervyn King is just one man, and not one whose prognostications in the past have proven to be infallible. What is King saying in private that he can’t tell us in public? Why wasn’t it being said before the election? And how has it shattered Clegg’s and Cable’s own views of economic policy so irrevocably? I always knew that both of them were fiscally conservative, but this is radical neo-liberalism. It is the most spectacular policy volte-face I’ve ever seen.

More to the point, why does no-one else in the world appear to be pursuing a similar strategy. The UK is not in the mess that Greece is in, yet the coalition government is behaving as if it is. We know why the Tories want to do this: they’re Tories. I’ve yet to hear a single, coherent Liberal Democrat argument for why we should be going along with this.

The thing is, we do have choices here; lots of them. The government have made two fundamental choices which, on the face of it, contradict the advice of a very large number of economists and thus urgently need to be explained. Firstly, they are seeking to tackle the whole structural deficit within five years (something which the Lib Dems denounced during the election). Secondly, they are seeking to do this overwhelmingly by cutting rather than taxing (something which, to be brutally frank, the Lib Dems fudged during the election). I can see nothing in the OBR figures which suggest that such a strategy would be madness; quite the opposite. If the structural deficit is larger than we imagined, then surely there is a case for tackling it over the longer period of time, and an even greater scope for tax increases? To do otherwise would just risk damaging the economy, surely?

It is one thing to cut £6 billion this year: frankly I was pretty unfazed by that. But the numbers the government has started talking about really will risk – if not guarantee – a double dip recession. Withdraw the amount of money from the economy that we are talking about, and it is hard to see how the outcome will be anything other than negative growth. It actually looks as if, despite all the reassurances a few weeks ago, the government’s agenda is to actually engineer a new recession, seeing it as a necessary bit of pain with a view to long term benefits.

The last time that was done was the early 80s, under Thatcher. The result? In some parts of the country a whole generation was left on the scrapheap. Far from tackling the structural deficit, we’re still paying for it. That shocking welfare bill that Frank Field and Iain Duncan Smith have been given the task of slashing? A large proportion of it is due to the government plonking a large proportion of ex-miners onto incapacity benefit. The price has not just been financial; lives were shorn of value overnight; communities were destroyed; the following generation grew up with no hope and no aspiration. Social mobility fell. This is what shock doctrine economics does to a country and even the Tories pledged we would never return to it.

This brings into question the claims that such a hard and fast approach is progressive from an intergenerational perspective, and also causes us to consider some other worrying trends emerging from the government. Leaving aside David Willetts’ extraordinary views that higher education is an intolerable burden on the taxpayer, we have the fact that one of the main things the government has slashed over the past month has been youth employment schemes. Clegg’s argument that it is progressive to cut now to ensure that future generations don’t end up paying for our mistakes are only actually convincing if the future of those generations are not being curtailed by the same economic policies. Deny a graduate or teenager a chance of either employment or training now, and it won’t matter to them how high taxes are in the future because their own earning potential will go through the floor.

All of this flatly contradicts Clegg’s emphasis on social mobility, or does it? Because when he talks about social mobility, as he did on Thursday, Clegg’s emphasis is all on children. We can all agree that the most effective time in a person’s life to invest in is their early years, but this truism appears to have fallen victim to doctrinal reductionism. Simply put, it makes no sense whatsoever to invest in early years and schools while having nothing to offer people once they hit 16. What is the value in the government creating the most aspirational dole queue in history?

All of this adds up to an emerging picture of futures of the current crop of teenagers and young adults being sacrificed in the name of their younger and older generations. You’ve got to ask what they’ve done to deserve it? Equally, you’ve got to wonder if Clegg and Cameron would be quite as ready to do this if Antonio, Alberto, Miguel, Nancy and Arthur were a little older.

No-one else seems to be taking as much of a hit. Wealth taxes have been almost entirely ruled out, despite the fact that taxes on property values (or, better yet, land values) would have the least negative economic impact. And yet, far from being an economic burden, it is the 14-22 generation that we will largely depend on to make our economic recovery over the next decade a swift one. I am completely mystified; it makes no sense to me whatsoever. It seems to have been concocted by a bunch of people more concerned with sounding tough and being seen to make grown up decisions than actually steering the country down a fair and economically sustainable path. In short, it screams of groupthink; I pray that I’m wrong.

Late last week I spoke to someone on the “inside” and painted them a rosy picture. I speculated that all this doom and gloom that had been coming out of the Treasury and Downing Street over the past fortnight was a shadow play designed to placate the Tory headbangers and that what would emerge would be something surprisingly progressive and far-sighted; people like me all breathe a collective sigh of relief.

I still like to think that is a distinct possibility, but my source didn’t seem to find my theory anything more than charmingly off the ball. If they would at least offer us an actual economic argument, it would be something. Instead we just get echoes of Thatcher’s There Is No Alternative.

18 thoughts on “Intergenerational equity and the perils of groupthink

  1. I agree. A simple analogy for people to ponder is whether you choose a fifteen year or 25-year mortgage. Some in the government appear to want to lived on baked beans and feed the cat their leftovers to ensure debt is paid off quickly.

    However, as long as electoral reform is delivered I am prepared to forgive most things!

  2. I’m happy with the idea that something fairly nasty needs to be done this year in order to be better able to face up to the fat cats next year. The line then must be “Look at what we have done because you say reducing the deficit must be the priority, now will you take a bit more of the hits for the sake of this country?”. Again and again we must push just how unreasonable are those moaning e.g. about having to pay CGT on money gained through being rich while sitting on your arse, when so many more are suffering very deeply through what is having to be cut.

    Give it two years, the economy is going down, the fat cats still haven’t accepted they must bear what they can bear (a lot more than those with less), and the Daily Mail and Sun are finding it increasingly hard to bridge the gap between their readers and their position as cheer-leaders for right-wing economic policy. This will be the ideal time to issue the ultimatum.

    The point about the Mail and Sun is that I thought they were so OTT in the election that a significant proportion of their readership would catch on to the fact they have been paying good money for propaganda. I was too optimistic, they did their job, it was one of the things that pushed us down. But their job was much easier when they were aligned with the opposition.

    One would like the ultimatum to be issued by Nick Clegg as leader of our party to the Tories. Otherwise, it will have to be issued by our party to Nick Clegg. Either way it will be “Those who have wealth must take on what is necessary to save this country – that means policies which have been dismissed up till now. If that is not done, we pull support for this government”.

    Now, it may be that things at least show signs of turning round in two years, so the right should be happy with what I suggest because they can say “Ha-ha, you’ll look like a fool in two years time”. I’m happy with that, let’s see. In the meantime, build for what is needed to be done in two years’ time. Make sure there is enough left (ambiguity deliberate) in the party organised to take over if it goes that way. But, better, Clegg et al should have the paper trail to show where they had tried to get things pushed more our way but had failed, so can storm out saying “We tried, but those Tories wouldn’t listen”.

  3. Ah but what would be your red lines which if crossed would trigger you to leave the LibDems? Or are you still tribal?

  4. The coalition situation reminds us that drawing lines in advance can be silly. After all the questions “Who would you go into coalition with?” we discovered that question can only really be answered once we know what the situation is, it is not something a simple answer can be given to before that. Most of us who would not have said “coalition with the Tories” as our desired outcome neverthless could see the balance in the Commons and willingness to work with us and general feeling the other lot had run our of steam meant that was the most realistic option this time. Under other circumstances, coalition with Labour or supply and confidence minority government would have been more realistic options.

    I would leave the LibDems if it became clear the party was on the track to being the National Liberals of the 21st century, but I couldn’t say exactly what it would be that would cause me to feel that was inevitable. Before then, the need is to stay in so as to do what is necessary to stop that. Despite my being a member of the party for 32 years, I still see it as a pragmatic thing – one has to balance a party being exactly to one’s views with what works practically. Even being in the Liberal Democrats is stretching it, there are times when I’ve felt “sod it, I like Labour less, but I could have achieved more of what I want had I been a member of the Labour Party”, but every time I’ve thought like that Labour manages to do or say something which reminds me why I’m a Lib. I don’t myself think there’s much point being in any party outside the big three in England, though the Greens also often do a good job of reminding me why I’ve never wanted to join them.

    As it happens, the part of me which needs a weird tribal loyalty handed down by my ancestors to something irrational is fully worked out by my continuing membership of the RC Church. So, the truthful answer to your question is actually if the party made the abolition of Catholic schools its official policy.

  5. @TBNGU

    I think I am tribal to an extent, but there is no other UK party which is both centre-left economically and liberal on social issues. There is also something fundamentally lame about bailing on a party because you don’t approve of the direction it is going in rather than fighting on the inside.

    I’m not saying I’d never consider leaving – certainly have before – but I’m not about to spell out my red lines to an anonymous commenter.

  6. I too think your attempt at optimism is “charmingly off the ball”. If the extent of the deficit as an immediate problem is being exaggerated, it is not to appease Tory headbangers, but to appease those with the most economic power that it will be the little people picking up the tab for the crisis.

    Now, I expect there would have been a similar appeasement if Labour had won the general election or formed a coalition – those with economic power would have brought pressure to bear on the UK government. But Labour’s links to the trade union and co-operative movemements – and its strength in parts of the UK which experienced deflationary policies in the past – give a weight towards a less savage outcome.

    Now, there is something lame about not sticking around to fight – but then there’s a hyphen in your party’s name for a reason…

  7. Er, there isn’t a hyphen in my party’s name. And you seem to have not noticed that the Tories won the plurality in the general election.

    It must be great fun sitting in opposition and watching by the sidelines, but you will excuse me if I don’t relish impotence to the same extent that so many Labour people seem to at the moment.

  8. Apologies, made my points rather badly, James.

    The last one, on hyphenation, was a reference to the formation of the Liberal Democrats from the Liberals and the Social Democrats, so there’s been a tension between economic liberalism and social liberalism from the start. Given that the economic liberals now dominate your party and have entered a coalition government with the Tories, I’d argue that you too are in opposition, unfortunately.

    The Tories may have won a plurality of votes, but that isn’t an issue under FPTP. Given that before the election, Labour and the Liberal Democrats agreed on the need for cautious deficit reduction rather than an emergency budget. If we are honest, a rainbow coalition was possible but the likelihood of subversion by those with economic power would have made it difficult, but not impossible.

  9. James, your understanding of Lib Dem history is deeply flawed.

    There are plenty of former Social Democrats who have advocated rightwing economic measures (just look at Vince Cable), just as there are plenty of former Liberals who invoke the legacy of Keynes, Beveridge and Lloyd George. It is an entirely false dividing line.

    The Tories winning a plurality very much is an issue under FPTP – after all, Labour enjoyed a majority in the Commons in 2005 despite not getting many more seats. The Tories could have done the same if just 12,000 voters in marginal seats had switched to them.

    The ability of a Lib-Lab coalition holding itself together despite not being able to form a majority was extremely limited. To achieve it, Labour had to be willing to compromise a hell of a lot, and needed to be extremely disciplined. You were neither. It was your deal to make.

    And even if that had happened, we’d have been under siege by a large Tory contingent in the Commons and a hostile press. The bottom line is, the Tories won the moral and political right to form the government and Labour walked away when it had the chance to do something about that. Are you going to rectify that mistake or just go around trolling Lib Dem blogs to make yourself feel better?

  10. The trouble with the structural deficit prediction is that its based upon three estimates: the size of the output gap (government spending), how spending will be influenced by GDP (e.g. welfare) and how revenue will be influenced by GDP (taxes). As a consequence its a very unreliable figure at the best of the times. It is possible, for example, to cut spending and end up with a GDP/debt ratio identical to what you would have had if you’d done nothing; given that the result of cuts might well be to significantly cut GDP.

    Currently we’re living in a period where economic predictions are highly inaccurate. It is quite easy to tweak the figures by plausible amounts (or no less plausible than the current estimates) and end up with a structural deficit that will disappear with the business cycle. The government are treating these figures as if they mean something, when in reality they mean very little.

    And while yes public borrowing is quite high, most of it is held by either domestic savers (pension funds, individuals, etc), or foreign central banks. Given the private sector is currently paying off debt that means demands for gilts is rising, as can be seen from the spreads. The risk is extremely low.

    Meanwhile the risk of creating a recession, or worse, by mistimed public sector cuts is extremely high.

  11. james :
    Apologies, made my points rather badly, James.
    The last one, on hyphenation, was a reference to the formation of the Liberal Democrats from the Liberals and the Social Democrats, so there’s been a tension between economic liberalism and social liberalism from the start.

    I keep seeing this point made in bloggery and elsewhere, and it’s frightening because it’s an example of an Orwellian re-write of history.

    There has been an attempt by people whose politics is more Ayn Rand than liberal to try and give their ideology more credence by making false links to historical liberalism. They win when others start repeating their lies.

    I was a member of the Liberal Party at the time of its merger with the SDP, and I was one of those who voted against the merger. At the time I was on the National Executive of the Young Liberals, our Chair was one of the Liberal Party negotiators with the SDP, and she regularly gave feedback to us on what was happening and we gave advice to her.

    So I am pretty much clued up on what was happening at that time, and I can say with absolute certainty that it was NOT the case that Liberals and the SDP were divided with Liberals being primarily concerned with what is now called “economic liberalism” SDP members concerned with what is now called “social liberalism”. If anything, and I apologise for shouting, but I keep saying this and it does not seem to be getting heard, IT WAS THE OTHER WAY ROUND!!!!!!!

    One of the things that concerned Liberals on the left of the party then was that the SDP leadership was already becoming infected with these right-wing economic ideas that some years later became labelled as “economic liberalism”. That sort of “financial market knows best, let businessmen and City traders rule” simply DID NOT EXIST in the Liberal Party then, certainly not as a significant faction. So to claim it was the main feature of the Liberal Party as this “james” (not Graham) does is WRONG, WRONG, WRONG!!!!
    It was the right-wing of the Liberal Party that was keenest on merger and which had politics it felt were not significantly different to what was then known as “social democracy”.

    The merger was damaged at the start because in a stupid move which I remember warning against, it was left to the leaders of the Liberal Party and SDP to write personal statements. The SDP one turned out to be full of “economic liberalism”, having been left to a couple of young interns to write. This was an early example of the way these ideas in the next two decades became fashionable and picked up by the simple-minded who want to be politically trendy. Members of the Liberal Party, even many who had been very pro-merger up till then, were appalled by what was in this document. The Leader of the SDP, Bob MacLennan (David Owen having left the party to form his own new one of the same name mainly because he thought the Liberals to be too left wing, particular in economics), broke down in tears at the damage caused. The document became known as the “Dead Parrot” document.

    The right-wing pro-business element of liberalism was largely lost in the UK Liberal Party while it remained strong and grew to dominate many of the continental liberal parties. In fact, pulling out of collaboration with the continental liberal parties because of this was a theme quite often pushed by more left-wing member of the UK Liberal Party in the decade before the merger with the SDP. There are historical reasons why this element was lost. The survival of the Conservative Party which absorbed the right-wing elements of the Liberal Party of them is the principle one, but another is the close links the UK Liberal Party had with non-conformist Christianity, whereas continental liberalism had its origins in anti-clerical movements.

  12. Well, I’m off, as of this morning. As far as I can see, the big unreported UK politics story of the late 2000s was that the Lib Dem leadership has been taken over by hardcore libertarians who want the country to look like Texas with rain.

  13. In response to James, I think that it was deply regretable that an alternative to Tory government was not possible. My motives for “trolling” here are not to make myself feel better but for another selfish reason – to learn.

    Given James and Matthew’s comments, I’ll not characterise the party’s history in those terms in future.

    Cian’s articulate remarks about the structural deficit as a political issue are welcome. Why is it that senior Liberal Democrats are talking about this issue and not decarbonisation or reducing youth unemployment? For me, it’s only explicable in terms of the LD party being detatched from broader social forces – there’s nothing to pull Clegg, Huhne, Laws and other LibDem multi-millionaires back down to earth.

  14. james :

    Cian’s articulate remarks about the structural deficit as a political issue are welcome. Why is it that senior Liberal Democrats are talking about this issue and not decarbonisation or reducing youth unemployment? For me, it’s only explicable in terms of the LD party being detatched from broader social forces – there’s nothing to pull Clegg, Huhne, Laws and other LibDem multi-millionaires back down to earth.

    There is the membership of the party. There are certainly plenty of members on the left of the party who would share your concerns. Just like the other two major parties, membership covers a broad spectrum. Unfortunately, national media coverage of the Liberal Democrats tends to be both ignorant of what is going on in the party and biased towards its right-wing. It has always been so – that was a big part of what happened in the Liberal-SDP merger I referred to earlier. Media coverage of it portrayed the Liberal-SDP alliance almost always in terms of the SDP, with the Liberal Party dismissed as just its leader and a few other “people like us” (i.e. to the right of the party) with everyone else in the party including all its left ignored or written off as worthless, with jokes about “beards and sandals” etc. It took the failure of David Owen’s new SDP and the Liberal Democrats slowly rebuilding from the disaster of the merger through its grassroots activists to show just how wrong the media were.

  15. I don’t think spatial metaphors (left / right) are helpful for understanding politics – a more useful perspective can be based on socioeconomic interest.

    As you suggested, Matthew, it might be possible for the Liberal Democrats to issue an ultimatum to the Tories that the wealthiest must contribute more in future years if we truly are “all in this together” – increasing capital gains tax, corporation tax, and maintaining the top rate of income tax at 50%. But these are measures which have far more support within Labour than the Tory party.

  16. James Graham :
    @TBNGU
    I think I am tribal to an extent, but there is no other UK party which is both centre-left economically and liberal on social issues.

    How would you define “centre-left economically”? I want to improve the lives of the poorest and for that to be paid for by the richest. But that is just a principal. I know that many centre-left taxation ideas are flawed — they merely lead to clever avoidance measures by the wealthy. And that effective measures such as Citizen Basic Income or sensible income tax thresholds are welcomed by (largely) right wing libertarians.

    Delivery of my principal is unlikely via traditional centre-left policies so I would not use that expression to describe myself. (Perhaps it might be a good time for us all to dig out the 1970s Liberal Party manifestos and discussion papers which contain many nuggets of wisdom.)

  17. The merger was damaged at the start because in a stupid move which I remember warning against, it was left to the leaders of the Liberal Party and SDP to write personal statements. The SDP one turned out to be full of “economic liberalism”, having been left to a couple of young interns to write. This was an early example of the way these ideas in the next two decades became fashionable and picked up by the simple-minded who want to be politically trendy. Members of the Liberal Party, even many who had been very pro-merger up till then, were appalled by what was in this document. The Leader of the SDP, Bob MacLennan (David Owen having left the party to form his own new one of the same name mainly because he thought the Liberals to be too left wing, particular in economics), broke down in tears at the damage caused. The document became known as the “Dead Parrot” document. Assisted living Peoria

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