Monday, 27 April 2009

Of Recovery and the Right...

It's been fascinating to watch the resurgent of the Right coincide with the first signs of global economic recovery. Like an addict slipping off the wagon, the economic conservatives are back pleading for tax cuts and rejecting or refuting any form of fiscal stimulus.

But let's go back...

Last Autumn, as the financial storm broke and the likes of Bear Stearns and Lehmann Brothers stared into the abyss, all the running was made by the centre-left and supporters of Government. The Bush Administration and the hapless Hank Poulson were discredited and instead interventionists such as Tim Geithner and Gordon Brown were praised.

The Right were silent, unable to criticise for being reminded that their policies of light regulation had allowed the banks to destroy the economy.

Now, though, the Right is fighting back and we are seeing a clear divergence of approach between the Brown/Obama approach of continuing fiscal stimulus and Government spending to boost demand and maintain employment and the Cameron/Osborne emphasis on reducing Government spending and tax cutting.

The Europeans such as Merkel and Sarkozy stand somewhere between these two philosophies. If, or should that be when, David Cameron becomes Prime Minister, we might well be the sharpest contrast between London and Washington since the Major/Clinton period.

It's clear that for all his talk of liberal conservatism, David Cameron is going to embark on a savage round of real spending cuts once in power and believes that not only is the electorate willing to accept it but also that it will grant the Conservatives a full decade in power to carry forward the process.

Of course, it will be a whole lot easier for Cameron if Alastair Darling's growth forecasts turn out to be correct and it's interesting to see some of the more hawkish City pundits signing up to this and using it as evidence that further stimulus is unnecessary as was the new top tax rate.

It still seems more probable, however, that any recovery is going to be slow and sluggish. The IFS talked about "two Parliaments of pain" in its report last week. It remains to be seen whether an incoming Conservative Government has the political will to endure that pain and whether those Tory Councillors who will lose their seats once the backlash sets in, will be as sanguine.

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