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The more we demand a ‘Plan B’ the less likely Osborne will go for it


10:03 am - March 8th 2013

by Sunny Hundal    


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Our politics seems to be increasingly determined by who says something rather than the contents of what they’re saying.

For example, Republicans openly admit that they are less likely to support legislation if President Obama lobbies hard for it. This, paradoxically, means Obama is able to get most support on issues on which he says very little in public.

The same applies here and this paradox defines the state of the British economy.

David Cameron and George Osborne will not execute a Plan B for the economy because abandoning Plan A will make them look weak. The weakness derives from the fact that Ed Balls has been loudly calling for a Plan B since 2010.

In other words, the more Ed Balls calls for such a plan, the less Osborne and Cameron are likely to sign up to it. The last thing they want to do is give the impression that Ed Balls was right.

Of course, Ed Balls won’t stop making his case, and neither should he – it is his job to make the case for an alternative.

But the politics has trapped George Osborne, who knows we need a big investment boost, but cannot be seen to be signing up to anything Ed Balls advocates.

We are now at a stage where the politics completely trumps the economics of what’s good for the UK. I suspect this stubbornness will be Osborne’s downfall .

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


1. Oxford Kevin

I think we need to think about how he can be given a face saving get out. This needs to be resolved for our sake.

This is how politics works. Look at the way Blair managed. The Tories would come up with a good idea which would be comprehensively rubbished and six months later would be presented as party policy. At least the tories gave up on it in the meantime.

However, all Balls pushes for is Plan B. Nothing specific, no definition of Plan B, just not whatever is being done. Osbourne has already changed, but all Balls wants is for him to change again and again. There is no sense in this approach.

Plan A has already been revised because targets have not been met, however Osborne has indeed (and foolishly) boxed himself into a corner.

He should never have been so definite in his rhetoric, if only because no-one could or can predict how the EZ situation will progress.

On what, exactly, does Osborne’s “master strategist” reputation rest? Presumably, Brown’s cancellation of the 2007 election, but is that it?

At the very least, it would be nice to have a full-time Chnacellor. It’s what we pay him for isn’t it?

4. Luis Enrique

unconventional monetary policy is a potential way out.

George has already said he’s keen to let the incoming governor experiment with more radical policies. George and Dave want to be seen a fiscal conservatives and monetary activists.

The secret is that helicopter money and its variants are actually fiscal policy disguised as monetary policy, and if spun correctly can unlock increased spending with the chancellor being able to claim borrowing hasn’t increased. I’m thinking of things like money-printing-funded direct payments to households, but perhaps it could also fund government planned investment – what matters is whether they can make it sound like something other than everybody’s plan B – spending increased funded by borrowing.

more reading
Martin Wolf
Simon Wren-Lewis
Adair Turner
How I stopped worrying and learned to love fiscal monetary cooperation

5. David Ellis

I get it. Like Brer Rabbit we should demand more Plan A and just to spite us Osborne will give us Plan B. In actual fact from Day One this Coalition’s policy has included much of Plan B. QE and borrowing are through the roof despite all the crap about cutting the deficit.

Plan A (Austerity) is wrong and Plan B (Borrowing) is wrong and a combination of the two is not right but the compounding of two errors.

Plan C (Socialist Consolidation) is the true response to the false dichotomy being offered by the political vacuum that is the defunct New Labour Sect and this Coalition of Robbers.

Full employment by sharing the available productive work; defend all necessary and desirable public spending; balance the budget by socialising the gigantic surpluses of the cash-hoarding, profiteering monopolies and via a fair income tax; reverse all privatisations and bring the monopolies into public ownership – subject their management to election by their workforces instead of them being imposed by corrupt politicians, the Old School Tie Network or indifferent (except to profit) shareholders; end the bail out of the bankrupt banks – take them into administration and use their staff, estates and deposits to form a new state bank with a monopoly of credit lending at base rate to small business and facilitating social investment in accoradance with the democratic plan: re-negotiate the founding treaties of the EU in accordance with socialist as opposed to neo-liberal principles.

Luis: and if spun correctly can unlock increased spending with the chancellor being able to claim borrowing hasn’t increased.

True, but he is already trying this with Pension Funds. But waiting for others to invest is always a risky strategy and may not have any payoff for years.
At least by spending money on shovel-ready projects now, by govt borrowing, hgives the economy a boost in the short term.

7. Luis Enrique

Sunny at 6

well I quite agree that simply borrowing and spending is the best course of action. If the relationship between spending and the increase in net borrowing is anything like the relationship between spending cuts and the decrease in net borrowing, we should be able to increase spending a lot for little actual increased borrowing.

however, what I describe does not have to involve “waiting for others to invest.” This won’t happen, but for example the government could announce a program of investment financed by permanent monetary expansion rather than borrowing, so could claim to have increased spending without borrowing.

Other methods, such as the BoE sending a cheque to every household, do not directly raise investment it’s true, although I think it’s reasonable to think that if households are able to pay off debt or increase spending, the increase in aggregate demand should make firms more willing to invest. I think there are more creative ideas around too.

What Osborne has managed to achieved is austerity with more government borrowing.

“In last year’s Budget George Osborne said borrowing for 2011/12 came in at £126 billion and borrowing for 2012/13 should fall to £120 billion. . .

“Last month [February] the Office for National Statistics revealed that in the first 10 months of 2012/13 the government had borrowed £97.6 billion, which means Osborne can only borrow another £22 billion to be in line with his target.” [moneyobserver.com/news]

“The Office for National Statistics said that once special factors such as the transfer of the Royal Mail Pension fund and QE profits were excluded, the budget deficit for the first 10 months of the 2012-13 financial year was 6.6% higher than in the same period of 2011-12.”
http://www.channel4.com/news/january-borrowing-figures-surplus-higher-than-expected

According to the report in the FT, in his forthcoming budget Osborne is to give more powers to the Bank of England so it can “kick-start” the economy. He is passing the buck – if the economy continues to flag or, worse still, sinks back into recession, that will be the fault of the Bank of England, not the Treasury. Osborne is washing his hands of responsibility.

The Guardian has helpfully summarized 7 options for “unorthodox” monetary policies:

Seven strange ideas the Bank of England could try to boost growth

The MPC held the base rate and refused to expand QE this month. But a more radical approach to stimulating the economy is still on the cards. Here’s how it might be done
http://www.guardian.co.uk/business/2013/mar/07/seven-strange-ideas-bank-england-growth

Last year, I proposed here using new QE money to buy Housing Corporation bonds – instead of government gilts – so the Corporation could lend on to housing associations to build social and affordable housing.

This is what has happened so far with the BoE’s Funding for Lending scheme:

“Just 13 banks used the Bank of England’s state-backed Funding for Lending cheap credit scheme in its first five months and, between them, have taken £1.88bn of credit out of the economy, official figures show.” [Telegraph 4 March 2013]

10. crossland

Think luis has it right, everyone quickly forgot that several billion of deficit was wiped out by accounting changes over interest from QE bought Gilts. also bear in mind Osborne has been trying to use the banks to direct QE into the economy, He’s exhausted just about every angle there so could present govt need to direct QE as non ideological.

Worries me that Labour has such a hangup over need to apear ‘sensible’ on economy that we are too conservative and the Tories will get to grips with MMT/post keynesian type arguments around QE etc first.

11. Planeshift

So what your saying is that the TUC, labour party, guardian and everyone else the public associates with left wing views should start loudly advocating the following policies:

Strict immigration controls,
Whatever Israel Wants
Abolition of min wage and low taxes
Privatization of the NHS
Climate change denial

Etc

And then once the public starts associating these as policies ‘left wingers’ support, they will be more likely to oppose it. And the conservative government will then do the opposite it.

😉

12. Badstephen

The Tories are also trapped by their own re-writing of history. Cameron is fervently bought into the legend of “The Lady’s Not For Turning.” In fact, Thatcher quietly resorted to her own plan B in 1981, realising that her original sado-monetarism was on the brink of destroying the UK as a functional economy. Smart PR and a compliant media allowed her to fool a good many people into thinking she hadn’t changed course. Unfortunately, those fooled include Osborne and Cameron. They believe they are following Lady T’s resolution, when they are actually displaying a mulishness even she did not possess.

“Now at the stage”?

We’ve been at this stage since Blair got in, and arguably since Back to Basics if not as far back as Thatcher. I’m inclined to guess that since the advent of the modern era of very long periods of majority governmnt, the party politics has always been more important than the impact of policy on the country in Westminster.

BadStephen @14: yeah, that’s a familiar narrative in the US, too. Reagan, who is much lauded by the GOP as the guy who staid the course and lower taxes, raised taxes 11 times. He had figured out by late 1981 that the policies he ran on were shit. In both cases, the difference between then and now is that then, the people in charged were capable of *recognising* that their policies were shit, and doing something about it. I genuinely begin to wonder if either Osbourne or Cameron are even aware there something wrong with the economy. I mean, *their* mates are making money, corporate profits are up, where’s the problem? The plebs keep complaining, but who gives a shit…


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