‘You are Keynesian?’ ‘I wouldn’t be one with my own money, I’ll tell you that,’ said Kaufmann.”
This delightful quotation comes from John le Carré’s A Perfect Spy. I wonder if our relatively new chancellor, Rishi Sunak, knows it.
Sunak is enjoying considerable popularity, partly because people perceive him as one of the few grown-ups in the cabinet, and partly because, although a rightwinger and a Brexiter – necessary conditions for membership of the worst cabinet in living memory – he has risen to the occasion.
That occasion is the biggest economic depression since 1709. The official estimate is that output (gross domestic product) fell by 20.4% in April. That demands countervailing economic measures.
Yet, as I have said before, this is not fundamentally an economic crisis, although its repercussions may be. Economic crises tend to occur when some unexpected event throws an economy off course, or as a result of ill-conceived policies. The present depression, both in the UK and around the world, has been deliberately imposed by governments in an attempt to contain, if not eliminate, the spread of “the plague” – a no-nonsense phrase which I prefer to “Covid-19”.
The very least any government can do is attempt to cushion the damaging economic and social effects of measures they have deliberately imposed themselves. Thus it comes about that a chancellor who believes in a smaller state and reductions in public spending – how the Treasury loved him when he was chief secretary, or grand controller of public spending! – is lauded by the left for opening the floodgates.
Of course, our new chancellor is reputed, in the traditional Cockney phrase, to be not short of a bob or two himself. Like the Le Carré character quoted above, he is being Keynesian, but not with his own money.
The epithet “Keynesian” should be used with care. John Maynard Keynes wrote millions of words, and argued for more than a decade, to get his message across. But the essence of his philosophy was epitomised by that formidable Labour chancellor Denis Healey (in office from 1974 to 1979). As he put it: “When you are in a hole, don’t dig deeper.”
Sunak is trying to pull us out of the hole, with the able assistance of the Bank of England, under its governor, Andrew Bailey, and the Debt Management Office (DMO) under its director Sir Robert Stheeman.
Bailey recently gave a spirited, almost boastful, account of how, when there was a plague-induced panic in the ranks of the financial markets in mid-March, the Bank came to the rescue with an extra dose of what is comically known as quantitative easing (QE) but is actually the old-fashioned practice of printing money (although these days it is, in effect, electronic money).
Stheeman and his colleagues made an impressive virtual appearance before the Treasury committee on Wednesday. The scale of government borrowing may, as a result of the depression, have reached historic heights and frightened a number of fiscal hawks, but there is plenty of liquidity sloshing around out there, and the average maturity of UK government debt – that is, the length of time before repayment is due – is, at some 15 years, longer that any other member of the G7, and possibly any of the 37 member nations of the Organisation for Economic Cooperation and Development.
The impending disaster of Real Brexit does not appear to have hit the market for government debt, although it has most certainly clobbered the exchange rate – €1.10 to the pound as I write.
But back to the chancellor: we are told that he is considering all manner of further fiscal measures to limit the damage, probably including a temporary cut in VAT.
But we are also told that he is planning tax increases and public spending cuts in an autumn budget. God help us! If he is serious about this, he will be making the mistake George Osborne made in 2010 when embarking on the austerity programme, which only a few of us opposed at the time, but which is now widely acknowledged to have had disastrous social consequences.
Finally, readers who missed it may appreciate the following item from last Wednesday’s prime minister’s questions. Johnson asked Sir Keir Starmer whether he could “now confirm that he wants all children who can to go back to school this month”.
“Yes,” said Starmer.
Johnson: “He still can’t make up his mind! He still won’t say whether children should go back.”
I read that our European counterparts are prepared to compromise on the next round of Brexit negotiations. They should be on their guard. They are dealing with a bare-faced, incompetent liar.