Cuts In The Right Direction

David Hughes, writing on his DT blog, puts Osborne's keynote speech in perspective very well.

"A welcome blast of honesty...

Well, it was never going to be a fun fest, was it? And George Osborne will never be one of the great platform orators. But his speech this morning was exactly what was required. In setting out the unvarnished truth about the scale of the economic challenge awaiting an incoming Tory government, he was treating his party – and the country – like grown-ups. What a contrast with the performances of both Gordon Brown and Alistair Darling in Brighton last week. They both managed to plough through their speeches without addressing the mountainous deficit their policies have helped create. Osborne also hit a bull’s eye with his attack on Darling for announcing a pay freeze for the highest public sector earners during the Tory conference – and not having the guts to do it at his own.

We knew about the plan to bring forward by a decade the one-year increase in the state pension age – linking it to the pledge to increase those pensions in line with earnings will go some way towards easing the pain. Osborne’s other big announcement was a one-year public sector pay freeze (not just on the top earners) though the lowest earners and the Armed Forces will be spared. He also reiterated promises already made by David Cameron to cut salaries in Westminster and Whitehall – for “we are all in this together”. This became his mantra. He used it to justify his refusal to scrap the 50p tax rate on high earners, conceding that the tax made no economic sense but arguing that when everyone else was suffering, it would be unfair (and politically damaging) to give the wealthy a break. Osborne got his biggest cheer when he promised to reverse Gordon Brown’s pernicious pensions credit tax grab, though without specifying how, as he promised to put a Tory government on the side of savers. Osborne summed it all up at the start: “Labour created this mess; we are going to have to sort it out”. He made no attempt to conceal the fact that it is going to be very, very painful. Some people are already complaining that he’s been too honest, has put up too big a target for Labour’s attack dogs. I suspect that for most voters, a blast of honesty will be welcome after the spin and trickey of the past 12 years."

Well said. It is also worth noting that those Labour attack dogs were indeed out in force, predictably and particularly in the one-eyed Grauniad. Still believing, extraordinarily, that Labour is competent on the economy, and their own, bizarre (dishonest) version of Keynesianism, the ordinarily quite sensible Martin Kettle, for instance, commits to the record one of the most silly, backhanded and muddled pieces on Osborne, the Tories and economics generally I've ever read. This, for example:

The big fault with Osborne's argument is his belief that governments must behave in the same way as individuals in economic hard times. He wants, he said, to move from an economy based on debt to one that is based on savings and investment. That sounds like the German model. Germans are individually thrifty in just the way that Osborne extols. They save. They avoid debt.

But the trade-off for that is that the German government goes into debt on their behalf to provide public goods and to see them through hard times.

Osborne, however, wants the government to behave like individuals and get out of debt quickly if it can. Keynes always argued that this would be a disastrous course – and even Samuel Brittan, no Keynesian, argued last week that the British political focus on debt is short-sighted and mistaken. But Keynesianism is a hard political sell, as Labour is currently finding.

Voters instinctively believe the Osborne approach rather than that of Keynes.

Osborne accordingly painted a very grim picture. We are swimming in a sea of debt, he said. We have to get back to sound finance. We are all in this together. Who could be against that? Well, Keynes for one.

Having established the case for spending cuts, Osborne duly delivered them.

Can you follow this? If you can then well done, because to me it's just incoherent drivel. Someone should tell Kettle that desperately clinging on to some misunderstanding of Keynes ain't gonna make this country solvent again. It's also the big Labour fallacy, isn't it? The appeal to authority: "Well, Keynes says this so it must be right." No and no. 1) Keynes said you can pump prime during the high point in the cycle to stave off the worst effects of a downturn. 2) Even if Keynes did advocate spending yourself into inflationary oblivion during a severe recession, he would not necessarily be right, however much you might admire the man. I don't admire him as much as I admire, for instance, Hayek, but I would never say, "Well, Hayek said it so it must be true."

But even that doesn't really explain Kettle's or Labour's deeper motive. The deeper motive is, of course, plain, old-fashioned, mindless tribalism. "They're Tories so they must be wrong. About everything." It's as pathetic as it is infantile as it is insulting.

So David Hughes is quite right: George Osborne's speech was a "blast of honesty" and a "speech for grown-ups".

If Osborne could be criticised for anything, perhaps it could be for not dumping Labour's core vote-wooing 50% top tax rate, which, it has been proven (Laffer curves an' all that), will cause a net loss in tax revenues and will harm investment. If you believe economists, that is ;)