The usual 'Britain is broke' lines were trotted out on Question Time last night.
That is nonsense. Britain is not broke, nor can it go broke. If you can print your own money you can't ever go broke. The mnost you can do is devalue your currency. But we're unlikely to be doing that any time soon when the Euro is in its current state. What we are facing is a political and not an economic crisis. As Philip Stephens says in the FT this morning:
Fiscal retrenchment can be credible only if it retains the consent of electorates. In the absence of economic growth, how long will Spanish, Portuguese, Irish and Italian voters bear the fiscal pain? Austerity policies designed to sustain credibility have now begun to have precisely the opposite effect.
That's heading our way. Inevitably. Martin Wolf in the FT, again this morning, has said:
Can it make sense for policy makers to stick with their policies, regardless of adverse changes in circumstances and outcomes? David Cameron thinks not. In a speech earlier this week, Britain’s prime minister advises the eurozone to change its monetary policies and fiscal institutions. But what does he think about the policies his government is following at home? On that he is not for turning. The policies decided when the coalition came into office two years ago are, he insists, also correct now.
As he notes:
Mr Cameron insists that “we are moving in the right direction”.
But as he asks:
How can Mr Cameron believe the economy is moving in the right direction when it is not moving?
Because as Martin Wolf notes:
The reason Mr Cameron believes this is because he is fixated not with the dire economic performance, but with the public sector’s balance sheet – and not even the whole balance sheet, but with its liabilities. “We cannot blow the budget on more spending and more debt,” he says.
The result is that:
With real interest rates close to zero – yes, zero – it is impossible to believe that the government cannot find investments to make itself, or investments it can make with the private sector, or private investments whose tail risks it can insure that do not earn more than the real cost of funds. If that were not true, the UK would be finished.
In that sense, and that sense alone we are broke, but broke only because the Tories are choosing to break us.
As Wolf notes - we need massive investment. I have explained, endlessly, how we could fund it through closing the tax gap, green quantitative easing and requiring pension funds to invest in new infrastructure bonds in exchange for tax relief. It's not hard to do. Wolf agrees. As he notes
It is a scandal that in an exceptionally severe downturn, the Treasury, in its majestic unwisdom, slashed its investment so deeply. Penny wise, pound-foolish does not come close to it.
In its fear of the spectre of a bond price collapse, the government is consigning the UK to stagnation. It is refusing to take advantage of the borrowing opportunities of a lifetime. It is unwilling to contemplate even a clearly time-limited fiscal boost out of fear that the gilt markets would promptly panic. It is determined to persist with its course, regardless of the unexpectedly adverse changes in the external environment. The result is likely to be a permanent reduction in the output of the UK, not to mention permanent damage to a whole generation of the unemployed. I have words for such behaviour. Not on this list is the word “sensible”.