“Turn him to any cause of policy,
The Gordian Knot of it he will unloose”
Shakespeare, Henry V, Act 1 Scene 1. 45–47
In a pre-budget Newsnight interview last week, I was asked what the Chancellor could do in today’s budget to get the economy growing. Inevitably, any nuance was stripped out of my answer to set up a simple dichotomy between me as a fiscal activist, and City AM’s Allister Heath as a supply-sider.
That got me thinking about the range of opinion in the growth debate. Despite the Prime Minister’s mantra that ‘there is no alternative’, there is no shortage of ideas about how to get growth going. But while wonks get lost arguing between a plethora of arcane growth plans, it’s all but impossible for the informed onlooker to pick their way through the maze. So, with a further official growth downgrade imminent at this afternoon’s Budget, we thought it might be useful to map out the options for the Government as it tries to revive the economy.
Our flow-diagram sets out the main arguments and options as we see them, and some of the main proponents of each viewpoint. The map starts with what seems to be a fundamental fracture line in the debate: between those who think there’s a demand problem in the economy that is amenable to some form of stimulus, and those who think the real problems are on the supply side, requiring microeconomic policy reforms. Regular readers may remember my critique of the Autumn Statement that it sought to tackle a demand problem with supply-side tinkering.
Within the ‘demand pessimists’ half, the options for boosting demand revolve around monetary activism, fiscal activism, off balance sheet manoeuvres, and those who agree that there’s a demand problem but think that government doing anything about it would be unwise. Within each approach there are a range of different prescriptions, from Jonathan Portes’s version of Plan B, to Adair Turner’s Helicopter Money. Some – like Liam Fox on the Conservative right – argue that public spending should be cut to finance tax cuts to ‘kick-start the economy’; while others of us think that this would actually damage demand, and instead propose axing low growth measures to fund infrastructure investment.
Among the ‘supply pessimists’, the economy’s problems aren’t amenable to quick fixes. On this view there are deep-seated problems with our economy that require reform if we’re to get growth going in the long-run. Supply pessimists also come in different flavours: those – like Adrian Beecroft – who think that deregulating the labour market and cutting taxes will solve the problem, those – like Nick Boles – who argue for planning liberalisation, and those who think that zombie companies and households are preventing the normal process of reallocating capital to more productive uses. There are also some more fatalistic supply pessimists who think that unwinding the economy’s debt problems will just take time.
This is a work in progress and we’re keen to hear both whether people think the map is accurate, (and whether we’re fairly ascribing views to different commentators) and where different people think the policy emphasis should be.
Now clearly most people think there are problems that could usefully be addressed in a number of these areas. The SMF, for example, would advocate a cocktail of nimby-slaying, investment switching, more activist monetary policy and a dose of Plan B (provided you’ve proven your credentials by doing some unpopular cuts-funded stimulus first). But for the sake of simplicity, you’re only allowed to vote once. The question is “Given the Government’s current policy stance, where do you think the emphasis should be?”
Please give us your feedback. And please tweet it on to others – after all, your followers are likely to vote with you.