Conference Diary - Osborne, Callaghan, and rejecting the economics of the past
James Callaghan has not gone down in history as a great Prime Minister, but he did get one thing absolutely right, and he showed considerable bravery in telling the Labour conference why they should abandon the economics of the past.
Nearly forty years ago, when both I and George Osborne were still at school - in his case Primary school - Jim Callaghan told the Labour conference
"For too long, perhaps ever since the war, we postponed facing up to fundamental choices and fundamental changes in our society and in our economy. That is what I mean when I say we have been living on borrowed time. For too long this country - all of us, yes, this Conference too - has been ready to settle for borrowing money abroad to maintain our standards of life, instead of grappling with the fundamental problems of British industry."
"We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment."
"That is the history of the last 20 years. Each time we did this the twin evils of unemployment and inflation have hit hardest those least able to stand them. Not those with the strongest bargaining power, no, it has not hit those. It has hit the poor, the old and the sick."
With those words Callaghan renounced the politics of inflation as the politics of the past. I wish what he said about borrowing had been as well remembered as what he said about the politics of inflation - Britain would be in a far better state today if Gordon Brown had remembered the first paragraph quoted above as well as he took on board what Callaghan said about inflation.
Callaghan's words were the last nail in the coffin, not of all the ideas of John Maynard Keynes, but certainly of a disastrous brand of economic thought among some of Keynes' acolytes who had persuaded themselves and many governments that 5% plus inflation was acceptable.
Yesterday George Osborne deliberately echoed that speech from 38 years ago when, after acknowledging that Britain's deficit is still far too high, he dismissed the economics of high taxation in the same way Callaghan demolished the economics of double digit inflation, saying
"I tell you in all candour, that the option of taxing your way out of a deficit no longer exists, if it ever did.
"In a modern global economy where people can move their investment from one country to another at the touch of a button – and companies can relocate jobs overnight – the economics of high taxation are the economics of the past.
"We choose the future."
Nearly forty years ago, when both I and George Osborne were still at school - in his case Primary school - Jim Callaghan told the Labour conference
"For too long, perhaps ever since the war, we postponed facing up to fundamental choices and fundamental changes in our society and in our economy. That is what I mean when I say we have been living on borrowed time. For too long this country - all of us, yes, this Conference too - has been ready to settle for borrowing money abroad to maintain our standards of life, instead of grappling with the fundamental problems of British industry."
"We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment."
"That is the history of the last 20 years. Each time we did this the twin evils of unemployment and inflation have hit hardest those least able to stand them. Not those with the strongest bargaining power, no, it has not hit those. It has hit the poor, the old and the sick."
With those words Callaghan renounced the politics of inflation as the politics of the past. I wish what he said about borrowing had been as well remembered as what he said about the politics of inflation - Britain would be in a far better state today if Gordon Brown had remembered the first paragraph quoted above as well as he took on board what Callaghan said about inflation.
Callaghan's words were the last nail in the coffin, not of all the ideas of John Maynard Keynes, but certainly of a disastrous brand of economic thought among some of Keynes' acolytes who had persuaded themselves and many governments that 5% plus inflation was acceptable.
Yesterday George Osborne deliberately echoed that speech from 38 years ago when, after acknowledging that Britain's deficit is still far too high, he dismissed the economics of high taxation in the same way Callaghan demolished the economics of double digit inflation, saying
"I tell you in all candour, that the option of taxing your way out of a deficit no longer exists, if it ever did.
"In a modern global economy where people can move their investment from one country to another at the touch of a button – and companies can relocate jobs overnight – the economics of high taxation are the economics of the past.
"We choose the future."
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