One of Theresa May’s first acts – along with sacking just about everyone in the Cameron cabinet – was to abandon explicitly the former chancellor George Osborne’s austerity programme. This was more a recognition of reality than a change of ideology. The idea of running a budget surplus by 2020 is clearly impossible following Brexit.
But Ms May seems keen also to suggest that she is challenging the whole neoliberal economic consensus. In her speech on becoming prime minister she name-checked just about every victim of globalisation from white working class men to economic migrants. She says she wants workers on the boards of large companies. An end to supersize bonuses and salaries for executives. Affordable housing and energy costs.
Indeed, much of her speech could have been cobbled from Ed Miliband during the general elections. Now, Ms May’s radicalism has not extended to her choice of ministers, most of whom are far to the right of the politico-economic spectrum, like Liam Fox, David Davis, Philip Hammond. Liz Truss is a hyper-market neoliberal who has argued for virtual elimination of the state from economic activity. But Ms May’s rhetoric is significant if only because she is being advised that these are the kind of messages that the public want to hear. And it wasn’t just Mrs May who was dressing to the Left.
Her former leadership rival, the ex- Work and Pensions Secretary Stephen Crabb has even proposed adopting something very like People’s Quantitative Easing. What, you cry – that policy of boosting the economy by state borrowing which has been decried by “serious” Labour politicians as a return to bad old “tax and spend”? Yes, indeed.
Welsh MP Crabb and his running mate, the Business Secretary Sajid Javid, proposed a £100 billion Growing Britain Fund to invest in infrastructure – housing, rail, etc – to generate thousands of jobs. This bears a striking resemblance to the proposal made by Nicola Sturgeon during the 2015 general election campaign for a £180bn infrastructure boost for which she was dubbed “Red Queen”.
And the similarities don’t end there. Mr Crabb also proposed financing this by issuing government bonds, £20bn a year for the next five years, which allows the government to borrow at today’s extremely low rates. This is reminiscent of Alex Salmond’s Scottish Futures Trust which was also dismissed by responsible commentators as pie-in-the-sky “Salmondonomics”.
Brexit seems to have unleashed something more than mere backstabbing in the Tory party. Can it be only a fortnight ago that the Chancellor George Osborne was promising an emergency budget in which spending would be slashed and taxes would be increased? That has now been discarded.
Before his departure Osborne also abandoned his fiscal lock, the ludicrous idea the budget had to be in surplus by 2020. That would have involved crash austerity that he attempted after 2010 but then abandoned in 2012 in favour of modest expansion.
Indeed, you could argue there is a new economic consensus emerging. Labour, the SNP and thinking Tories are seeing life beyond austerity. That governments can do more than cut and that austerity is self-defeating because it deflates the economy, reduces tax revenues and makes the debt pile increase.
There is nothing particularly socialist about demand management: using the resources of the state to boost the economy. Such policies were deployed by the Conservatives under Harold Macmillan in the 1950s when the Tories boasted about building 400,000 houses a year. The reason the American economy has grown at twice the rate of the EUs over the past five years is because of President Obama’s $800bn 2009 American Recovery and Reinvestment Act. That was spent on wasteful things like education, infrastructure, energy programmes and job creation. The European Union, sadly, has been caught in a deflationary spiral with southern nations like Greece, Spain and Portugal seeing youth employment reach 50 per cent.
John Maynard Keynes argued in the 1930s that mass unemployment and the underutilisation of capital was an inexcusable waste of human and material resources. The state must intervene to ensure full or near full employment. Failure to do so leads to a depression as demand from the economy wilts and investment installs. Put simply, under austerity people don’t buy stuff so industry stops making stuff. Sometimes, supposedly left-wing policies need to come from the Right before anyone takes them seriously.
Perhaps we should have Brexit more often.