I'm not going to claim that I'm an economic genius - half the time I either don't know the meaning of various economic terms or mistake them for something else - and I know I don't have the cute turn of phrase or eloquence of many conservative bloggers out there, but I really get fed up with reading some of them who insist that all we have to do is cut public spending and reduce taxation to restore guarantee our economic future.
The thing is, although both these things are desirable in my book, neither was responsible for the mess we now find ourselves in. It wasn't the rise in public sector spending that caused the credit bubble and it wasn't high taxation that resulted in the debt mountain - so how exactly are reductions in these things supposed to prevent the problem happening again?
As far as I can see, all you will do by reducing taxation and spending is redistribute the way the debt is managed - robbing Peter to pay Paul. It does nothing to solve the underlying causes of this recession or to address the possibility of it occurring again. On the contrary - without action elsewhere it merely reinflates the credit bubble again. Less taxation means more spending power which means more demand for credit.
The Tories talk glibly about learning to "live within our means" as if that means something to them. All they are really suggesting by that is a minor reduction in public spending relative to GDP - but the last time I looked public spending was considerably less than GDP anyway - it's an irrelevant comparison and GDP is a really poor benchmark to use.
The essential point for me is consumer spending and where, ultimately, that money ends up. Because the vast majority of it ends up going out of the country. You might buy a Sunderland built £15,000 Nissan from a local dealership - but where, ultimately, does that money go? A small portion goes to the dealership, some goes back to the factory, but most of it goes back to the parent company who is in Japan.
The real problem for the British economy is the trade deficit - this is really what it means when we talk about a country living beyond its means.
To give an idea of the scale of a trade deficit, the figure is typically compared to the country’s Gross Domestic Product (GDP) – the total value of goods and services produced in a country in a year. Britain’s trade deficit was £60bn in 2006, or 5% of GDP.
[A]ccording to investment guru John Mauldin, no country has “ever run a deficit of more than 5% without at least a 30% drop in the value of its currency”. This is simply due to the fact that the more that imports outweigh exports, the greater the demand for foreign currency over the domestic one. Recovering from a large trade deficit or collapsed currency is a painful experience for a country. The recession in Britain in the early 1990s was largely due to huge deficits built up in the 1980s.
Nothing I have seen proposed by the Tories or most conservative bloggers addresses this fundamental weakness of the British economy. If the Tories - or anybody else for that matter - really wants to start sorting out the problems of the British economy we need to get back to the point where we have a trade surplus - we have to start making things again.