Douglas Carswell's Blog

1976 again

“The Coalition’s proclaimed economic policy is one of fiscal conservatism and monetary activism. In practice, the fiscal conservatism seems to be as absent as the monetary activism is ineffectual.” - Jeremy Warner, Daily Telegraph.

Indeed. 

I sense that we are heading towards a 1976 type moment - a time when folk realise that the orthodox approach isn’t working.

A generation ago, it was Jim Callaghan who stood up and announced that Keynesian attempts to kick start the economy were not working. But it was not until three years later, 1979, that a government deliberately embarked on a coherent alternative. 

So what might the alternative to the ineffectual, macroeconomic mess we are in look like?

Those calling for monetary activism (George Osborne and co) and those advocating fiscal activism (Ed Balls and co) are, it is often suggested, at opposite ends of a policy spectrum.  Change will come once we realise that advocates of monetary stimulus and those calling for fiscal stimulus actually share quite a lot in common.

Both believe that government can engineer growth - and that an absence of demand is the key problem. It isn’t.   

The problem is the credit boom that preceded the bust. Years of artificially cheap money caused malinvestment, which we mistook for growth.  Until that unwinds, there will be no sustainable increase in output. 

Showering the economy with cheap credit will not produce prosperity. Spending money we do not have will not make us rich.

So what will the new post-Monetarist / post-Keynesian approach look like? What will the 1979 type moment look like?  Read this for some clues.

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