George Osborne is the Shadow Chancellor of the Exchequer in the UK parliament. The position makes him chief pain in the ass and financial gadfly of Prime Minister Gordon Brown’s government. As a conservative he is naturally opposed to most of what Brown and his Keynesian keystone cops have been passing off as ‘reform’ and ‘stimulus’. Agree with Osborne or not, he asks some very relevant questions as to the appropriate role of government in an economy.
Here are a few:
“How do we get borrowing under control so we can keep interest rates lower for longer?”
“Do we want to pump up the bubble again and repeat all the economic mistakes that got Britain into this economic mess?”
“Or do we want to build a truly sustainable recovery by gradually rebalancing our economy away from debt and towards saving and long term investment?”
Before you click over to TMZ or Perez Hilton for something more interesting (by the way how about those recycled pictures of Alexandra Kerry in that see through dress?), consider what he’s asking: “What do we really want? Not just now but long term.”
Far from being a burn the Federal Reserve Libertarian, Osborne is willing to consider a range of approaches to put Britain on a more balanced economic footing. He relies not on a single hammer so as to avoid treating every problem like a nail. He sounds downright Keynesian at times like when he suggests that government led stimulus is useful and appropriate when it doesn’t inflict crippling deficits and even criticized the Brown government for reducing the VAT tax from 17.5% to 15% (and you think your sales tax is high!).
Instead of short term gimmicks like temporary tax reductions and pork-laden stimulus, Osborne suggests a more open use of monetary policy to help lower long-term interest rates and to keep them low. If you are a loyal reader of the Shade Tree Economist (please feel free to laugh, there may be one) you’ll recall I criticized the US Federal Reserve for keeping rates too low for too long. But across the pond they treat their interest rates like their vacations: Too much and too long. To most Europeans the thought of active monetary policy is tantamount to cowboy capitalism or brushing your teeth every day. It’s way too American.
So if the UK shouldn’t borrow or inflate its way out of the current economic mess what should it do? Osborne suggests “…a new British economic model: an economy with a structurally higher rate of national saving, a more competitive export sector, and higher rates of private investment in long term productive assets.” Paul Krugman would tell him to put the bong down and get real.
Osborne does just that. I’m not sure where he puts the bong but his strategy sounds real.
Point 1: Monetary Activism – More than just low interest rates, monetary policy should ensure adequate bank capitalization and oversight to ensure lower government rates are passed through to borrowers and don’t line the pockets of large banks.
Point 2: Fiscal Responsibility – Control spending, reform public services (re: entitlements), and reduce deficits. Not easy tasks by any standard. However, Osborne believes that reduced government spending will be replaced by private investment and claims to have the data and analysis to prove it. This may be a bit simplistic but could be possible as a phase two once interest rates stabilize and stimulus funding is exhausted/retracted.
Point 3: Supply Side Reform – Pretty much a rehash of Margaret Thatcher’s attack on the British welfare state in the late ‘70s and early ‘80s: A less complex tax code with lower taxes across the board, welfare reform, and aiming private and public (but mostly private) investment towards long-term productive assets focusing on a low carbon economy.
Osborne’s approach seems reasonable even in a time of corporate teat sucking so intense no government binky could mute the wailing of infantile bank CEO’s or Barney Frank. So where is the reasonable Democrat or Republican on this side of the pond ready to take a leadership position like Osborne? What’s that you say? It’s not up us Democrats, we have to ride on the Pelosi, Reid, Obama train. It’s not up to us Republicans, we have sit on our thumbs and wait for the Democrats to really ruin things. Well, to quote another student of Thatcher, “If not us, who? If not now, when?”