George Osborne’s statement to the House on the global economy, 11 August 2011 August 11, 2011Posted by larry in economics, social policy.
Osborne has just finished his statement to the House on the state of the global economy and the UK’s position within it. Fundamentally, his argument rested on five pinions. One was that no one, such as any other government, would ever lend money to a government that had abandoned its commitment to deficit reduction. A second was that Obama has just put forward a deficit reduction proposal that was in essential respects like his own. A third was that an abandonment of deficit reduction would lead to unsustainable interest rate rises, not just in the general markets but also with respect to UK gilt bond issues. The fourth was that every other responsible government, particularly in the EU (meaning Germany and France) agreed that his approach was the right one. The fifth was that the rating agencies had removed the UK from their negative watch and that the US had been downgraded.
Balls’ riposte was not really very good. He did not seem to have command of his material and failed to make telling points. This might have led Osborne to say later on during the question time, more than once, that should Balls bring the Labour plan for dealing with the financial crisis to a G20 meeting, without saying what Balls’ plan was, he would be “laughed out of the meeting”.
Osborne’s justification rested on that fact of others following his lead, especially Obama and financial EU leaders (such as Trichet though Trichet’s name was not mentioned), and invoking the household analogy of government fiscal responsibility, though households were mentioned only once. Osborne claimed that he was “ahead of the curve”, and that the primary reason the US was having difficulties was due to it being behind the curve, though trying to catch up to him. Osborne’s reliance on the attitudes of the rating agencies was undermined by himself later on in response to a question about the influence of the rating agencies. He initially set out what he saw as the sensible function of such agencies and then told the questioner how he and others within the EU were in the process of setting out some kind of framework for “regulating” these agencies, not seeming to appreciate that this very activity indicated a degree of serious dissatisfaction in the EU with the ways in which the rating agencies have been acting.
Part of Balls’ problem in responding to Osborne is that his ideas of how to deal with the financial crisis are almost as flawed as Osborne’s. He also believes in deficit reduction of a sort not much different from that of Osborne. While he would place a greater emphasis on job creation, he does not seem to have any good ideas on how these might be created. Osborne explicitly rejected any role for government in such job creation, thus implicitly repudiating the Roosevelt experiment of the thirties. Balls, in his riposte, set out no alternative scenario, even in outline.
Osborne’s statement occasioned no surprise, as his position has not altered at all. The only significant change was an improvement in the confidence exuded in his style of presentation. One could perhaps put it as a triumph of style over substance; but this would be misleading. There was substance albeit substance unsubstantiated by empirical data other than stating that other government and those advising these governments agreed with his stance. For evidentiary purposes, such “data” is notoriously weak. Yet it seemed to be virtually all he had to offer. And none of them were evidentially worth the emphasis he placed on them, functioning as they did solely for rhetorical/propagandistic purposes.
You can read Osborne’s entire statement here: http://www.hm-treasury.gov.uk/statement_chx_110811.htm . Unfortunately, I do not have Balls’ statement and it is not on his web site.