The PM’S big spending gamble could cast the Tories into political oblivion
Aside from the economic risks of not reining in the state largesse, it fails to understand the Red Wall
The free market economist Friedrich Hayek once described the difference between himself and arch-rival John Maynard Keynes as similar to that between the fox and the hedgehog in the Ancient Greek aphorism. The fox – who “knows many things” – crafts clever theories and policies to artificially kickstart an economy. Meanwhile, the hedgehog – “who knows one big thing” – clings modestly to the wisdom that state intervention eventually leads to trouble. It’s intriguing that Hayek saw one of the most significant intellectual rifts in modern economics in these almost quaint terms. Perhaps it’s because he sensed that the split between the men was essentially non-ideological. Both Hayek and Keynes were liberals who believed in freedom. Where their schools of thought differed was on their levels of patience, and arrogance.
Now, this clash between impatient liberalism and its more cautious counterpart has returned with a vengeance, in the rift between Boris Johnson and Rishi Sunak over public spending. Both never liked lockdown. Both have at least paid lip service to the importance of economic freedom and individual responsibility. But our fox-like Prime Minister now seems to believe that he can abandon the Tory party’s “one big thing” – fiscal prudence and commitment to free market economics. That he can splurge billions on infrastructure and green projects in a get-rich-quick scheme to revive growth and cement his hold over the Red Wall. Warnings from his Thatcherite Chancellor that piling on debt when the country may be one interest rate rise away from carnage appear to have fallen on deaf ears. Johnson’s attitude is, on one level, understandable. When fear of the virus is still rife and the costs of lockdown have barely been counted, it would take exceptional modesty and courage for a leader to step back and give the market space to adjust, painfully, to the new world of endemic Covid, while the Government re-exerts control over public spending. Presumably, the PM thinks that his short-cut strategy is the easy way out. Unfortunately for the Conservative Party, the country, and Johnson himself, it is anything but. The PM is gambling everything on the idea that the big state jamboree doesn’t need to end with Covid, but can continue seemingly indefinitely. Is he so sure that it’s a bet he can win?
The scale of the political risk that Johnson is taking is significant. In a pre-covid world, his flirtation with centre-left nostrums may have just about passed as a ruthless election strategy. His attachment to them as our indebted economy struggles to reawaken from its lockdown coma tips into delusional dogmatism. For one thing, it assumes that fiscal prudence is unpopular. Yet for a not inconsiderable proportion of voters – including wealthy suburban Remainers and Brexit-supporting Thatcherites – the Tory reputation for being sound guardians of the public finances is one of the last remaining reasons why they might still support the party.
It is not even clear that continuing the splurge, or a shift further Left on economics, will be popular among the Conservatives’ new voters. The idea that interventionism is always populist is risible. The bank bailouts during the financial crisis didn’t exactly go down well with the public. Spending big on green and infrastructure projects today may well create short-term jobs and perhaps even drive longer-term renewal in a couple of lucky leftbehind towns. But for the larger number of Red Wall voters who will not directly benefit, the combination of green profligacy on a government level and eco-austerity for consumers is already proving noxious.
Nor should the Prime Minister be so naive as to think that he can get frugal, cynical Workington Man excited about the transport vanity projects coming his way. In working-class towns that have seen their share of failed “investment” projects, an attitude – often mistaken for Leftishness – prevails that if cash one doesn’t have is to be sprayed around, it should at least go on worthy causes like youth clubs and food banks.
Then there are the economic risks. History – not least the doomed socialist experiments of the 1970s – cautions against the idea that governments can spend their way out of trouble. The Covid crisis, however historically unprecedented, is surely no different. In any case, to believe that there is a state-driven answer to a state-driven crisis is borderline insanity. To believe that there can be a tidy economic solution to a downturn of complicated non-economic origins is full-blown derangement.
There is a view among Keynesians that you can restore an economy to full health by creating a positive aura around it, encouraging consumers to spend and businesses to expand. That is woefully inadequate in the context of a pandemic. It is fear of the virus and future variants which is keeping punters away from restaurants. It is a fantastic leap to think the Government can artificially generate enough buzz to overpower middle-class revulsion towards returning to the office. Or that stimulating activity in trendy sectors can offset the pingdemic and Long Covid fears restraining animal spirits.
And this is all assuming the UK avoids Sunak’s nightmare scenario of interest rates rising precipitously, pushing the country into a torturous cycle of austerity as the public debt pile becomes unsustainable. Or that the economy can sidestep the multiple perils of net zero – including the possibility of dangerous bubbles inflated by massive eco-fiscal stimulus, or the breath-taking risk the UK is taking by pursuing decarbonisation in an international downturn – unable to rely, as originally envisaged, on buoyant global growth driven ironically by Asian use of coal.
No doubt Boris Johnson knows all this, but he has wagered that any final unravelling may be a good few years away. That when the economy he has only pretended to free from the Covid doldrums finally collapses, or when the bills finally need to be paid, and his disgraced party is cast into the wilderness, he will be long gone. Perhaps, having played the role of liberating Churchillian hero for a while, he intends to retire to write his Covid war memoirs. The Prime Minister shouldn’t be so sure that the final reckoning won’t come sooner rather than later.