Today, we announced that we plan to spend less than Labour currently plans for 2010. Good! It was a long time coming, but no less welcome for that. It's also good that today's commitment on spending was free-standing - not a consequence of some tax commitment. I would have preferred us to begin with a deeper analysis of the role of the State and the Market, and how best to deliver those things best done by the State, but it is infinitely better for us, when thinking long-term and strategically, to make spending decisions first with tax decisions following rather than leaping in with tax cut promises (either promises to cut taxes or not to cut taxes) without having first worked out what we wanted to spend.
That's for the longer term. And our strategy in dealing with recession? It appears to me that the intention is likely to be for us to split the savings from expenditure cuts between borrowing less than would be implied by Labour's previous (pre-fiscal-stimulus) plans and some modest tax cuts. OK. So our plan is to aim for less debt, during the recession (which we are unlikely to be in full-blown recovery from in early 2010) than would arise natually as a consequence of recession. That is an Austerity approach - though we are offering tax cuts (as was clear to me as inevitable politically from some months ago) our overall stance is to have less debt than produced by the "automatic stabilisers". Obviously I have no idea what public expenditure cuts we plan, but I'm presuming that we aren't going for the "full fat, high-caffeine" variant of trying to balance the budget. I'm guessing we want to just hang slightly on the "Austerity" side of "Muddle Along" - at least for now. Thus, we are accepting the logic of our own pronouncements about how it is impossible to raise more debt by proposing that less debt should actually be raised.
OK. That's a political strategy, and I think that if the expenditure cuts are big enough to generate favourable headlines, then with a fair wind it might be enough to see off the surge in Labour's opinion polls and see us home to General Election victory (given that real economy problems - and the associated damage to Brown - are going to get worse from here). It isn't what I'd do and, wearing my economist's hat, I shall continue to argue for my preferred programme as I consider the economic situation demands the fiscal stimulus I favour and I don't professionally accept the contention that bonds markets are on the point of refusing to fund UK government debt. But I accept totally that it is far from certain that fiscal stimulus is really required or would be useful, and there are of course one or two (albeit slightly eccentric, but certainly worth hearing) people arguing that indeed markets might be at the point of refusing to fund extra UK debt (though even Buiter attributes the funding doubt mainly to the bailout, rather than fiscal policy per se). It's an arguable political position if you accept the consequence - expenditure cuts or tax rises to reduce the deficit.
Austerity it is. Good luck with that, and don't worry about Nick Clegg's silly remarks - quite apart from his own self-contradiction, as I've argued before, it is far from obvious that Andrew Mellon or Philip Snowden were the fools that left-wing historians have painted.
