Willie Hutton Does Spout Drivel

So, tell us all something new, Tim

Yes, yes, OK, it’s only having to work out why this specific piece is drivel that’s the task at hand - that it is is obvious given the source. But Will Hutton’s decided to tell us where it all went wrong:

Challenging what should be stone-dead myths and reinventing a conception of what Britain can and should be demands understanding our past, the better to escape it.

Global capitalism was reeling from the 1929 crash and the collapse of the global currency order. Would Britain strike out, as the US and Sweden were to do, and organise a state-led reconstruction of capitalism, supported by great programmes of public works and investment, and repudiate free-market thinking? Or would it look to empire and imperial preference to try to preserve existing structures and ideas, and so protect itself from recession and slump?

Labour leader Ramsay MacDonald and his chancellor, Philip Snowden, in power in the summer of 1931, had no doubts. The party’s mission was to return capitalism to its 19th-century glories by following the tried and tested policies of laissez-faire, only this time determined to ensure that, when recovery was established, the working class gradually got a much fairer share of the spoils. There was to be no fundamental reshaping of the economy. When adhering to the gold standard proved indefensible, they would lead a national government to preserve as much as possible of what had worked hitherto, and look to Britain’s vast empire to protect its stricken capitalism from high-risk “socialist” reform.

Well, yes. Except that’s not actually what did drag Britain out of the Depression. What did was expansionary fiscal austerity. You know, that thing the Tories talked of in 2010 and which everyone laughed at? Somewhat annoyingly I was one of the very few (it’s annoying because I was clearly right in what I was saying) who pointed this out back then.

When we boil this right down it's an argument about the effectiveness of monetary policy. Absolutely no one thinks that it has no effect. But there's many who think that it has no effect at the zero lower bound: when interest rates are zero. That's really the argument that leads to fiscal policy, that idea that government might tax less, or spend more, blow out that deficit and get the economy moving again. We've done all we could with monetary policy and we've still got to do something so here's fiscal policy.

To put it as simply as possible. We’ve two major macroeconomic tools, monetary policy and fiscal. The first is interest rates, exchange rates and money printing and so on. The second is the difference between taxes collected and money spent by government - the government deficit or surplus (note, please, for purists, this is being very simple).

OK, either lever or tool can be used to loosen conditions - gee stuff up - or tighten them. Which we use when is somewhere between a matter of taste and necessarily correct given the circumstances. But clearly the total amount of geeing up out of a recession - or tightening to prevent inflation - or depression is the combination of the two sets of policies, applications of levers and tools.

It’s thus theoretically possible to tighten with one, loosen with the other and gain, overall, either tightening or loosening. Depends upon how much of each you do.

Britain in the 30s tightened fiscal policy. The opposite of what the Keynesians said, the opposite of what the US did and so on. Cut - no, really cut, not just slowed the increase in - government spending and thereby cut the government deficit (might, actually, have gone into surplus, not sure). This is, according to the Keynesian line, something that should make the recession/depression worse.

But at the same time they came off the gold standard - Churchill had taken us back in in 1925 at far too high a rate - and lowered interest rates. That’s a loosening of monetary policy.

As it happens, on balance, the monetary was loosened more than the fiscal was tightened and so we have expansionary fiscal austerity. Which set off a very nice little boom in fact. The mid- to late- 30s in Britain were economic good times. Driven, nicely driven, by a housebuilding boom - the last time the private sector built 300 k houses a year in fact (this is before the Town and Country Planning Act stopped all that). Mixed in was that the motor car was becoming a fairly standard bourgeois item and so housing spread out along the roads.

Well, OK. But that is a different one from Willie’s story, yes? Which means we’ve got to - as we always do with Willie - look somewhat askance at his claims about economic history.

But, you know. Let’s take his next claim straight. The adoption of tariffs with Imperial Preference led to:

Add to this tariff wall the adoption of Keynesian economics, with the government stimulating demand, and great prosperity ensued: unemployment averaged 2% in the 1950s. Sales of cars, TVs and white goods flourished. Profits were more than twice those in Germany, according to Crafts. But that led to a cluster of problems. British firms, accustomed to few overseas competitors penetrating the tariff wall, had gone on a rampage of price-fixing agreements to keep profits high. Overseas producers found they could undercut these rigged prices and still be very profitable; imports steadily rose.

Britain’s more than 1,000 trade unions could organise closed shops, abandon wage agreements at will and protect outmoded working practices without challenge: firms were so profitable they could live with the results. Shareholders were disengaged and greedy for high dividends, which firms could easily afford to pay. Banks did not have to lend to business: it could finance itself. Empire had conferred an easy option, as I argue in my new book, but a rotten economic structure that generated low investment, inflation and low productivity.

OK. That’s fair enough. The problem with tariff barriers is indeed that the economy moulders behind them while Johnny Foreigner gets on with becoming more efficient.

That then ran out of road and we got neoliberalism. Which is terrible because Fatcher, obvs. Which leads to:

But this is also an opportunity. What Macmillan, Edward Heath and Wilson thought two generations ago is reconfirmed as right. Britain’s only destiny is to make common cause with the EU.

So to avoid the problems of being behind a tariff barrier we’ve got to join a trading bloc that hides behind a tariff barrier.

Which, erm, lacks a certain intellectual coherency, no? But then the piece is by Willy Hutton.