Opinion

Anatole Kaletsky

Osborne: Stealth convert to ‘Keynesian Thatcherism’

Anatole Kaletsky
Mar 20, 2014 18:46 UTC

Britain’s government budget released this week is not a statement of economic policy. It is a program for winning next year’s general election.

In this sense, Chancellor of the Exchequer George Osborne’s speech was a natural development from the 2013 Budget, which launched Britain’s current economic recovery. I was one of the few analysts to perceive the remarkable transformation of the British economy that immediately resulted from last year’s budget because what Osborne did was deliberately obscured by what he said.

Osborne’s mantra last year was “you can’t cure debt with more debt.” Yet he did precisely that with his audacious plan to provide $198 billion (£120 billion) in government guarantees for additional mortgage borrowing.

Osborne has continued this Machiavellian technique — proclaiming a virtuous-sounding principle and then doing the opposite.

After labelling his speech as a “Budget for Savers” and declaring “Britain has for decades borrowed too much and saved too little,” the most powerful fiscal measures Osborne announced were designed to reduce savings, mainly by encouraging pensioners to dip into their pension funds to finance consumption. As a result, the budget forecasts, which Osborne did not mention, predict that Britain’s savings rate will fall from 7.2 percent in 2012 to 3.3 percent by 2018.

British economic governance encounters turbulence

Anatole Kaletsky
Dec 5, 2013 16:52 UTC

Students of British history will recall the story of Thomas a’Becket, the 12th century prelate who was handpicked by Henry II to become Archbishop of Canterbury because of his loyalty to the Crown. Within months of his appointment, a’Becket turned against the King in the numerous conflicts between church and state. As a result, a’Becket was murdered at the altar of Canterbury Cathedral in 1170, after four of Henry’s henchmen heard their royal master mutter in irritation: “Will no one rid me of this turbulent priest?” Archbishops do not have much political clout these days, but comparable spiritual importance now attaches to central bankers. And a central banker who suddenly seems reminiscent of Thomas a’Becket is Mark Carney, the recently appointed governor of the Bank of England.

When George Osborne, the British chancellor of the Exchequer (finance minister), delivered his Autumn Statement on Britain’s economic and fiscal prospects this week, he intended it as a “soft launch” for the Tory-Liberal government’s campaign for re-election in May 2015. The big set-piece speech offered Osborne an ideal opportunity to boast about the British economy’s sudden improvement this year and to announce some populist measures, such as a “voluntary” price-control regime for energy utilities, that were carefully designed to wrong-foot the Labour opposition. Osborne’s speech marked the start of a long political campaign designed to create a Pavlovian association in voters’ minds between government policies, rising house prices and the economic recovery. If this campaign is successful it will virtually guarantee election victory for the Tory-Liberal coalition — and it could even make an outright majority for the Tories conceivable in 2015.

Last week, however, the plan for a mutually-reinforcing cycle of rising house prices, strengthening consumer confidence, accelerating economic activity and improving Tory fortunes suddenly came under threat from the most unexpected quarter. Mark Carney was hand-picked this year by Osborne and was imported all the way from Canada because he seemed to offer less resistance than any plausible British candidate to the Tory plan for a pre-election economic recovery powered by rising property prices and re-leveraging by homeowners.

When illogical policy seems to work

Anatole Kaletsky
Jun 13, 2013 15:23 UTC

It’s cynical, manipulative and hypocritical – and it looks like it is going to work. How often do you hear a sentence like this, to describe a government initiative or economic policy?  Not often enough.

The media and a surprisingly high proportion of business leaders, financiers and economic analysts seem to believe that policies which are dishonest, intellectually inconsistent or obviously self-interested in their motivation are ipso facto doomed to fail or to damage the public interest. But this is manifestly untrue. The effectiveness of public policies and their ultimate desirability is in practice judged not by their motivations, but by their results.

Which brings me to the real subject of this column: the improving outlook for the world economy and why many economists and financiers cannot bring themselves to acknowledge it. Let me begin with a striking example anticipated in this column back in March: the boom in house prices and debt-financed consumption that the British government is pumping up in preparation for the general election in May 2015.

Even Britain has now abandoned austerity

Anatole Kaletsky
Mar 21, 2013 16:09 UTC

The Age of Austerity is over. This is not a prediction, but a simple statement of fact. No serious policymaker anywhere in the world is trying to reduce deficits or debt any longer, and all major central banks are happy to finance more government borrowing with printed money. After Japan’s election of Prime Minister Shinzo Abe and the undeclared budgetary ceasefire in Washington that followed President Obama’s victory last year, there were just two significant hold-outs against this trend: Britain and the euro-zone. Now, the fiscal “Austerians” and “sado-monetarists” in both these economies have surrendered, albeit for very different reasons.

Much attention has been focused this week on the chaos in Cyprus. Coming after the Italian election and subsequent easing of Italy’s fiscal conditions, the overriding necessity to keep Cyprus within the euro — and its military bases and gas supplies outside Russian control — will almost surely mean another retreat by Germany and the European Central Bank from their excessive austerity demands. But an even more remarkable shift has occurred in Britain. The Cameron government, which embraced fiscal austerity as its main raison d’etre, was suddenly converted to the joys of debt and borrowing in this week’s budget.

Of course, the rhetoric of British Chancellor George Osborne’s budget speech gave no hint of his Damascene conversion. On the contrary, it ridiculed “people who seem to think that the way to borrow less is to borrow more.” But Osborne’s trademark sneers could not disguise the meaning of the policies and numbers he presented.

Counterintuitive economics can help politicians

Anatole Kaletsky
Dec 6, 2012 02:32 UTC

Absurd wishful thinking. This is how most finance ministers describe criticism of their tough budget policies designed to control government debt and reduce borrowing. Britain, even more than Germany, has been in the vanguard of this austerity movement, as Chancellor of the Exchequer George Osborne demonstrated again in this week’s budget statement:

“Confronted with tough economic conditions, some say we should abandon our deficit plans, and try to borrow more – they think that by borrowing more, they can borrow less.”

For Osborne , this reductio ad absurdum seemed so conclusive that there was no need to justify his controversial economic beliefs.

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