Have economists witnessed the birth of ‘Osbornism’?
An intriguing Mais lecture, from George Osborne tonight. It was overtly political, though there was little extra detail on actual policy.
Osborne is the first opposition politician since Tony Blair in 1995 to give the lecture, which has become the pulpit-of-choice for British economic policy making.
If Mr Osborne wanted to answer the ‘gravitas’ question posed in and out of his own party, then this was the opportunity. He directly took on those economists who wrote a critical letter to the FT last week, saying their ideas were ‘simple’ and ‘complacent’.
Osborne raised the spectre of a BIS report that “without significant adjustments” the UK National Debt/ GDP ratio would reach 200 per cent within a decade. In that case interest payments on the national debt would surge above Ireland and Greece’s as a proportion of national income.
Following the Davos wobble on the speed of public spending cuts, Osborne outlined a three phase approach to fiscal retrenchment that would cover his first weeks as chancellor.
An independent fiscal adviser, Sir Alan Budd, will advise on the size of the fiscal black hole with a ‘proper audit’, hinting that the Conservatives might suggest that Labour has been hiding debt in PFI or public pensions.
Then, before July, 50 days after an election, there would be an emergency budget. I would expect a VAT rise at that point, but obviously we got nothing from Osborne’s speech.
Then, in the autumn, a Chancellor Osborne promises a harsh spending review.
“‘Countries that lose the confidence of markets, lose their sovereignty” says Osborne, which is a point Greek PM Papandreou made last week as well, restating the need to cut this year: “A credible plan is not really credible unless you’re prepared to make a start on it this year.”
Other areas of interest included a reference that the inflation measure could see an ‘accelerated’ introduction of housing, but he felt the need to rule out a change to the inflation target, as suggested by IMF staff (and that I blogged about yesterday).
Osborne has been a keen student of the Kremlinology of the Treasury, privately contrasting the Brown Treasury with that of Darling.
He suggests he’ll clip the wings of the Treasury, saying there should be ‘no more empire building or attempts to interfere in every area of government policy’. Except, surely that’s what is going to happen in the run up to his autumn spending review.
A highly personalised conclusion references Osborne’s own judgements on the financial crisis – a clear attempt to deal with the ‘gravitas’ question.
There are five sentences beginning with ‘I’, which is not standard procedure for a Mais lecture. His conclusion is more in the spirit of things: ‘Let us move from an economy built on debt to an economy that saves and invests for the future.’
Is this the birth of what we might call ‘Osbornism’? Will future generations of economists trace back the renaissance of the UK economy from the fundamentals outlined in this lecture?
George Osborne won’t want to be the only deliverer of a Mais lecture never to get to enact his economic philosophy.