From the June 30, 2009 Daily Telegraph
June 30, 2009
by Irwin Stelzer
The two PMs have set forth their views on Building Britain's Future. After an obligatory bow to the need to cut the deficit, Peter Mandelson and Gordon Brown laid out spending programme after spending programme – the list is not only long, but includes a recaptioning of old, failed programmes that have done little to add to the employability of a generation of work-shy young men and women.
This document is about as out of touch with reality as Brown seems to be at Prime Minister's Questions. No wonder James Purnell, the former work and pensions minister, decided to jump ship before it hit the shoals of a market that will soon echo the Governor of the Bank of England's call for fiscal sanity – a lower standard than Prudence, of course, but she was long ago interred, along with speeches about ending boom and bust.
Give Labour another chance and you will have more "health and social care services… for the elderly and infirm"; the "guarantee [of] a sixth form, college or apprenticeship place to all school leavers"; a "£1 billion Future Jobs Fund"; "we will expand… building programmes by investing a further £1.5 billion over the next two years"; "a new, more active industrial policy"; "broadband access for all"; "a new £150 million Innovation Fund"; "new infrastructure such as Crossrail and a new runway at Heathrow": "a major programme of rail electrification"; faster service from the NHS, "a personal tutor for every pupil at secondary school". Need I go on?
That post-recession Britain, even if growing at a reasonable rate, can afford this and more while paying off the debt accumulated during the downturn is something that only the Prime Minister can believe, or pretend to (I know not which, but rather hope it is the latter). The pity is that Brown, were he not thrown into hysterical mode by the goading of David Cameron, and not given to torturing statistics until they will say anything, has a reasonable case to make. It would be foolish to cut spending now, as American experience with an over-hasty reduction in the mid-1930s proves; it is a good idea to bring forward future spending plans.
So far, so good. But then to propose a long list of new spending when the books are already awash in red ink, and taxes are as high as they can go without depopulating the entrepreneurial and financial communities, is somewhere between irresponsible and fantastic. Fear not. As the late Herb Stein, a US economist, once said: "That which cannot go on forever, won't." Brown's borrowing and spending cannot go on forever. As Mervyn King has pointed out, the markets won't wear it: interest rates will rise as deficit spending threatens inflation, the Bank of England will tighten credit, and any hope of economic growth at a reasonable rate will have to be abandoned.
The two PMs make another promise that is unlikely to be kept – the replacement of targets and central direction with individual "enforceable entitlements" to public services. Whatever "enforceable entitlements" might mean, they do not mean consumer-driven choice of services from competing providers. When Brown was chancellor, it was my good fortune to discuss with him the relative virtues of central direction and consumer choice. His position was tenaciously held, the result of considered judgment rather than mere ideology.
Consumers of health and educational services are the victims of what economists call "information asymmetry". The providers know more about the product than do the consumers – as is the case in the used car market. Unless the Government sets the terms on which those services are to be offered, consumers will be the victims of doctors and educators who will offer inferior services, often in collusion with one another.
Nor would allowing parents to choose their kids' schools, or patients their own course of treatment, be a solution. For even if they could choose the superior service, there would not be enough superior capacity to accommodate them. And if the provider of the better service did expand to meet the new demand, substandard providers would be forced to close down, with unfortunate consequences for their workers and the remaining students and patients.
So reasoned the then-chancellor. And my guess is that he still holds to those beliefs. It is one thing to include in the guarantee of "individually tailored" education a promise to expand Tony Blair's academies, and quite another to turn implementation over to schools minister and almost-chancellor Ed Balls – the man who brought the theory of information asymmetry to the Treasury, and who feels that a day without issuing a new directive is a day wasted.
To believe that even as persuasive a colleague as new best friend Lord Mandelson can convince Brown that these long-held beliefs are no longer valid, if they ever were, that New Labour had it right, that Labour is indeed not best when it is Labour, is to join the Prime Minister in the Wonderland in which spending is investing, markets are unconcerned about the level of borrowing, and there are no consequences to forever-rising taxes.
Building Britain's Future runs to some 126 pages. Not a sensible use of beach-reading time.
Irwin Stelzer is a Senior Fellow and Director of Economic Policy Studies for the Hudson Institute. He is also the U.S. economist and political columnist for The Sunday Times (London) and The Courier Mail (Australia), a columnist for The New York Post, and an honorary fellow of the Centre for Socio-Legal Studies for Wolfson College at Oxford University. He is the founder and former president of National Economic Research Associates and a consultant to several U.S. and United Kingdom industries on a variety of commercial and policy issues. He has a doctorate in economics from Cornell University and has taught at institutions such as Cornell, the University of Connecticut, New York University, and Nuffield College, Oxford.
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