Janan Ganesh's FT column is always a must read for those who want an insight into the thoughts of George Osborne's Treasury team, and today's column is no different. It rightly explains that the electorate is largely resigned to the prospect of slow growth over the next few years, and is doubtful how different things would be under a different government.
But there's one section of the column which is extremely worrying and revealing for those of us who care about our medium-term economic health. Janan writes:
"The Treasury regards Labour's call for a fiscal loosening as dangerously wrong but at least coherent. It is some of the Tory right's proposals for growth - such as tax cuts financed by deeper spending cuts, so that there is no actual overall stimulus - that really mystify."
Yes, that's right. It seems it is necessary these days to have to spell out to the Conservative party the sort of economic doctrine the Conservatives took as given in the 1980s.
It really is quite simple. Some of us:
- don't believe in fiscal fine tuning, or stimulus spending, demand management or whatever you want to call it: a) because it doesn't work, b) because we are already running huge deficits and have a high debt burden c) because it creates distortions in the economy, misallocates capital and sucks resources from the wealth-generating private sector
- believe that tax rises hurt economic growth, not because of their effect on 'aggregate demand' but because of their effects on incentives to work, produce and invest
- believe that the government made a mistake in front-loading tax hikes - "private sector austerity" - rather than following the example of Canada, which significantly cut public current expenditure first and quickly went from a basket-case to one of the most successful global economies
- believe that taxes are too high, but that current spending is way, way too high
- want lower taxes and lower spending, not because it will provide a short-term deficit-financed stimulus which we'll have to pay back later, but because there is well-established economic theory and evidence that lowering public current expenditure, and also that cutting taxes, increases medium-term economic growth rates
To re-iterate: we don't want short-term 'stimulus' - we want the Chancellor to be taking the medium-term measures to restore supply-side health to the economy and divert resources back into the private sector, where competitive pressures and innovation lead to the productivity improvements which drive long-term prosperity.
Does the Chancellor's team not believe this? If so, what do they believe?
Ryan joined the Centre for Policy Studies in January 2011, having previously worked for a year at the economic consultancy firm Frontier Economics.