That 1970s Show

Simon Wren-Lewis recently made the point - which bears repeating but has been repeatedly obscured by Brexit, the Covid-19 pandemic and now the war in Ukraine - that the post-2010 programme of austerity was a monumental policy error that looks to have permanently damaged the UK economy. Arguably, David Cameron and George Osborne's decision to blame Labour's fiscal profligacy as much as lax financial regulation for the banking crisis, and thereby justify shrinking the state, was worse that those other famous Tory examples of executive incompetence: the return to the gold standard in 1925 and crashing out of the ERM in 1992. The former exacerbated the depression of 1929, but coming off gold in 1931 had a positive impact on the economy, though many would not feel the benefits until the second half of the decade. In contrast, quitting the ERM had an almost immediately positive impact on GDP and household wealth. Labour in 1997 benefited not only from the political turn against the Conservatives after Black Wednesday but also from the robust growth of Ken Clarke's stint as Chancellor.

The failure of Osborne's embrace of "expansionary fiscal contraction" was evident not only in poor growth and degraded public services but in the continuation of the exceptional fiscal intervention that marked the response to the banking crisis, notably quantitative easing. It was certainly true that the Tories and their backers in the City and property development quickly became hooked on the QE drug, providing as it did an instant hit that inflated asset values, but it also highlighted the lack of any alternatives short of an admission that their strategy was fundamentally wrong and that the times called for an expansion of the state and a reduction in income inequality in order to prop up effective demand. As William Davies recently put it, "The austerity measures of George Osborne, which mendaciously blamed Britain’s economic woes on government debt, resulted in such dire economic stagnation that only unprecedented monetary policies could stave off a depression."

Austerity appears to have dramatically reduced long-run output, a fact that has been obscured by the wailing over Brexit. It's quite possible that the hit to growth of the latter self-harm will turn out to be smaller than the destructive acts of the coalition years (it's worth noting in passing that Brexit has also helped obscure the Liberal Democrats' hand in that destruction). Wren-Lewis also mentions another Tory balls-up that has recently been recalled from the memory banks, namely the Barber Boom of 1971-3. The contemporary relevance is the fear that government policy will stoke inflation. But the parallel isn't exact. Barber couldn't realistically foresee the exogenous event that would amplify inflation, namely the 1973 oil crisis following the Yom Kippur War, while the comparable event today, the wider energy crisis, was underway long before Liz Truss entered Number 10. Gas and oil prices have been rising steeply since early-2021 (a year before Russia's invasion of Ukraine). 

Truss and Kwarteng's decision to try and engineer a "boom" through tax cuts in this environment looks far more negligent, and that's before you consider the distributional inequity. The latter aspect is important over-and-above the morality of the decision because of the multiplier effect. The poor tend to spend every penny they get, the rich have a greater propensity to save. In theory, those savings could be used to fund productive investment in the UK economy. In practice, as we have seen for decades now, the money tends to be invested either abroad (reflect in passing that Jacob Rees-Mogg made his pile by investing in emerging markets, not in good old Blighty) or in unproductive property. Kwarteng's announcement today of a rise in the threshold for stamp duty is of more significance than abolishing the 45% top rate of income tax. It clearly indicates that there will be no fundamental change in the makeup of the British economy and therefore there is unlikely to be any deviation from the direction of travel since 2010.

History, as much as the opinion polls, might suggest that a Labour goverment is on the cards, as happened in 1929, 1974 and 1997, but we shouldn't ignore the recent success of the Tories in diverting attention from their negligence through the auto-da-fe of Brexit in the elections of 2017 and 2019. This was obviously aided by the hysterical anti-leftism of the political centre, but that was not enough on its own to secure two more Tory victories. A significant number of soi disant centrist remainers voted Conservative in 2019 because they didn't have a problem with austerity and were prepared to believe that the party would eventually recover its senses once Brexit was "done". When even the soft left elements of the Guardian's staff are today reduced to "‘Everything is broken because of 12 years of Tory government’ – why can’t Starmer just say it?", you realise that the bigger problem with this country is not the incompetence of the Conservative Party but the willingness of centrists to keep it in office.

Obviously Starmer is seeking to address this by reassuring centrists as much as the famous Red Wall voters. Hence his aversion to nationalisation and anything that might be considered economically radical as much as his performative monarchism and sympathy for social conservatism. The lack of substantive policy obviously depresses the left, but we shouldn't forget that this is precisely what many centrists want: cosmetic change, stability, boring technocracy. But Brexit remains a challenge and Truss & co exhibit every sign that they intend to continue exploiting it. In drawing historical parallels, we should also remember the fragility of those 1929 and 1974 Labour governments. 1997 was very much the exception and one, as noted above, that owed as much to the relative success of the economy after it was freed from the shackles of the ERM as it did to the electorate's exasperation with Tory sleaze. Those benign conditions obviously don't pertain now and there is no reason to believe that things will get noticeably better over the next two years, even if the war in Ukraine ends soon and energy prices fall. Labout must - as Zoe Williams and others now realise - attack the Tories for their malevolence and not just deride them for their incompetence.

If we're not facing a re-run of the 1990s, and the late-1920s are too distant to provide a realistic comparison, the question then is whether what we're facing is a repeat of the 1970s or a re-run of the 2010s. The popular journalism has inevitably plumped for the former, with all its redolent imagery of industrial unrest and queues at the petrol pumps, but I think the latter is more likely, which means another two years of growing inequality and welfare cuts rather than blackouts or rubbish piling up in the streets (though I wouldn't rule either out). Labour's challenge at the next election will be to pin the blame on 14 years of deliberate Tory policy, not just mismanagement, and trace the thread from the baseless claims of 2010 forwards without being distracted once more by Brexit. But the precedent of 2015, and particularly the craven behaviour of the PLP immediately after the election when it abstained on the welfare bill, suggests that they will struggle to do that if they continue to cleave to the neoliberal policy orthodoxy that, absent the Corbyn interlude, has marked the party since the 1990s.

The thing to understand about the 70s is that it was a period of growing prosperity for most people, in no small part because wages kept up with prices due to stronger unions and because employment remained high. There was also the continuing impact of the long tail of major investments in the social fabric and industry that had commenced in the 1950s. In contrast, what we face today is the legacy of a decade of deliberate under-investment in that social fabric and the continuation of a pattern of weak capital investment by the private sector. The results have been widening inequality, precarious employment and poverty wages. Despite the revival of union militancy in the face of rising inflation and further public sector cuts, this is not as propitious an era for organised labour as the 1970s was. The result is that while the Labour Party can expect to be ahead in the polls, a lack of popular confidence in its willingness to pursue radical structural change may lead to a hung parliament. The ironic echo of the 70s may turn out to be another Lib-Lab pact, which could pave the way for a Tory revival.