Crisis: Hiding the pebble

‘Where do you hide a pebble? On a beach

Where do you hide an acorn? In a forest’

Thus wrote GK Chesterton of a General who had killed his rival and then hidden his corpse among the bodies of men he had thrown into battle just for that purpose.

It is in this respect that the rise in Gordon Brown’s popularity should be seen, and his posturings in the G20 about unfunded tax cuts and government spending. Brown spent our money like a drunken sailor when times were good. Now the worldwide credit crunch is a godsend for him: other, more prudent economies will be reflating, borrowing more because they are in a position to do so. Thus Brown thinks he can hide our overly large deficit in the forest of IOUs swirling around the world. It all looks as if the debt levels in the British economy are someone else’s fault and we’re in the same boat as Germany. Brown has lied about the level of UK debt, even contradicting the Office of National Statistics. He must be splitting his sides that the Tories haven’t called him to account for this.

And it is in this light that the recent criticism of George Osborne must be seen. He believes, and so do I, that we cannot spend our way out of a recession, and that the room for fiscal loosening is too small: already the markets are moving out of sterling, tiring of the relentless splurge of government debt, at a time when we are reducing the return on it. Osborne isn’t talking sterling down, he is reporting what the markets are saying, which is that they don’t want any more IOUs with Gordon Brown’s signature on, unless they pay the 5% they were getting before, either by an increase in the return (which is hardly likely to happen, we’re reducing rates) or such a reduction in sterling that they make the money on the currency return (that is to say that the pounds to buy the debt cost them 20% less than they used to).

Something along the lines of Nick Clegg’s suggestion might be worth considering. Given extra money the poor tend to spend it and the rich tend to save it (perhaps a loose generalisation, I should like to see some figures on this). Right now we need spending, so a tax cut for low wage earners funded by a tax increase on high wage earners might make the difference: stressing that it is a temporary measure and things will return to the status quo ante after a year.

Borrowing is a tax on the next generation. We need to take our medicine, not hide the problem on the beach.