Gordon Is Right This Time

William Keegan and Will Hutton do not, I suppose, consult each other as they write their respective pieces for The Observer. If their contributions in this week’s paper are read together, however, they make for a compelling combined message, and one that Gordon Brown and his government would do well to learn and apply.

First, William Keegan’s piece laments (as I do) the opinion polls that reveal the number of voters who believe that, if they are having to tighten their belts, then the government should do likewise. I suppose it is understandable that people should feel, at a visceral level, that the government has got the country into the mess, and should therefore share in the pain that ordinary citizens are suffering. It is nevertheless disappointing that a gut reaction should take such precedence over economic literacy and common sense. It is even more disappointing, though perhaps more to be expected, that these sentiments should be encouraged by those who should know better.

The truth is that government must bear a responsibility not only for allowing the recession to develop but also for the measures needed to counteract it. Governments can and must act to correct market failure in ways that the market, left to itself, cannot. Economies are robust things. They would recover sooner or later without intervention. But – as all but the most purblind now recognise – it is the responsibility of governments to hasten the recovery process, and thereby limit the misery that recession inevitably brings about.
The reason for this is that governments, uniquely, have the ability to counter the inevitable tendency of recessions to feed on themselves. For most actors in the economy, the demands of self-interest mean that, in a recession, they spend less, invest less, cut costs, employ fewer people. Each individual decision taken by companies or businessmen may be – indeed usually is – rational and justified, but the cumulative effect for the economy as a whole is that recession is intensified.
There are those who wish to resist this line of argument. They are so hostile to the very idea of government that they are reluctant to accept that governments should ever have a special role and responsibility. They argue that governments should act (if at all) as though they were individual people or companies. According to this view, governments in a recession should also cut costs, spend less and lay people off, as though they were just like households or businesses. But, given – whether they like it or not – their importance to the level of economic activity, if governments behave like everyone else, the economy is condemned to a deeper and harsher recession than needs be. As Keynes pointed out, only governments have the capacity and the duty to defy market logic. Only governments have the resources to over-ride what would normally be market-based self-interest and to substitute for it the wider interest in getting the economy as a whole moving again. Only governments can afford to live with and fund long-term indebtedness if that is what is required to protect the interests of their shareholders – and that means everyone. You don’t need to be a Keynesian to accept this; all you need is common sense.
At this point, enter Will Hutton. He makes the point that – perhaps belatedly – Gordon Brown and his government have recognised that common sense requires them to use the power of government to fight the recession. As a result, the recession – bad as it is and will yet be – will be shallower and shorter than it would otherwise have been.

In doing this, they have opened up a clear and significant gap between their approach and that of the Tory opposition. As far as we can tell, the Tories would have done nothing, other than wring their hands at the inevitable and growing size of the government deficit – and ironically, that very inactivity is the one thing guaranteed to make the deficit bigger. A longer and deeper recession would mean yet more damage to the government’s finances; a less severe recession, counteracted by judicious government spending, would by contrast bring the deficit under control and limit its size.

Yet, as Will Hutton points out, Gordon Brown gets no credit for his courageous (and surely correct) stand on the responsibilities of government in a recession. It is his opponents who, for reasons of opportunism, prejudice and perhaps sheer ignorance, continue to make the running.

He is not, of course, alone. The right, in the United States, Europe, Australia and New Zealand, continue to exploit public sentiment in order to undermine confidence in the power of government. But surely, for Gordon Brown as for other more enlightened leaders, this is stronger ground on which to fight than the disastrous argument about which party will cut more severely.

I remember a young Gordon Brown who, with an eye for a phrase that was hardly new but nevertheless full of meaning, proclaimed that “good government matters”. That has never been more true than at the recession-ravaged present. Why not say so – again and again and again?

Bryan Gould

27 July 2009.
This article was published in the online Guardian on 27 July.