Sunday, April 29, 2012

Conversation with a Conservative (2)

Interviewer: Minister, I'd like to talk briefly about the economy, and in particular, the government's strategy. In a few words, could you summarise what the government's strategy is.
Minister: Look, we inherited a real mess from Labour, with our budget deficit in a huge hole. Our economy was in recession. We decided, after looking at all the options, and based in the advice of financial experts, that the first priority was to cut the deficit. This would restore confidence in our economy. And the best way to cut the deficit was by cutting public finances. This would then give the private sector the ability to take the country out of the recession by not having the public sector acting as a drag on the economy.
I: Well, you've mentioned several things there that I'd like to focus on. As you know, a large portion of the deficit that you inherited from Labour was also due to bailing out the banks. This is one point that Labour are keen to stress. Another point they like to highlight is that the economy was slowly improving from the recession of 2008/09 - the OFS figures support this - and that the economy lost its way once your government introduced its policy of cuts.  What do you say to that?
M: Look, we can't have a government that doesn't pay its way. Yes, it was a difficult decision to implement the cuts, but it was something that we had to do; we can't go on increasing the deficit forever. Our financial reputation would be cut to pieces...
I: (Wryly) So the government has to cut the country to pieces instead?
M: We live in a real world where markets matter. Yes, it's difficult, but there is no alternative.
I: Well, minister, Labour, and some other financial experts would disagree with you there. Some say that cutting too far and too fast is in fact damaging our international reputation rather than enhancing it. By cutting the state sector so much, it is killing off any encouragement for the private sector to invest because of the sheer uncertainty your government has created. Indeed, to rely solely on the private sector to help rescue the economy, some would say, is living in a fantasy land. Private companies are focused on taking risks they are sure of a positive return, and with consumers so unwilling to spend money, it gives companies little reason to take a risk. A vicious circle of the government's own making.
M: We have to give the private sector the time and confidence to want to invest. The public sector alone cannot implement a recovery. We cannot spend even more money and add to our deficit further; that's just madness.
I: Minister, if we look at the USA, it has a national debt of trillions of dollars, but the American economy, due to a government stimulus, is slowly heading in the right direction. In other words, deficits are secondary when it comes to confidence in the country as a whole. No-one expects the USA to collapse tomorrow because of its deficit, and that's why the deficit is something that should be dealt with more sensibly, over a longer time scale. One analogy to the government's strategy here is a man who takes out a mortgage but insists on paying it off in only five years rather than ten, even though it would financially cripple him. What would be your response to that?
M: I think that man should seek advice on his repayments.
I: Thank you, minister.

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