Vince Cable and the Economy with the Truth

The Business Secretary, Vince Cable, once again entered a political storm this week when his letter to the Prime Minister and Deputy Prime Minister about the government’s lack of a strategy for growth was leaked to the press. Dr Cable has a particular talent for bringing up topics that most members of the government would rather got passed over, and somehow thereby incurring the wrath of both his coalition colleagues and the public at large (whether supporters of the coalition or not).

Much could be said about the apparent attack on his own government’s record – comment by others can be found here, here and here. Certainly it is easy to agree with the substance of Cable's call: there should be at least as much focus on growth as on finding austerity cuts. The International Monetary Fund - hardly known for its profligacy with such matters - has been saying the same thing for months.

Let's leave that to one side, though, and look at another detail of the letter. This detail suggests to me that this letter was always intended to be "leaked", because it plays politics with history. My particular point here is with where Dr Cable seems to be trying to lay the blame for the current woes. He accepts no responsibility for the perils of the economy as possibly coming from the government's slash and burn approach to public finances. Instead, it is all the fault of ‘previous administrations’ and, in particular, with ‘Labour boom and bust’. Now, Cable is a clever man, and someone who knows about things financial, and that makes his disingenuous presentation of history here all the more disappointing.  

The argument that the current economic problems facing this country were caused by 13 years of a Labour government’s 'carefree' economic policies is dishonest and self-serving. If that were really true, then why would the Conservatives have pledged to match Labour's spending plans in 2007, before the global economic crisis really took hold? If they really thought that there had been, at that point, 10 years of economic mismanagement, why did they pledge to continue it?! Given that, I think it's fair to be cautious when the government now tries to say that this is all Labour's fault.

In fact, this isn’t ‘boom and bust’ caused by careless Labour government spending – it was boom caused by careful government spending, followed by bust caused by the near-collapse of the world banking system. That system was saved due to the quick thinking of the then-Prime Minister, Gordon Brown, and the then-Chancellor, Alistair Darling. Huge sums of money were pumped into the economy to keep banks afloat. Remember the run on Northern Rock? It would have been Northern Rock 100 times over without the emergency remedial action that the Labour government took.

And where was Cameron while that was going on? Well, he didn’t really have a position. At first he didn’t seem to know what he thought the government should be doing (nothing, I think – just stand and watch). And then, as world leaders lined up to praise Brown and Darling, and as other countries followed the British example and poured money into their own banks, it was hard for Cameron to comment – after all, how was he to pick between supporting his opponent’s actions and criticising a plan which was effectively saving the very system that he believes so firmly in? (As an aside, the IMF says that quantitative easing was effectively what stopped the rapid downward fall of the G7 economies in 2009, and the process of quantitative easing has continued under the coalition goverment, with an addition £125bn pumped into the economy in 2011-12.)

So were there failures by the Labour government in terms of financial matters? Yes, sure. They failed to regulate banks enough. They believed that investment banks were safer than they were, and they agreed to cut a regulatory mechanism that was put in place after the Great Depression of the 1930s to stop this very problem from emerging. But is this ‘bust’ caused by Labour carelessness? No, it really isn’t, and it’s time to stop letting the coalition get away with re-writing history. More to the point, the Conservatives were in favour of even less regulation than Labour. If we had had a Tory government from 2005 to 2011, they would have reduced financial regulation further, and responded to the inevitable crisis slower.

It's time to stop buying the coalition's rhetoric that this is somehow Labour's fault. As a lover of free markets, Cameron should be on his knees thanking Brown and Darling for saving his beloved banking system. And as someone who actually understands what's going on, Cable should stop pushing these disingenuous views for short-term political gain.