Our political classes are 'going through one of their occasional bouts of masochism,' claimed Samuel Brittan in Friday's Financial Times. He is probably right, but the pressures are great.
Sir Samuel has been arguing that the projected deficit is nothing to get too het up about. Yes it is large but growth will deal with that over time and the position has been much worse in the past.
As he points out:
In the early Victorian period the ratio was nearly 200 per cent and almost reached that level again in the early 1920s. In 1956 it was just under 150 per cent. Harold Macmillan, who was chancellor at the time, quoted the historian Lord Macaulay: “At every stage in the growth of that debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand; yet still the debt kept on growing, and still bankruptcy and ruin were as remote as ever.” In fact the debt was gradually reduced from the peaks mentioned above without any heroic gestures.
So why are we caught in this ridiculous debate? I think government is concerned about reactions in the bond market, which it may feel does not appreciate the points Samuel Brittan makes so well. And I think the Conservatives by arguing for spending cuts now are playing a political game; either that or they have no idea how to manage an economy in a recession.