Whatever the reason, this morning’s interview with Nick Clegg saw a helter skelter tour around a huge number of topics, making for a  comprehensive tour of current political issues but also a degree of superficial Q+A that did not shed much light on any of them. The number of times Marr’s questions were no more than very superficial in their references suggests that this style, whatever its reason, rather over-stretched him.

I suspect Nick Clegg went into the interview wanting to talk in some detail about his vision of fairness in a time of economic austerity as each time he half got going on such a topic it sounded like there were well prepared answers starting to come out, but each time also Andrew Marr quickly cut him off.

What we did get was a brief pop at Labour for not having a clear, coherent policy for delivering fairness when there is a deficit to tackle and a repeated emphasis on the need to make the country fairer – especially via targeted public services, such as the pupil premium, and changes in the tax system, such as a mansion tax. Fairness was also used to defend the benefits cap, on which the House of Lords votes tomorrow, Nick Clegg backed the principle of a cap strongly but added. ”Of course we need to look at transitional arrangements … and the place of children”.

One sound bite of note: ”I would like to see David Laws back in government”.

UPDATE: Here’s the Andrew Marr interview in full for you to watch.

* Mark Pack is Co-Editor of Liberal Democrat Voice and writes a monthly newsletter about the Liberal Democrats.

Political pundits rarely get their predictions right. It isn’t that they are particularly bad at punditry, it is just that – as research has shown across several fields – experts generally have a pretty poor predictive record. One prediction, however, that is rather safer than leaving your chocolate in my safe-keeping is that the economy will continue to be the dominant political issue.

In 2012 at least there is a good reason for such uncertainty with the great uncertainty over the European and US economies, both of which can have large impacts on our own. Some of the news from the US and parts of Europe is starting to looking cautiously promising, and the world’s economy outside the developed world has also been showing promising signs, including – thankfully – in many of the world’s poorest countries. On the other hand, a Euro-meltdown could make those factors look positively trivial.

Even in the best of scenarios, the Budget will not be one where the government has money to spare. That makes the choices of priorities all the more important. Even without a net reduction in taxation, it is possible to make the tax system fairer or greener. The wealthy can be taxed more and the struggling the least. If there is some sort of fiscal boost for the economy it can be done in ways that initially favour different sections – such as the low paid or the married. And so on.

On many of these issues it is not as simple as a Conservative versus Liberal Democrat split. They often see Conservative modernisers agreeing with Liberal Democrats and in opposition to traditional Conservative backbenchers. That means it is possible to see a distinctively Liberal Democrat influence on the Budget. It will be a key test of what the party achieves from being in coalition during 2012.

You can read the full set of challenges as they are published on Lib Dem Voice here.

In the 1930s, depression caused countries to sink into rounds of beggar my neighbour protectionism, putting up barriers to trade in vain attempts to protect domestic economies but which only ended up dragging everyone further down.

This time round, not only is protectionism not on the march in the same way, but there has even been a good move towards lowering trade barriers with the agreement that Russia will be joining the World Trade Organisation (WTO):

Kirill Dmitriev, head of the Russian Direct Investment Fund, said that WTO membership could raise Russian growth by 10 per cent over the next five years and could help provide a solution to the European financial crisis.

“The way out of the European crisis is free trade and more cross-border investment,” he said, calling the signing on Friday “a very important milestone”.

There are many changes to the WTO Liberal Democrats want to make, but a WTO with Russia in it is better than one without.

(In fact, I’ve not seen anyone quote them though given what I read, hear or watch is only a small fraction of what is said, I’m happy to believe some people have remembered them; any links would though be interesting so please do share.)

Liberal Democrats were committed to big deficit cuts

A Comprehensive Spending Review of all departments would be conducted with the objective of identifying the remaining cuts [on top of those earlier identified] needed to, at a minimum, halve the deficit by 2013–14.

Liberal Democrats were committed to cross-party agreement on deficit figures

We will establish a Council on Financial Stability, involving representatives of all parties, the Governor of the Bank of England, and the Chair of the Financial Services Authority. This group would agree the timeframe and scale of a deficit reduction plan to set the framework (though not the detail) for the Comprehensive Spending Review and seek to promote it externally and domestically. Any such agreement would be without prejudice to parties retaining and advocating distinctive views on a wide range of issues, such as fair taxes and spending priorities.

You can read Stephen’s take on the experience over on The Collected Stephen Tall and the original What’s the Lib Dem economic narrative now? is up on Lib Dem Voice.

Whether you like the format or not, feedback on this approach to writing a post very welcome…

“We must think long term” is a common cry in politics and government. Far easier said than done, but whether it is investing in early years education, making decisions over building new physical infrastructure such as railways, setting rules for pensions or a myriad of other decisions, government repeatedly makes decisions which only work well if they are stuck to for a long period of time and whose positive impact may not be directly felt for many years. For example, the failure to make decisions for the long-run and stick with them is one of the reasons infrastructure projects cost more in the UK than elsewhere…

Moreover, Labour’s one serious attempt to get long-term planning for infrastructure work – PFI and PPP (which, by using legal contracts, made it hard for governments to change their mind over projects) – has been heavily discredited for high costs and post work in many cases, including the notorious collapse of PPP on the London Underground.

Now it looks as if the government has found its alternative to PFI/PPP for sustained long-term funding of infrastructure work: getting the pension funds involved.

As the BBC reported:

The aim is for government and private investors to support both social and economic schemes over the coming decade. The government will provide £5bn up to 2015-15, then a further £5bn in the next Parliament.

The Treasury hopes two-thirds of the £30bn earmarked for infrastructure schemes will come from the National Association of Pension Funds and the Pension Protection Fund. Separately it is also seeking more investment in infrastructure from insurance companies and from China.

Good news.

The two are linked because he splits Britain’s economic record in the 1930s in two, arguing that in the second half of the 1930s higher prices helped fuel a strong economic recovery:

Over fiscal years 1932/33 and 1933/34 the structural budget deficit was reduced by a total of nearly 2 per cent of GDP as public expenditure was cut and taxes increased, the public debt to GDP ratio stopped going up while short term interest rates stabilized at about 0.6 per cent. Yet, from 1933 to 1937 there was strong growth such that real GDP increased by nearly 20 per cent over that period.

In the early 1930s, fiscal consolidation without a compensating boost from monetary policy was not conducive to recovery and ran the risk of prolonged stagnation in a difficult world economic environment which had little to encourage business investment and exports. The potential parallels with today are readily apparent.

As now, in the 1930s interest rates were reduced to an extremely low level, leaving little scope for further economic boosts from shaving fractions of a percent off them. Yet what really matters is not the headline interest rate but the real interest rate, i.e. after allowing for inflation. So if you can’t cut the headline rate much more because it is already so close to zero, you can instead cut the real interest rate by upping prices. As Crafts argues,

The key to recovery was the adoption of credible policies to raise the price level and in so doing to reduce real interest rates by raising the expected rate of inflation. This provided monetary stimulus even though, as today, nominal interest rates could not be cut further. Fiscal stimulus was not a factor in the UK recovery until after 1935 when rearmament began…

A close approximation to the successful 1930s policy would be to commit to a price-level target which might entail an average rate of inflation of about 4 per cent for three years. Crucially, this would have to be clear and credible so that the inflation was fully anticipated by the public and it would work by reducing the real interest rate.

It is a provocative argument and one which comes with one additional advantage: higher inflation eats away at the value of accumulated debt, both government debt (the cause of so much political debate and strife) and also the less talked about but still important large levels of private debt that burdens huge swathes of the population.

Of course inflation is not exactly a policy without costs, economic or political. Eating into the savings of pensioners in particular is never popular. However, it’s not only a provocative but also well-argued case from Nick Crafts which is well worth a read in full.

Delivering Growth While Reducing Deficits

The state of the economy is central to the fate of the Liberal Democrats, both because it is so important in shaping people’s perceptions of the government and also because the better the economy does the more scope there is to get public interest in Liberal Democrat achievements in other areas. No matter how wonderful the government’s green achievements, for example, they would get very little attention in the midst of a double-dip recession.

Three figures are likely to sum up the economy’s state over the next 12 months. First, the quarterly GDP growth figures. These figures are given far more media attention and political weight than their accuracy – or rather inaccuracy – deserves as the final figures which come out months after the initial estimates are often significantly different. However, whilst preliminary figures of +0.1 and -0.1 might sensibly be judged to be little different given the errors in such numbers, the political and media impact of even such a small difference would be huge.

Second, the deficit figures. Despite the sizeable gap between the latest deficit figures and most people’s own day-to-day circumstances, it has become the dominant political explanation for the government’s actions – and the coalition has won the political battle to persuade the public that major action was required to bring it down. But to have a chance of political credit as the reality of such action bites, overall deficit reduction has to be seen to be happening.

Third, real wages growth (or not). Weak real wages growth has often been the explanation as to why a government doing well on other economic indicators has still lagged in popularity. Likewise, strong real wages growth has often lifted government popularity despite other political troubles. Real wages are generally forecast to fall over the next year; slowing down and then reversing that decline will be vital for the public to feel that the government’s economic policies are working.

With a Conservative as Chancellor, Liberal Democrat influence on the economic out-turn will mostly be through Danny Alexander’s work to control the details of public spending, and so keep deficit reduction on course, and on Vince Cable’s work to boost growth and investment.

However, this is an issue on which both Conservatives and Liberal Democrats will sink or swim together as the impact of the contributions from the different parts of the coalition will be so closely entwined.

What will the practical consequences of that be? What issues may come to dominate political debate?

Privatisation returns

How to cut debt? Selling off assets is one option. For the last few Parliaments, privatisation has been mostly off the political agenda, and where it has been pushed – as with Royal Mail – it has been a matter of arguing over how the service can survive, rather than any particular need for revenues from the sale. Expect that to change as more sell offs are pushed simply to pay off debt.

Inflation looks less bad

The idea that low inflation is good, achievable and sustainable has become such widespread conventional wisdom that the question of the Bank of England having an inflation target is almost never discussed, nor even is the level at which it is set.

Yet in the past inflation has played a major role in tackling large government debt – eroding its real value year after year.

Low inflation brings many benefits, but it would be surprising if no-one starts being attracted to relaxing a bit on inflation in order to speed up the reduction in debt.

Where will growth come from?

Debates about export-led growth or growth driven by consumer consumption have had a low profile in Britain in recent years. The balance of payments statistics get almost no coverage and the edge has come off debates amongst domestic economists on the causes of growth. With many firms and consumers laden with debt and with a public sector overall having to prune rather than splurge, the question of what drives economic growth is likely to move centre stage, not just in terms of tax cuts or not but also in terms of how the economy should be structured.

Should profits flow overseas?

Britain has benefited massively from having an open economy over the previous decades and even centuries. But when companies such as Google dominate certain sectors, earning large profits and paying taxes on much of them to other governments, will that historical record be able to sustain the immediate demands that foreign companies should pay more tax in the UK rather than UK residents having to pay up more in tax in order to cut debt?

Anyway, that’s enough from me; over to you. What’s your view?