An interesting critique of Nick Clegg’s economy motion for party conference

Simon Wren-Lewis, an economics professor and one of the UK’s best bloggers on the economy, has an interesting take on the economy motion put down for the Lib Dem autumn conference in Glasgow:

It has Nick Clegg’s name on it, so we can assume it reflects the leadership’s thinking. It starts thus:

“Conference welcomes recent improvements in the UK economy, specifically that:

I. Faced with the highest budget deficit in post-war history in 2010 as a consequence of the banking crisis and Labour’s mismanagement, the Government has managed to reduce the structural deficit by a third since it came to power.”

Point number two then talks about recent GDP growth figures. So the best thing that has happened to the UK economy recently has been that the deficit has come down. The message seems clear: reduction of the budget deficit is the number one priority and all else has to be subsumed to that.

Now you might in Clegg’s defense say that he has to put it this way, as he has been part of a government which has made deficit reduction the overriding priority. I think that is simply wrong. He could say instead that the focus on deficit reduction was appropriate given all the uncertainty as the Eurozone crisis broke. However now it is clear that this was a crisis specific to the Eurozone, and with interest rates on UK borrowing really low and likely to stay there, the UK can make reducing unemployment the priority, while still of course operating a prudent fiscal policy in the longer term.

In other words, he could begin to de-prioritise deficit reduction…

A good [alternative to prioritising deficit reduction] is the idea of investing when borrowing is cheap… I think ‘borrowing to invest when borrowing is cheap’ is a message that can resonate with the public.

As Simon Wren-Lewis says, one of the appeals of ‘borrow when the borrowing is cheap’ is not only the economic justification behind it, but also its easy to understand nature.

‘You mustn’t spend more than you earn’ has a seductively simple appeal to it.

Pointing out instead the virtues of borrowing to invest when borrowing is so cheap matches that in a way that more erudite presentations of economic subtleties match in an economics lecture hall but don’t match it in a democracy.