Spending and Growth

In the 2010 general election, the Liberal Democrats recognised that the government deficit had to be brought under control, but also that cutting too fast or too soon would be self-defeating. The party’s manifesto said:

We must ensure the timing is right. If spending is cut too soon, it would undermine the much-needed recovery and cost jobs. We will base the timing of cuts on an objective assessment of economic conditions, not political dogma.

Once the coalition was formed, that wisdom went out of the window. Liberal Democrat ministers began arguing for the Tory policy of early cuts, on the dubious grounds that the UK economy was comparable to Greece.

It seems that Nick Clegg and David Laws, contrary to the manifesto, were more concerned with political dogma than “an objective assessment of economic conditions”. They saw the coalition as an opportunity to reorient the Liberal Democrats around a ‘small state’ ideology. Laws makes that clear in an essay he wrote for the IEA in June.

David Howarth has demolished Laws’s arguments in an essay written for the think tank Liberal Insight. He asks, “Is Laws right to imply that reducing the overall share of public spending in GDP will lead to greater prosperity?” and concludes he is not.