Monday, April 26, 2010

Economics of Elections

'It's All About the economy stupid'
Although this is often a refrain at election time, it often isn't about the economy. In 1983, the incoming government had just presided over a deep recession and a rise in unemployment to 3 million, but it won a landslide. By 1992, the Lawson boom and turned sour and the economy again faced a recession largely of the government's own making. Yet, despite the dire economic situation, the government were re-elected.

So maybe there is hope for the incumbent Labour government. The longest post war recession may have ended, but, it is not going to fade from people's minds. Unemployment remains high, and just for annoyance, we have recent bad news on inflation and the pound.

Unlike 1983, and 1992, the government may have a better claim when they say it wasn't their fault. The causes of this economic crisis are many and varied, only some can be laid at the door of the present government. However, voters are not always rational in deciding the precise causes of the recession.

Perhaps the more important factor is will voting for any particular party make any difference to the difficult period after the recession? The first problem is actually finding out what the parties policies are. There are vague talks of spending cuts all round, but, this mainly involves promises of what they won't cut. When one hears the campaigning of parties, one cannot help but remember the immortal Shakespeare:
Told by an idiot, full of sound and fury,
Signifying nothing. (Macbeth 5.5)
One potential difference is the speed of deficit reduction. Labour and Lib Dems have promised to wait longer into 2011 before implementing spending cuts and deficit reduction policies. The Conservatives have said this may be too late and threaten the UK's credit rating.

Both sides have reasonable arguments - The fear of pushing the economy back into recession, versus the fear of losing confidence in the market - the recent travails of Greece is no laughing matter.

However, I would err on the side of ensuring economic recovery, even at the risk of delaying medium term deficit reduction. Economic growth is essential to reducing the deficit and we should not threaten this through over-eager deficit reduction.

Where Should The Axe Fall?

You might imagine that the different parties would have much different targets for spending cuts. However, the main parties seem to have done the same market research and are saying some areas like Health care and education are 'untouchable' and will not be cut.

This is a shame because although health care and education is a noble public service, it doesn't mean it should be a sacred cow. The number of health care administrators has mushroomed in past decade. There are no reason why this could not be an area for potential cuts. What it means is that less politically popular areas like defence and transport will be the target. In the case of transport this could be a shame. If we have potholes in roads, a creaking train system and underinvestment - it will be the economy which suffers in the long term.

There was a time when I would get very excited at election time. I think I was once even a member of a political party. These days I'm more concerned with developing strategies for avoiding canvassers who come knocking on the door. As far as economics is concerned it would be mainly a relief when election is over - preferably without interminably wrangling over a coalition government.


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