Orders of the Day — The Economy

Part of the debate – in the House of Commons at 6:45 pm on 29th November 1988.

Alert me about debates like this

Photo of Mr Brian Sedgemore Mr Brian Sedgemore , Hackney South and Shoreditch 6:45 pm, 29th November 1988

The right hon. Member for Worthing (Mr. Higgins), the Chairman of the Select Committee on the Treasury and Civil Service, of which I am a member, talked about accountability. The way in which it works is like this: he drafts the report and then uses his Conservative majority—some of them are here—to get it through. If the next report expresses what the right hon. Gentleman has said this year, we shall have a report of such sycophancy that some of us shall be asking Alice to pass the sick bag.

When I heard the Chancellor today all bubbly and bright, when I thought that he would have a hangover, I was reminded of the aphorism of Alexander Pope in his epistle to Dr. Arbuthnot: Take it for a ruleNo creature smarts so little as a fool". I note that the Chancellor has just left the Chamber.

When the Chancellor goes to meet his maker—perhaps if the Prime Minister has any say in this matter it will not be too long hence—I believe that his row will not be with the modern poets so much as with the philosophers of antiquity. Frankly, I doubt whether Aristotle, the logician and the great creator of the syllogism, will ever forgive the Chancellor of the Exchequer for what he has done this year.

When the Chancellor of the Exchequer first came to office he gave us a breathless syllogism. It was irredeemably strong, irreducibly simple and ineradicably true. He said, "All countries of low inflation are competitive. All countries which are competitive do not have a balance of payments problem. Britain has low inflation and does not have balance of payments problems." Here was a syllogism that scintillated. He united Aristotle with the classical economists, the Keynesians, the neo-monetarists and even the new Tories from Marxism Today. But—there is always a but when con artists are concerned—somewhere along the line someone forgot to tell the Chancellor that for a conclusion to be not only deducible from its premises, but correct in its application to the world which it purports to describe, its premises must be capable of empirical verification. Deduction and induction must at some stage during the argument synthesise.

The Lawson fallacy has been to move from false premises to false conclusions by suspect processes of logic. I believe that the purpose of this debate is to teach the Chancellor not only a few lessons in elementary economic theory in practice, but a few lessons in elementary logical analysis.

I begin with a succinct premise born of dispassionate analysis with which I believe every hon. Member would agree given the events of the past year. It is a simple one: "The Chancellor of the Exchequer, the right hon. Member for Blaby (Mr. Lawson), is an economic illiterate". Does it really matter if that is so?

I do not wish to place too much faith in economists. I am rather inclined to the view that Sir Kenneth Berrill, the former chief economist to the Treasury, gave me over a pint of beer at Sunningdale one day. He said that the difference between a scientist and an economist is that scientists sometimes get it right. Nevertheless, I believe that the Chancellor's ignorance in economic affairs is gross, excessive and offensive.

I shall deal first with economic forecasting. When I was 16, my economics tutor at school said to me "Sedgemore, in the hands of a professional, economic forecasting is a dangerous business. In the hands of an ambitious politician, it gives rise to self-delusion, followed by deceit, ending up in catastrophe." The Lawson catastrophe is surely living proof of what a wise old owl my tutor was.

Let us first consider the Chancellor's forecast for the balance of payments deficit. Assuming that the outturn will be £16 billion—my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) is always too kind, and I think that it will be more than he said—that is not 100 per cent., 200 per cent. or 300 per cent. wrong; it is 400 per cent. wrong.

Let us suppose that the chief economist to the National Westminster bank goes to his chairman, Lord Boardman, at the other end of the corridor and says, "Mr. Chairman, your Lordship, I've got my economic forecast for the year, and here it is, but I must tell you that the margin of error is plus or minus 400 per cent." Let no one tell me that that chief economist would keep his job. What worries me, as I look at the Government Benches, is that not a single Conservative Back Bencher—except perhaps the right hon. Member for Old Bexley and Sidcup (Mr. Heath)—feels any guilt, shame or worry that there is a 400 per cent. margin of error in the forecast which has serious repercussions for the economy.

The matter is worse than that. When the Chancellor came to office, he forecast zero inflation in some years' time. I do not know how many mathematicians there are in the House. If there are any, they will know that the difference between zero inflation and the current rate of inflation is not 100 per cent., or 1 million per cent., or 1 billion per cent.; it is an infinite per cent. What can one say of a Chancellor who, on proven mathematical formulae, gets it infinitely wrong?

Let us consider the cure for inflation. Many cures for rising prices have been put forward by economists through the ages. As far as I am aware, the Chancellor is the first person in human history to say that the only cure for rising prices is to push prices even higher. That must be the own goal of the century. Let us imagine that England are playing West Germany at football and that Bobby Robson—one of the greatest failures of our time, as the Chancellor will be proved to be by history—comes into the dressing room and says, "Lads, this West German side is damned good, but when the players become over-confident they become vulnerable. Here's the game plan. If they don't score in the first 10 minutes, weácurate;ll put the ball into the back of our own net. Then they'll become over-confident and vulnerable."

I do not want to be unfair to the Chancellor because he has an answer to my criticism. I shall paraphrase his answer, but it is an honest paraphrase. He says, "When I push up prices by pushing up the cost of borrowing and when I push up mortgage rates so that Sedgemore, who paid £464 in November 1987, now pays £505 and in January of next year will pay even more, I am actually lowering prices and only the mad, the bad, the sad and prats like Sedgemore believe that I am doing otherwise." When the Chancellor says that when he gives us poison in the short term he is really giving us medicine in the long term, he reminds us of Father William in "Alice in Wonderland"—I am sure that all hon. Members have read that book, although they are not all mathematicians:

'You are old, Father William', the young man said,'And your hair has become very white;And yet you incessantly stand on your head—Do you think, at your age, it is right?''In my youth; Father William replied to his son,'I feared it might injure the brain;But now that I'm perfectly sure I have none,'Why, I do it again and again.' It must be because the Chancellor's brain has gone missing—"Spitting Image" has got it wrong—that interest rates have been put up again and again.

I shall again paraphrase what the Chancellor said on television last week about the relationship between wage pressures and inflation. He said, "I shall reduce wage pressures by increasing them through higher mortgage rates and higher inflation." I used to think, being a gentle man, that despite the fact that I sometimes came to verbal blows with the Chancellor, he was a lovable, Rabelaisian roué. But the more I think about it now, the more I believe that he is a devious and sinister Schiller-like figure and, like the gods, I begin to despair. As Schiller wrote,

Mit der Dummheit kiimpfen Gutter selbst vergebens. That is, against stupidity, even the gods struggle in vain.

When one considers the balance of payments, which has been a major issue today, the gobbledegook not only from the Chancellor, but from his chief economic adviser, Sir Terence Burns, becomes even worse. Sir Terence gave evidence to the Select Committee on the Treasury and Civil Service last week. I shall paraphrase what he said to me. "When the statisticians correct the figures, things may not be as bad as they seem." That is economics on a wing and a prayer. Last week, the Chancellor said—I shall again paraphrase—"The balance of payments deficit is a sign of the success of our policies. All I need to do is to make a few adjustments." That is economics by hunch, by guess and by god. I prefer it by somebody else.

Last week, the Chancellor said on radio—I am paraphrasing—"I'm so happy with things as they are that I'd willingly give up my job and make money in the City." That is more honest and that is the economics of blue funk. The Chancellor is the first economist in history to insist that the only cure for the balance of payments is to raise interest rates.

At the Treasury—there are a few Treasury officials sitting in the Box—there used to be textbooks on the walls. I am sure that the textbooks did not say that the only way to deal with a balance of payments crisis was to raise interest rates. In the textbooks that I read, the authors used to give many options. They said, for example, that there could be currency depreciation, devaluation, import control by administrative means, price or quota, or deflation. In an arrogant fit of pique, the Chancellor has burnt all those books, so he need not admit that he has made a mistake. Those books are no longer on the library shelves. When I asked Sir Terence Burns about the textbooks, he did not know anything about them and said that they were no longer relevant.

On the subject of the consumer boom, the Chancellor is the only economist in history to say that the only way to cure it is to raise interest rates. The textbooks would tell another story, if they existed, and would suggest a whole battery of fiscal policies that could be used. They would say that monetary conditions can be altered by credit control, with or without exchange controls. They would say, even more importantly, that the propensity to imports can be changed either by switching from consumption to investment or by switching from consumption to public expenditure. That meets one of the sillier points made by the hon. Member for Croydon, South (Sir W. Clark).

Having abandoned the sum total of human knowledge as set out by economists around the world throughout history, the Chancellor is surprised that he now begins to get everything wrong, that he is the laughing stock of G7 Ministers, that the people from the International Monetary Fund who have just come to this country are beginning to find him an object of scorn and that he is the butt of cartoonists in our national newspapers.

The underlying reason for all that is simple. The Chancellor is driven by one linked belief—a belief in markets, deregulation and the idea that monetary control is the only control of the economy. He has tried it nine times and has failed. He tried M3, and when that failed he tried MO; when that failed he tried M1 and when that failed he tried M2; when that failed he tried M4 and when that failed he tried M5; when that failed he tried PSL1 and when that failed he tried PSL2—and when that failed he tried DCE.

We are coming up to Christmas and I am prepared to offer £10 to a charity chosen by any Conservative Back Bencher who can now interrupt me and give me a definition of each and every one of the Chancellor's monetary variables. Is it not extraordinary that not one Conservative Back Bencher knows what the Chancellor of the Exchequer has been talking about for the past five years? They go back to their constituencies every week and preach monetarist dogma, but they cannot define the basic definitions.