Despite what the UK right will tell you, appeasing bond markets has actually led to instability |
Should politics always be dominated by economics? Should questions about how governments and voters pay for things – whether by earnings, taxes or borrowing – be settled before we consider the wider consequences?
In an anxious capitalist democracy such as Britain, with a modern history of patchy economic success and intermittent but recurring crises over public debt, the answer may seem obvious: governments and voters always need to behave in ways that fit with the market forces that shape our economy.
This is the assumption behind most of the debate about Labour and the bond markets. Pundits and politicians on the centre left as well as the right, and many mainstream economists and bond traders, all agree that whoever emerges as prime minister from the current undeclared leadership contest will have to design their spending policies according to what “the markets” – as they are called with reverent vagueness – find acceptable. As the once radical, now more conventional historian and journalist Paul Mason wrote recently: “Put simply, ‘defying the bond market’ is like trying to defy gravity.”
Such supposed reality checks have been delivered to Labour governments since at least the mid-1970s, when Jim Callaghan’s embattled administration was forced to agree to spending cuts in order to get a loan from the International Monetary Fund. Even Tony Blair’s much more secure premiership deferred nervously to free-market orthodoxies. “I hear people say we have to stop and debate globalisation,” he told the 2005 Labour conference. “You might as well debate whether autumn should follow summer. They’re not debating it in China and India.”
Yet to see current capitalism........