Labour shouldn't rejoice to the tune of Moody's blues

Columnist

Monday 25 February 2013

IN the old days, before CDs (which were the things before mp3 players), people used to release records.

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Andrew McKie

Then they were played on the radio and, if people liked them, they could go to places called shops where they could buy these records. If enough folk bought them, they entered the charts, which were a list of the records selling the most copies. That usually meant that they got played on the radio more, which often meant that more people bought the record and it went "up the charts".

I mention this for the benefit of those under 40, who quite naturally assume that a song enters the charts at its highest point, then drops like a stone, since that has been the pattern for some years now. There are lots of reasons for this, such as the fact that songs are played on the radio months before they're released, and that no-one bothers to buy them anyway, which is why high street music shops are in receivership. Anyway, the point is that coming straight in at Number One used to be very unusual (The Jam were almost unique in doing so regularly), but now it's rarer to reach the top slot if you don't manage it in the first week. Somehow I doubt that it will be much consolation to George Osborne. Of course he will be obliged to spout some old drivel (something he has had a good deal of practice at) about it not mattering that the credit agency Moody's has downgraded the UK's credit rating. But since he's spent the past three years telling us how vital it is that we retain AAA status, it won't sound awfully convincing.So, whatever he says now, until last week the Chancellor thought that it mattered quite a lot. But does it? As with so much from Mr Osborne, that depends on whether you believe what he says, or what he actually does, there being a marked gap between the two positions.The point can be made that the judgment of the credit agencies is just that – a judgment which reflects the market view, but also influences it. In that sense, the relationship is a bit like airplay and chart position. It's hard to say which drives the other. After all, the credit agencies have been wrong before (as Ed Balls correctly pointed out, these were the geniuses who rated the sub-prime mortgages as excellent). And another agency – S&P – downgraded America's status two years ago, without the sky having fallen in, yet. Though the fact that every man, woman and child in the USA is now in debt to the tune of $53,000 isn't what you'd call marvellous news.But the fact that sterling was falling and bond yields rising can be seen as an indication that, before Moody's acted, the market had already come to the view that Mr Osborne's programme wasn't working. It doesn't matter how much you talk about austerity and hard decisions if people whose living depends on analysing what's being done can see that public spending and debt are actually going up. But that's the bad news for Mr Osborne's political opponents. Because the one thing that is not being promoted to repair the UK's credibility is the sort of additional spending which Mr Balls has been arguing for.There are three simple reasons given for the downgrading by Moody's own report. The first is the slowness of growth. This is certainly a problem, but it is one which is in large measure outwith government control – growth mostly springs from the private sector, and Britain's problem is that our productivity and output are too low, and that we don't, on the whole, make anything anyone else wants to buy. That's one reason why even though quite a lot of jobs are being created, there has been so little growth. The report, far from being a case for stimulus spending, is a judgment that such spending has already failed. In other words, we might as well have burnt the money we spent on Quantitative Easing.The other two points are even more opposed to Mr Balls's proposed solution. They are, in fact, ringing endorsements of Mr Osborne's original proposed solution. And thus an indictment of Mr Osborne's actual methods. Moody's second point is that the Government's fiscal consolidation programme is moving too slowly and its third is that the debt burden is rising. In other words, it chose to downgrade the UK's credit rating because the Chancellor has failed to do what he said he was going to do, which was to make cuts and stop borrowing money like there was no tomorrow.And not just that. The report actually specifically threatens to downgrade the UK yet further if there is any sign of "reduced political commitment to fiscal consolidation". So the course of action being suggested by Labour and the ranks of Keynesian economists – lots more public spending on big capital projects funded (because how else could they be funded?) by borrowing or printing money – is the one absolutely guaranteed way to ensure that our financial standing is downgraded even more.I've never been able the fathom the faith of the Prime Minister in Mr Osborne's supposed strategic skills. And since, under his strategic masterplan, the Tories failed to gain a majority against the most unpopular government in living memory, apparently the electorate shared that view. My opinion is that there's not much point in incurring the opprobrium which goes with "vicious" cuts (and even those, incidentally, were only going to take us back to the spending levels of a few years ago) if you don't make the cuts. Nor does it seem to be very wise to talk constantly about living within your means, and then borrow more than the last Government.The Chancellor's judgment was that the public's perception of his policies was less important than the markets' opinion. The difficulty with this notion, as he has now found out, is that voters often believe something (in this case, cuts in public spending) is happening when it isn't. They can hardly be blamed for that, since it's politicians who keep telling them that things which aren't happening are, and vice versa. But people who make their living, and bet their money, on what is actually being done, tend not to make that mistake. They don't care about hearing a pretty tune if nobody buys the record.

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Labour shouldn't rejoice to the tune of Moody's blues

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