As housing minister, David Cameron's hero created 300,000 homes. As prime minister, he fired cabinet members without compunction. There is much we can learn from him still
When someone told me that Sir Mervyn King wanted to break up the bank, it was tempting to think he might be referring to the Bank of England. The governor has been put in an unenviable position by the way the chancellor has been so openly favouring his successor, Mark Carney, and King is becoming increasingly outspoken.
The putative plot thickened when we learned that some RBS cash machines had seized up: but there is no evidence that this was the next move in the outgoing governor's welcome assault on RBS.
Meanwhile, back at the ranch, we learned that the Carneyisation of monetary policy will be a central feature of the budget on 20 March. "Osborne to hand Carney powers to kickstart economy," roared the Financial Times. It got better: "George Osborne's budget will pave the way for Mark Carney, incoming Bank of England governor, to come to the rescue of the economy as the chancellor sets the scene for a new era of looser monetary policy."
There you have it: such confidence! And what a magnificent example of the begged question – assuming what has yet to be proved! The chancellor's spinners are spinning out of control.
By "the chancellor", I am of course referring to George Osborne and not to business secretary Vince Cable, who tried in last week's New Statesmanto inject some fiscal sense into the coalition's lamentably misguided economic strategy.
Many observers have been urging the government to take advantage of rock-bottom interest rates to raise investment and demand in an economy whose depression has outlasted that experienced in the 1930s. Although he posed the problem as a "controversial" question, Cable made it pretty clear that the government "should borrow more, at current very low interest rates, in order to finance more capital spending". The list of possible, indeed desirable, projects includes the building of schools and colleges and "small" road and rail developments.
And then there is new housebuilding, which featured prominently in the economic recovery of the 1930s. The connection between the lack of housebuilding and the swelling bill for subsidised rents is all too obvious, and the blame for neglect of public-sector housing lies at the door of successive Conservative and Labour governments. Oh, sorry, I nearly forgot: this government, which is being so unpleasant towards the poor, is actually a coalition of Conservatives and Liberal Democrats.
But back to the budget. Harold Macmillan – Conservative chancellor in 1956 and prime minister from 1957 to 1963 – is one of David Cameron's heroes. As housing minister in the early 1950s he was celebrated for presiding over a major building programme, and his target of 300,000 dwellings was indeed achieved. If he were here today and consulted about the economic impasse, he would almost certainly tell the prime minister to sack his chancellor – Macmillan himself had no compunction in these matters – conduct an unashamed U-turn, and abandon the policies that actually restrict the growth Cameron says he is aiming at.
In preparing his budget speech, Osborne could do worse than refer to the one budget speech Macmillan himself delivered, on 17 April 1956. I would not recommend the two hours that Macmillan spent on his feet, but there are some great passages, including a quotation from the historian Macaulay's Essays to the effect that worries about debt and deficits go back centuries, yet "on what principle is it that, when we see nothing but improvement behind us, we are to expect nothing but deterioration before us?".
There is an interesting contrast between then and now. As Macmillan said, "monetary policy cannot 'go it alone'. It can only operate effectively in conjunction with fiscal and other measures …"
Now, Macmillan was talking in 1956 about "checking demand". He said "no one has yet found an easy way to restrict credit without higher interest rates". Fast forward, and today he would be talking about the need to boost demand, and complaining that "no one has yet found an easy way to boost credit with lower interest rates". That is to say, thanks to the banking crisis and its repercussions, quantitative easing may be boosting asset prices but not the credit mechanism that boosts demand.
Macmillan wanted to boost savings – and, memorably, introduced premium bonds. The current ineffective "rebalancing exercise" should be boosting spending, not savings.
Which brings us to an important lecture last week by Dr Sushil Wadhwani, a former member of the Bank of England's monetary policy committee, delivering the annual Peston lecture at Queen Mary, University of London.
Addressing the question "The great stagnation: what can policymakers do?", Wadhwani proposes a fiscal boost via what he calls "a money-financed fiscal expansion" – vouchers to stimulate consumption and temporary tax incentives to promote investment. Personally, I would add a cut in VAT.
Such a policy is known by economists as a "helicopter drop" – not manna from heaven, but money out of the blue. My question is: do we make enough helicopters these days?