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Is this the start of Plan B?

Wednesday, March 06, 2013
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It’s not often you read such a clearly set out, even-handed article on macroeconomic policy, so this relatively lengthy piece was interesting in itself as its writer appears to deal relatively equally with both sides of the big austerity debate. But you really have to take notice when the writer is the Secretary of State for Business, Innovation and Skills, Vince Cable.

This is pretty interesting stuff politically. Some of the language is quite subtle – there are suggestions that he doesn’t quite agree with the unified front he has had to present. There are many arguments one could make against his claims, and certainly a strong argument to say that some of the points he makes have always been true, and not, as the title suggests, facts which have changed. But the main headline, which I’m sure you’ll see everywhere in the morning, is that Vince Cable is making a reasoned argument for further government spending – especially on capital projects – and a loosening of the austerity agenda.

Politically, this could be seen two ways. Firstly, a split in the coalition and outright internal assault on the government’s economic policies. Or, more likely, this is the prelude to the Budget and we will see, come George Osborne’s statement, something of a Plan B. David Cameron is due to make a speech on the economy tomorrow, so we may see more then.

In reality, given what Mr Cable was saying prior to the election, if there is a shift in policy underway, it could be characterised as
an eventual win for his side. A loosening of fiscal policy would be right up his street. After all, it is well known that his main policy advisor used to be a relatively prominent blogger. Here’s a post from a couple of weeks into the coalition to give you a flavour of his thoughts.

Anyway, if you have the patience for 3,500+ words on the current economic debate, you won’t find much better stuff than Mr Cable’s article. I strongly recommend it for both AS and A2, though some of the ideas chime more with the latter specification. Maybe you can come up with counter arguments to his various points. However you read it, and to whatever degree you may or may not agree with him, this looks to be an economically and politically significant article which any aspiring economics student should be reading.

UPDATE: It seems David Cameron's speech today will reject calls for loosening of fiscal policy, and as Michael says below, it looks like a review of monetary policy is the government's main idea for increased stimulus. By this we can reasonably assume that there's a push for some sort of NGDP target.

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