Bubblephobia
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With the election debate heating up it is becoming apparent that bubblephobia is rampant among the political class.
By this I mean a fear of a new financial bubble which is so strong it makes politicians nervous about discussing how to promote economic growth.
They interpret the financial bubble as a result of economic dynamism when in reality it emerged in response to atrophy
It was certainly apparent when Vince Cable, the Liberal Democrat shadow chancellor, set out the key pillars of his party’s economic manifesto this morning. He said a lot about maintaining stability by such measures as cutting public spending and keeping an independent Bank of England.
But when I asked how he would generate consistent and strong growth he said he would ensure monetary policy would offset the effects of bubbles emerging. In other words he seemed more concerned about overheating than about promoting strong growth in the first place.
Meanwhile, George Osbourne, the Conservative shadow chancellor, wrote in the Times about the new economic model he envisaged. But with him too the emphasis was on preventing spending getting out of hand, stopping it becoming unsustainable, rather than about achieving growth. (article continues below)
Both politicians share a common confusion. They interpret the financial bubble as a result of economic dynamism when in reality it emerged in response to atrophy. The authorities created a bubble in a desperate attempt to offset the impact of a sluggish economy.
Unfortunately the lesson they learnt was not that growth needs to be solidly based. Instead they have come to see any kind of growth as threatening potential bust.
