The answer is both and neither, but of the two Vince cable has a much more coherent understanding of the problems facing the economy. Cameron is promoting a strategy which is in part succeeding, but also failing: Vince has analysed what might be going wrong and how best to deal with it.
This blog was trenchant at the start of the Coalition in promoting cutting government expenditure and shrinking the State. We scoffed at the proposition that you could borrow your way out of debt and we adhere to that view. But as Vince points out, if the cuts reduce the revenue flow and increase the demands on the welfare budget, the deficit grows and you end with the worst case; that of borrowing to pay salaries and bills. He says it is a matter of fine judgement as to when it is more harmful not to borrow for investment than actually to so so. Indeed there is a greater risk to low interest rates through market anxiety and further downgrades, if the economy fails to surge and instead totters forward always on the brink of recession.
Meanwhile there is a developing debate over quantitative easing. The Bank of England has decided against more for the moment, but for how long can that position be sustained? The current buoyancy of the share market and the hints of an easing in consumer and small business credit stems directly from QE. It is this blog’s view that while Vince Cable’s analysis is right, his thoughts of borrowing are wrong. Instead we would advocate using QE directly to finance investment in infrastructure renewal, transport modernisation, and the biggest social house building programme ever. It is not the case in modern globalised economies, substantially geared to electronic money and plastic credit, that hyper inflation follows an expansion of the money supply, provided it is expanded to measure new wealth created by investment in job creating national renewal.
In other words if there is too little money in the economy to enable it to function, it is better for governments to create new than to borrow. It would have the added benefit of exerting downward pressure on sterling as the economy expands, making imports more expensive, while exports become more competitive and opportunities for home production of consumer products increase.
This is a complex subject over which debate and creative thinking are now needed. It must become the policy of all political parties to aim for full employment as the central national strategy and we must now start, not only talking about an objective absent from political thinking since the seventies, but we have to plan for it as well. QE will have to be in the mix.