British politics is fun again, although life in Britain is getting less funny by the minute for many.
What is fun is the return of real debate about how to run the economy. Although New Labour's similarity to the Conservatives has often been over-stated, the last decade has seen substantial agreeement around the new liberal consensus: sound money (achieved through independent central banks and inflation targeting), balanced government budgets (the 'Golden Rule' keeping national debt below 40%), flexible labour markets (low employment protection, weak unions) and the predominant role of the City of London in generating growth.
What was odd was that although this was natural enough for the Conservatives, it was a real break with tradition for Labour, which had traditionally been more concerned with growth and employment than with price stability, and whose supporters had a lot to gain from union power and entrenched workers' rights. Why did Labour buy into this?
There are two possibilities:
The first is that it was a 'Trojan Horse' inside which the party could smuggle in left-wing policies that middle England and financial markets would take fright at. By committing itself to the orthodoxy, Labour could win over Tory voters and avoid the business sector boycotting a Labour government. In this version, Labour would consolidate itself in government, and then put a more left-wing twist on policy than everybody was expecting.
The second was that they really believed it all.
It matters quite a lot which of these explanations is the right one. Now that the post-Keynesian consensus has run into a brick wall, Labour has a lot to gain from dropping its monetary and fiscal orthodoxy, and beating up on the bankers, a natural target for popular anger. A terrible recession looms, and everyone agrees that for the moment inflation is the least of our worries and government should borrow and spend as fast as the till can open and shut.
Everyone, that is, apart from David Cameron. Cameron has opted for Hooverism as his response to the recession. You wonder if he really believes that the government shouldn't increase borrowing in the middle of a credit crunch - if he does, that would be very scary, since he could one day be running the country. More likely, he figures that government borrowing won't avoid a nasty recession (that's inevitable, all it can achieve is avoiding a full-blown depression) and that in the next election campaign he can blame the government for the recession AND for the country's rapidly deteriorating budgetary position. "See, Brown mortgaged the country's future and we still had a recession!"
So, maybe it doesn't matter for the policy response, which will be Keynesian whatever Cameron says. But it would be a pity if it meant that the common sense notion that you 'tighten your belt' when times are hard is given a serious hearing. If the government tightens its belt when the consumers are tightening theirs, then we are all up a creek without an oar: if the government borrows, than we have at least one.