A Conservative Budget
George Osborne is a brainy man and occasionally he is allowed to give brainy speeches. His recent lecture to the RSA in London was one of them.
Robert Peston has highlighted the shadow chancellor's comments about the future of on Britain's banks. Clearly the Conservatives will be a big part of this debate going forward.
As I've discussed before, the lesson of this crisis is that even the most global banks will come home to die, or get bailed out. It matters whether we as a nation - or more accurately, we as taxpayers - have the capacity to bail them out. So any future chancellor needs to decide how many big international banks for the UK is enough.
However, I'd like to focus on another part of the speech - specifically his comments about borrowing.
In yesterday's blog I said: "debt cannot rise indefinitely without raising doubts about the ability to repay. In effect, the British Conservative party thinks that the UK reached that point some time ago - which is why they opposed the UK stimulus package last November."
One of Osborne's advisors has pointed out that this was not quite the Conservatives' view. They simply thought that Britain was in danger of reaching that point quite soon, so the stimulus was not a risk worth taking.
That may sound like a distinction without a difference (and, I should say, this advisor wasn't demanding a retraction.). But in fact it does matter, and it shows up a key challenge for the Conservatives as we approach the next budget.
To see why, you only need to look at Osborne's speech. The bulk of his remarks are devoted to how to build a safer financial system for the future. But he can't resist a brief victory lap on the right and wrongs of fiscal stimulus.
The jubilant "I told you so's" from senior Tories have been echoing through the corridors of Westminster ever since Mervyn King made his contribution to this debate a few weeks ago.
Osborne joined the chorus again in his speech: "the forthcoming Budget will mark the collapse of [the government's] strategy for dealing with the recession. And it will vindicate the principle of fiscal responsibility that we Conservatives have stood by in good times and bad."
You can understand the desire to gloat. It's fair to say that Mervyn King's comments did no favours to the government.
But economically speaking, the fiscal high ground that Her Majesty's Opposition is sitting on is more like a fence - and quite a narrow, uncomfortable one at that.
Why? Well, going back to that distinction from yesterday, remember that the Conservatives are not saying that we have reached the point where additional borrowing actively hurts the economy, by pushing up interest rates.
If they were, they would logically have to follow the Irish route of proposing tax rises and spending cuts right now, to bring borrowing down.
For obvious reasons, Osborne has no intention of proposing such a budget for two weeks' time. In fact, he and others have said they do not want to stop the "automatic stabilisers" from operating (that's the rise in borrowing that is not down to the stimulus but rather the natural impact of the recession).
But, as the Institute for Fiscal Studies keeps reminding us, the rising debt levels that the Conservatives are so concerned about have almost nothing to do with the fiscal stimulus package last November - it accounts for less than 1/15th of the total rise in debt expected between now and 2012.
It's true that the Conservatives think that borrowing was too high going into this recession, and that was within the government's control. But as far as I know, Osborne doesn't think we should be trying to reverse things right now, with the recession still raging. Nor have they suggested the government should have spent much less on bailing out the banks, which the IMF thinks could add another £130bn to Britain's debt.
All the Conservatives will say is that another stimulus package - like the first one - would be a step too far.
Perhaps the shadow chancellor thinks the markets can distinguish between voluntary and involuntary government borrowing - and it's the voluntary, stimulus borrowing that investors really object to. But if that's true, someone needs to tell the Irish. They haven't had any fiscal stimulus packages, yet the markets have bullied them into a tightening all the same.
What matters to the investors who fund our government debt is not the cause of high borrowing, but how large it is relative to the economy, how fast it is growing, and whether or not the government has the will to bring it back down.
Put it that way, and the Conservative's "principle of fiscal responsibility" starts to look rather arbitrary.
After all, back in November, they thought that borrowing was high to afford a roughly £12bn a year short-term stimulus. Now borrowing for this year alone is expected to be about £17bn more than we thought, with none of that extra borrowing due to the stimulus. Yet, as we approach the budget, the Conservatives still say it's only extra stimulus measures that we can't afford. All that other borrowing for this year is somehow OK.
The worse the figures get, the harder that position may be to sustain.
For, if the numbers do continue to deteriorate, the logic of the Tory position is going to point ever more firmly in the direction of an Irish-style budget-tightening - even if the economy is still heading downhill. Brainy as he is, it will be interesting to see how far down that road the shadow chancellor is willing to go.