The government underwrites failing banks and then pumps money into the economy by printing it. The government also distorts the lending-market by borrowing at preferential rates. The banks, instead of lending the printed money, sit on it and pay their top staff bonuses. When people try to borrow money, they’re quizzed about their spending-habits in a way which, reportedly, will stop a million people from getting mortgages.

Mr Redwood writes: “Labour seems to think we are in the 1970s, when some simple neo[-Keynesian] deficit and borrowing package will miraculously lift the economy out of the mire. They forget that[,] when they tried that in the 1970s[,] markets lost confidence in them and they had to cut public spending in order to borrow from the IMF.”

Jim Callaghan at the ‘75 Labour conference: “We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and[,] in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”

So what are the politicians scared of? We know. The electorate. Mr Brown’s £16bn asset-sales and Mr Osborne’s £7bn p.a. conference-cuts are mere drops in the trillion-pound ocean of debt which is much bigger than the government tells us it is.

Ripe for cutting is education. Given that the country must become self-sufficient and competitive again through an emphasis on agriculture and manufacturing, highfalutin’ qualifications are no longer necessary. Give most young people basic literacy and numeracy, as well as a sense of duty, and they can start earning. Pick out just the high-flyers and send them to one of perhaps just 20 remaining universities where students are encouraged to pursue research-careers, discovering the facts and techniques to provide England with a cutting-edge. Trouble is, many voters think their kids are all little budding Einsteins who just need three years at Leeds Metropolitan and £25,000 of student-debt to set them on the road to a Nobel-prize.

Another prime target is dole, benefits and pensions. Look: if you’re poor, we’ll help you, but it’ll be means-tested and inspected. You may have to sell-up and live in a hostel with no flat-screen telly. You won’t starve and we’ll pay your health-bills, but life will be austere. The sooner you get out of that (and pay no tax on the first £15k you earn) the better.

But try winning an election on that ticket. Such a régime may nevertheless be thrust upon us by Moody’s, Standard and Poor’s, the gilt-market, England’s plummeting reputation for both finance and governance, and the IMF.

There is now clear water between the two big parties. The Conservatives say that austerity is needed. Right-wing commentators say Tory plans only scratch the surface. Labour denies that things are going to get worse and claims that Conservative cuts will strangle a recovery. The electorate must decide (ideally during several forthcoming by-elections) between pessimism and optimism.

• Liberals try to talk tough on severe cuts and mansion-tax but retreat.
• Labour flaunts fatuous, costly promises and looks spent.
• Conservatives look serious and ready to sort out Labour’s mess.

However, Osborne’s proposed cuts address less than five percent of the deficit.

If Mr Osborne isn’t careful, he could get all the unpopularity of being a cutter of public spending without actually being one. Jonathan Loynes of Capital Economics points out that the shadow-chancellor’s £7 billion is small fry when compared to a possible £200 billion deficit this fiscal year. Great swathes of activity need to be transferred to private hands, with people paying directly for the services they receive rather than doing so indirectly (and inefficiently) through taxation. Mr Loynes suggests cuts of £70 billion are needed.

1. have flaming row about Lisbon before conference even starts
2. show that, just as Labour can clobber the bankers, the Tories can clobber the poor and sick
3. distract attention from 1 and 2 above by shooting self in foot by raising the pension-age
4. do other deranged stuff (e.g. cut speed-cameras to increase road-death; take less penal approach to yobs)
5. lose election
6. sack leader

Whereas this blog may, over the months, have portrayed Labour as a mealy-mouthed, envy-based, money-wasting, self-serving cabal of Marxist Bolshevists and Trotskyite Europhiles, today’s announcement by Mr Osborne of a raising of the retirement-age to 66 has helped us to see that, after all, it is only a Labour government that can safely steer us out of our present problems which are entirely created by the greed of Wall Street and of the lickspittle paper-tiger running-dogs of Heatho-Walkerian Thatcho-Blairite capitalism.

The Conservatives are winning the popularity contest, but they have an electoral mountain to climb. They’d like this week at Manchester to concentrate on cutting spending and getting people off benefit. However, the emerald elephant in the conference-hall is a referendum on the Lisbon-treaty. This morning on BBC-television, Andrew Marr and Jon Sopel rightly pressed David Cameron and Eric Pickles on their policy. Both stuck to the line that the Conservatives basically won’t say what they’d do if Poland and the Czech republic ratified before the election. (Mr Cameron said the Czechs may not ratify for three to six months, but Mr Brown can hold on for almost eight and now almost certainly will.)

Even if the treaty is still in limbo when the Tories come to power, and even if there’s time to hold a referendum before the Czechs and Poles approve it, the UK has already ratified.

The bold, vote-getting thing for Mr Cameron to do would be to say this week that a Conservative government would hold a popular vote on Lisbon willy nilly. In a way, it’s easy to say that the public finances are wrecked and something must be done. Even Labour’s doing that, albeit reluctantly. It’s easy also to say, after more than a decade of opposition, that you’re the party of change. What would be truly audacious would be to tap-in to Britons’ visceral distrust of the EU and come out of the Eurosceptic closet. Losing Ken Clarke to the LibDems would be a shame, but he’d still be a good parliamentary turn and, more important, an anti-EU stance could get the Tories the electorally seismic shift they need.

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The party-conference story so far:

• Liberals promise savage cuts (good) and mansion-tax (bad) and then have to backtrack on both
• Labour has to admit it must cut but (unlike the Tories) will do so reluctantly; D Miliband launches leadership-campaign from the conference-floor
• Conservatives mustn’t mention the war.

Now the safety-net looks like it has holes in it. Although the IMF would tax bankers and says the recovery is just about to bud, the World Bank says it could be worldly bankrupt in 12 months’ time. What happens then? Our only recourse, I fear, will be to the Solar System Monetary Fund, whose current two-headed, mauve chairman is Dr Veet Foojigig of Ganymede who presides over his august interplanetary financial board in a cloud of green sweet-smelling steam.

The liberal party in the new German coalition reportedly has a commerce-friendly policy. Labour could cut the national debt by freezing state-workers’ pay and selling assets. I suggest we privatise libraries, galleries, museums, palaces, parks, motorways, uninhabited islands, the rail-infrastructure, the BBC, Channel 4, HBOS, RBOS, National Savings and the Post Office. For the squeamish, education could remain in state-hands but with school-vouchers and only for pupils up to 14. Mr Cameron says he’ll cut the debt so that it’s less than half its present size in four years’ time.