All Chancellors have to square up to one immutable problem: if you do the right thing by the economy, as Roy Jenkins did in the late Sixties, you end up losing the election - or so the usual interpretation of Labour's defeat in 1970 runs. If you do the right thing by the party, as Reginald Maudling, Tony Barber and Nigel Lawson did with their reckless overheating of the economy in the Sixties, Seventies and Eighties, then you end up facing posterity's harsh judgement.
Fortunately, as Adam Smith drily observed 200 years ago, there is a great deal of ruin in a nation. Yet even by the standards of British post-war mismanagement, the economy that Kenneth Clarke took over in May 1993 seemed well and truly knackered.
Yet the apparently ruinous legacy that Clarke inherited was in fact his opportunity. For one thing, he enjoyed a virtually impregnable political position: despite doubts about his economic competence, he was seen as a political strongman and a potential prime minister. For another, the timing of his appointment was particularly fortuitous.
Timing is everything in the economic management of the electoral cycle. The key is to administer tough measures in the early years of a government. As the election comes into sight, you revert to tender loving care. The election date should, with skill, be announced to a backdrop of ringing cash registers as electors spend their tax cuts.
Through accident rather than planning, Mr Clarke's political needs appeared to be well synchronised with the state of the economy and public finances. The economy had been so badly clobbered in the early Nineties that it had the spare capacity to grow strongly for longer than usual. Furthermore, the draconian tax increases brought in by Mr Lamont in his March 1993 budget would be out of the way by the closing years of the government. That offered the chance for Mr Clarke to preside over two budgets, 1995 and 1996, which would restore the Tories' tax-cutting credentials.
That was the gameplan. And for a while, it went better than even Mr Clarke might have hoped, certainly better than the Treasury had been forecasting.
At the time of Norman Lamont's budget two and a half years ago, the Treasury was anticipating growth of little more than 1 per cent in 1993, rising to 3 per cent in 1994. This would be accompanied by inflation of nearly 4 per cent and a balance of payments deficit of pounds 18bn. The budget deficit would fall by only pounds 6bn in 1994/5 to a still staggering pounds 44bn.
Two years later Kenneth Clarke was able to trumpet a much more upbeat message. Growth in 1993 was double the rate forecast by the Treasury, and came in at 4 per cent in 1994. Moreover, inflation had been about half that predicted. With exports leading the way in 1994, the balance of payments was pounds 2bn in the red. Most important, the budget deficit had fallen to pounds 35bn last year, compared with the pounds 44bn Mr Lamont had projected. This was a virtuous recovery indeed.
But in the past few months, things have started to go wrong. For one thing, Mr Clarke has shown a worrying tendency for slipping on banana skins he himself has placed. Most recently there has been the fiasco of the "dawn raid" on subjecting share options to income tax, culminating in his ignominious climbdown last week. This came after the "supposed tax that never was" in early May, a proposal to tax the receipts from mortgage protection policies, which Mr Clarke confessed he only learnt about on the day it became public knowledge - and he killed it. That in turn came after the Chancellor's two Consett gaffes in March, when he hailed the success of a steel plant and a nappy factory that had both ceased production.
With the Chancellor the favourite bogeyman of the right for his upfront pro-European stance, this succession of blunders has been seized upon by his enemies within the party. His political standing has undoubtedly waned sharply. In the leadership contest, he was not even rated as a likely second-round contender, let alone a winner.
These political setbacks would be of less importance if the economic game plan for electoral redemption were still on course. But things seem to be going wrong on that score, too. The main concern is the state of public finances.
The export-led economic recovery may well have been virtuous in the past year. But this very virtue is starting to cause problems for the Treasury. Exports do not yield VAT, so the Government rakes in less revenue. At the same time, low-wage inflation and the part-time nature of many new jobsmean the Government is getting less income tax than it expected. As a result, the Treasury had to yank up its summer forecast of the budget deficit by pounds 2bn for this year, to pounds 23.6bn and by pounds 3bn in 1996 to pounds 16bn.
The virtue of the economic upswing has, moreover, provided no relief politically for the beleaguered Chancellor.Britain's homeowners are in no mood to give political credit for a recovery that has stripped them of the illusion of wealth generated by the previously hyperactive housing market. And the more the feel-good factor fails to manifest itself, the more Tory backbenchers agitate for the balm of tax cuts.
So the Chancellor is being brought up fast against the central dilemma that has faced all his predecessors: should he do the right thing by the economy or by his party? Few doubt that Mr Clarke, a political Chancellor if ever there was one, will not lose much sleep over that dilemma. His every instinct will be to use his powers to win the next election.
But no Chancellor nowadays can afford to let things rip: the sanctions in the form of a run on sterling or a crisis in the funding programme for government borrowing are too formidable. Fear of the markets has led Mr Clarke to give Eddie George, Governor of the Bank of England, an unprecedented say in setting interest rates. The Chancellor has given the Governor discretion on the timing of agreed interest rate changes and has added to the drama of political and economic life by publishing the minutes of their regular monthly meetings.
Mr Clarke did score a notable success when he defied Mr George's advice to raise base rates in May. Since then, most of the economic indicators have gone the Chancellor's way. Yet on a longer view, Mr Clarke may be seen to have made a tactical blunder by not getting the political pain of higher interest rates out of the way well before an election. If the Bank turns out to be right, Mr Clarke faces a nightmare scenario in which interest rates have to rise in the run-up to the election.
As a keen reader of political biographies, Kenneth Clarke will no doubt console himself with the thought that there is still everything left to play for. Yet as things stand, it is the observation of Reginald Maudling when offered the post of Chancellor that comes to mind: "It will probably end in tears. It usually does."