Monday, March 12, 2012


Can Labour Get Its Message Across About the Economy?

I think the time has come when Cameron's stab at solving our economic problems can be judged. I'll try to approach the topic in stages.

1. The Big Lie that Labour was desponsible for the economic crisis. This was brilliantly attached to Labour, by Cameron and Osborne when Labour was reeling from a poor election performance and engaged in a protracted leadership contest. The fact was Labour saved the banking system in this country in autumn 2008 when the Conservatives had not a clue how to respond. The costs of bailing out the banks, added to the associated recesssion which hugely reduced tax income, caused the accumulation of debt to dangeroius levels. In 2008 debt was only 40% of GDP: evidence of reasonably responsible stewardship of the economy to that point. This is not to say Brown cannot be blamed for not keeping more funding ready to assist in the bad times and for arguing, pathetically, he had 'solved' the problem of 'boom and bust'. Moreover, Brown failed to see the hurricane as it approached, but then aghain,so did the Tories.

2. The Coalition Policy of Cutting Deep and Fast. By taking demand out of the economy so sharply the frail economy was marched right up to the brink of double-dip recession. The fact that public borrowing, bumped up by increased spending, has increased hugely since Osborne has been pulling the levers, only makes things much worse.

3. US Example Shows How it Should Have Been Done Obama poured in a spending boost and, after a slow beginning, this has produced an apparently robust return to economic growth. More borrowing? Well, yes, we probably need to to. But hasn't Osborne contracted to borrow more? Yes, but only to pay the price of failure to boost the economy.

4 Labour's Challenge Seems to me this is a sensible and correct analysis of the economy and the line Labour should take. But so far Miliband, despite his alleged economic expertise, has failed and Ed Balls made little impression. If Labour can mitigate the Big Lie and convince voters the scale of these cuts is too severe and unnnecessary, it can win in 2015. Long way odff I know but at the moment Labour do not seem ready either to rebut Conservative untruths or to return to govdernment.

THe problem is, Skipper, that whether or not the Tories would have been more useless in 2008 than Brown/Darling (and I fully agree they would) is scarcely the point. You cannot blame the opposition - let it not be forgotten, a weak, demoralized and marginalized opposition still in thrall to the spells cast on the British electorate by Tony Blair - for articulating the same mistakes that a government was actually making.

Nobody forced Brown in particular to behave with such arrogance and recklessness, both in regard to the banks and in regard to his own over-heavy reliance on short term City revenues and borrowing to fund a current account deficit. He did it because he believed the good times would never end. True, too many people shared his views, including Cameron and Osborne.

It is noteworthy, however, that other, more sensible nations built up large cash reserves and forced their banks to hold strong capital ratios - Australia and Canada, for example - and they've come through alright. While they had other advantages - e.g. vast natural resources - Britain could and should have had a sufficiently diverse and flexible economy to ride out the storm. We had a large manufacturing base, a skilled and cosmopolitan workforce, a geographic centrality and an international reputation for good governance and sound judgement. The banking crisis, where all bar one of our banks needed rescuing, put paid to this in a matter of months. And for that, by not forcing the banks to behave, Labour are to blame.

You are also correct on your figure of national debt as 40% of GDP, but that figure is itself misleading. In 2000, on Clarke's spending plans, the GND hit a record low of 30% - a level not reached in two hundred years. Despite very substantial economic growth over the next five years, it ballooned back to this 40%. Such a dramatic relative and absolute rise suggests poor economic stewardship. Nations that borrow too much in boom times, as Keynes himself noted, become horribly vulnerable to both creating bubbles fuelled by over-expansion and to their bursting. Again, Brown could have avoided this. Imagine if he had kept a genuinely balanced budget - not a budget in surplus - by either raising taxes or checking increased spending. The national debt might have been 20%, and the contraction in national income smaller (because the high would have been more stable). Again, this was Labour's fault.

Yes, the Tories went along with, or even pushed for, all of this. But they were in opposition, not in government, and it is to say the least disingenuous to claim that it was somehow their fault that Labour made a dog's dinner of running the economy. Or to provide a further analogy from the recent past, on Black Wednesday Labour looked like rabbits caught in the headlights. Had Smith and Brown been in charge, the disaster (grave enough already) would have been orders of magnitude worse. Did the Tories get credit for the relatively better performance? Of course not, because the public argued (correctly) that they shouldn't have allowed the situation to develop in the first place - and it happened on their watch, not Labour's.
Quickly, on your other points: (2) As you note, the coalition has actually not cut very much yet - and most of the cuts will be required to fund interest payments on our debts, rather than to get spending down (it is still projected to go up substantially over the course of this parliament). In fact, it's very difficult to see exactly what Labour would or could do very differently - certainly Balls appears more clueless with every passing day bleating, pathetically and wrongly, that he wouldn't have got into this situation had he been in charge because growth would have magically stayed in place (a claim which I find about as plausible as the plot of a Jeffrey Archer novel). While Osborne's rhetoric has been to say the least unhelpful, under Labour the yields on our bonds were rising alarmingly fast, and buyers were chary of them. You can't borrow your way to growth when nobody will lend, and Labour's credibility was so low nobody would lend on helpful terms.

(3) The US economy is growing, but there remain many pitfalls, not least the very real danger that Congress might go Republican and veto further higher spending via increased borrowing (already there has been one bad moment over this) or tax rises. Without a proper solution to the debt crisis, which involve writing off debts at some level, it's hard to see how the growth can be sustained.

(4) Your analysis of Labour's political situation seems bang on, and I have no idea of how it might be changed.
1. Seriously? Why was the UK running a structural BEFORE the banking crisis? Hard not to believe that it was out-of-control spending at the top of an economic cycle. Debt may have been low in 2008, but the deficit was alarmingly high.

2. How can the coalition be "cutting fast and deep" when you acknowledge that public spending has increased hugely. Hard not to see an inherent contradiction. The only thing that would have increased greatly if Osbourne has not made cuts in spending plans, would have been the UK borrowing costs. Every sign of a Labour revivial in 2010 (and to be fair there weren't many) saw a spike in bond yields. It's hard to believe that we would be paying 2% on our bonds if PM Brown had somehow survived.

3. The US is a very different economy. Incentives and low taxes are still an engine of economic revival that are simply not open to the midset of our political establishment. But the US still has no credible deficit reduction plan...I know you will say growth...but the debt would be astronomical if they don't cut at some point. And they will, whatever the outcome in November.

4. Labour won't win in 2015 unless they ditch the unelectable Miliband and the tainted Ed Balls. I doubt Dave can believe his luck that the only opposition have entrusted their fortunes to such a pair of fools.
Surely, given the number of spelling & grammatical errors in this post, it has to be a straight lift from the Graun ?

(with no link/acknowledgement ?)

Kind regards
You are a sad person aern't you? No attempt to engage with the substance but still the childish personal attacks. Why don't you turn your attentions to some other person's blog. I notice you've never dared do a blog under your own name.
Thanks for that Skip.

Wishful thinking & risible attempts to cover over the failings of the Labour Party don't really count as substance to be engaged. It may act as a form of encouragement to members of the tribe, but won't ring true to the floating voters out in the real world, who will feel the following is of more relevance

kind regards
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