This suggests to me that the Labour party acknowledges that whomever it chooses as leader this month won’t be leading the party into the next general election.

Balls may have useful qualities, but he’s unelectable. Give him an attack role & party support for it by all means, but don’t delude yourselves into thinking he’ll appeal to the electorate.

@1

Seconded.

Thank you, Mr Pill.

I assume that Mr Balls is aware, even if you are not, that government spending and the money supply are two different things?

(And Kate of course is right too.)

Heh, tbh I started typing something very similar before reading yr comment, just being lazy really

he is clever and manipulative. i wouldn’t buy a used car off him. saying that if we look at blair then perhaps ed fits the bill

Kate

I think you have a reasonable argument there.

In fact in other stuff I’ve written I’ve suggested that Ed Balls’ strategy should be to present himself NOT as prospective PM, but as a good opposition leader who will take Labor back towards power; if in two/three years time he can prove that he is getting to be seen by the electorate as a possible PM, then all well and good, but if not he should hand over in an orderly manner to the person who can.

I actually think a relatively humble approach like this – presenting himself for the job in hand rather than the job that’s not yet in hand – wouldn’t go down too badly with the electorate, and would be seen as a party being fairly mature about the task facing it, and in that time Balls would be able to set out a clear political economic case.

I’m not convinced that, given the exposure that would go with being opposition leader, he couldn’t improve his public image, moving it away from that of Brownite schemer to Coalition Basher Supreme. Look how Prescott’s image actually improved (a bit) when he played up to his ‘bruiser’ stereotype, for example. Nevertheless, presenting himself for opposition duty rather than PM duty, if this were set out explicitly to the electorate, would – I’m suggesting – go down well.

Needless to say, this suggestion of Ed Balls going for the job in hand, not the one we’d like to be in hand (and taking the credit for working against the Coalition in this selfless way!), has gone down like a lead balloon, as it doesn’t fit with accepted wisdom about an opposition leader needing to look all prime minsterial the whole time.

Oh well, still time?

I have no particular axe to grind, not being a party member, but from what I’ve seen Balls has come across as the most impressive (I know, I know…damning with faint praise…but still….). I’m still suspicious of his past associations and actions, but if he IS actually prepared to embrace a different agenda to the one he espoused under the last governement…more power to his elbow.

If, as seems more likely, one of the Miliband’s wins then perhaps he can use the time in opposition to build up something that will be more attractive to those whose support the party has lost. It’s not as if he seems to have much in the way of opposition.

If the role of the next Labour leader is to hand the job over, three years down the road – presumably by some sort of coronation as Brown had, and no one suggests that he was strengthened by not having to fight a leadership campaign – why is Ed Balls better able to do this, from the point of view of the Labour left, than Diane Abbott?

The only way that Labour can recover power is the way Blair did it: wait until the bedrock are so fed up of being in opposition that they will throw away all their principles in order to prop up some slimy chancer who is, if truth be told, no further to the left than the average public schoolboy.

There are two right-wing votes for every left-wing one, at least in England. (I am not competent to talk about Scotland or Wales.) Indeed, outside the big cities there may well be five or six right-wing votes for every left-wing one, and even inside them, Labour’s vote is largely communialist or “payroll”. Yet the Party hasn’t even been able to sell itself to its notional core – think of all those Daily Mail reading nurses!

I have only just seen Andy Burnham’s support for LVT. Would be nice to see other candidates pick that up.

I admire and respect Ed Balls’ knowledge and experience. However, he is too closely associated with Gordon Brown and all the spin. He will not increase support for Labour or win an election. Ofcourse he should be in the shodaow cabinet in a prominent role.

The next election is pretty unpredictable I think – although vote share tends to decline when a government has been in power for a while, the LibDems may well split or implode, so anything could happen.

But… it is entirely possible that the next Labour leader could be PM in a few years, providing the party doesn’t pick someone that the electorate can stand.

Ed Balls isn’t that guy. There are enough lefties that would find it impossible to vote for him, never mind the centre ground. And it’s hardly moving on from the Blair/Brown wars to appoint one of the main footsoldiers as leader.

The next Labour leader will be a Miliband.

@dereksmith

“Gordon Brown and all the spin”

Isn’t the problem Brown faced that he was severely out-spun by cunning spiders like Coulson?

Brown was rubbish at spin – look at the media coverage he received and the hostile reaction to sensible policies he enacted.

As a Tory, I agree.

What have you got to lose? VOTE BALLS.

Hi Paul,

A week is a long time in politics (certainly feels like it at the moment, har har har), so who can say how Balls will be viewed in a couple of years’ time.

I do think, however, that the electorate will continue to associate him too closely with Brown’s bullying (and failed) regime – bit like the Tories trying to rebrand Michael Howard as leadership material in my view. In fact, it’s a bit like the failed effort to rebrand Brown as leadership material when you think about it. We got all these weird little articles round the place from people who kept trying to say ‘forget how he looks and acts and comes across – he’s really a very nice guy on a one to one basis.’ You’ve spent some time with Balls now and he clearly made an impression. Unfortunately, others don’t have that impression. I am one of them. I see Balls as a weapons-grade prick.

Nonetheless, Balls has earned a few points for the punches he’s landed since the Tories got in (on Gove in particular). Point is – he’s muscle, not charm. There’s certainly room for muscle atm the moment. If he’s got to be anywhere, that’s where he should be. Don’t ask him to do humility – he can’t, nobody will buy it, and it’d detract from his one ability, which is to headbutt chinless Tories.

Kate B

bit like the Tories trying to rebrand Michael Howard

i agree with your main point but the difference is that Michael Howard was in real life a warm, funny, decent and kind man who unfortunately came across on TV as a weird, creepy bastard; whereas Ed Balls is in real life just as he is on the telly. WYSIWYG.

A rousing statement of belief.

“Deficit spending is a supremely political act of democracy, because it shows that it is the democratically elected body of the state which directs – through its judicious manipulation of the money supply – the overall use of resources.”

Pity that it’s entirely nonsensical.

Deficit spending, in and of itself, doesn’t change or manipulate the money supply. Nor does increasing (or reducing) the money supply increase (or reduce) the deficit.

They’re two entirely different things.

It’s true that some ways of financing a deficit increase the money supply: printing more money to pay for govt spending will do that very nicely. It’s also true that we might deliberately increase the money supply instead of increasing the deficit spending (this is essentially what QE is) in order to try and bounce us out of recession.

But the way you’ve actually written it there makes no sense at all.

Oh, and you don’t really direct the use of resources through manipulation of the money supply anyway.

As to what Balls himself said seems eminently sensible to me. I (and others) might give other matters higher priority, might even differ with him as to how to reach those goals, but what he said, considered purely as what he actually said, seems fine.

I don’t think Brigid Phillipson (the next Labour PM) will be quite ready in three years time. The party will need at least two, maybe three, caretaker leaders before Ms P’s time comes.

Thoughtful stuff – thanks. Two points:

1) Wouldn’t Balls be equally well-placed (or even better-placed) to argue his economic case as Shadow Chancellor? (Of course, for him to get that job, the leader would presumably have to be someone who wasn’t firmly committed to Darling’s deficit reduction plan and who was broadly sympathetic to a ‘growth not cuts’ approach – i.e. it would have to be Ed M, not David.)

2) I think the message we need to be getting across to voters is that it’s crazy to think, as the Tories do, that we can and must wholly eliminate the structural deficit within five years. We’re on pretty safe ground there; plenty of economists and commentators would broadly agree that something closer to Darling’s ‘halve-in-four-years’ plan would be more achievable, less risky, and ambitious enough to satisfy ‘the markets’. But by attacking the whole idea that the deficit needs to be brought down pretty substantially pretty quickly, I think Balls risks making *Labour* look like the non-consensus, lone-voice extremists and the *Tories* look like the credible, mainstream option.

Tim @17: Yes I know they’re different things in normal econ-parlance. The ‘money supply’ was a perhaps all-too-elliptic reference to MMT.

This post started on my blog, aimed at a readership knowing what I’m obsessed with, and was edited by Sunny for publication here, as he quite often does with my stuff, longwinded bugger that I am. So I think the ellipsis (is that one or two l’s?) doesn’t transfer well here.

You understand the MMT concepts well enough, although I know you contest them. What I’m saying here is that Balls has not gone this way in his thinking – he is pretty straightforwardly Keynesian, as I think you’re accepting mildly approvingly in your last para (never can really tell with you) – but that I’d like to see something more radically post-Keynesian/politicised MMTish develop if he’s given the leadership scope to do so.

MMT…ah, yes, the barking mad section of he economists’ padded cell. Anne Pettifor and the idea that governments can just print all the money they want to spend.

No bonds needed, just free money!

Yes, and Weimar tried that and it really didn’t end well.

[20] Some of us have forgotten what MMT is, if we ever knew.

Paul,

I’d be very cautious about hitching my cart to some fragile and immature methodological tendency within economics. It’s not obvious, for instance, that Post-Keynesian economics have anything better to say, or with better foundations, than left-wing mainstream economists.

Here’s a very mainstream highly-regarded economist, saying that what we need to do is precisely what Tim thinks is so silly: print money for governments to spend. (that is to finance government spending without increasing government debt).

http://www.voxeu.org/index.php?q=node/5449

Tim is right that this tactic would be barking mad in normal times, but I reckon you’re barking mad to treat current circumstances as such. Perhaps Tim needs to read: “The Return of Depression Economics”

Err, no Luis.

MMT says that we should be doing this all the time. What this “highly respected economist” is saying is that in extraordinary times we should be doing helicopter drops.

You know, like Uncle Milt said, like Uncle Amartya says in times of famine.

MMT really does say that this is everyday stuff: real economists say this is only to be used when we meet the zero interest bound.

Tim,

sorry – of course you’re familiar with the idea of helicopter drops in extraordinary times.

but are you sure you’ve got MMT right? Here’s one proponent:

MMT also says that inflation is not a problem when you have an enormous output gap from 17% underemployment. MMT proponents recommend deficit spending to close that gap. But you can’t spend at will under MMT; eventually the output gap closes and inflation becomes a big problem.

and another similar here. Although on further thought, I don’t know this MMT stuff very well, and I guess you’re writing what you are because you’ve seen some of them talk about financing govt by printing money as a normal sort of thing to do* and deny this would lead to spiraling inflation … and in fact a bit of googling reveals to me that MMT says government spending is not revenue constrained which is I guess make you right and me wrong. But that wiki isn’t clear about what MMT says about inflation.

* of course it is a normal thing to do, in sense that seignorage is how the quantity of money is increase over long run to keep pace with increases in real output, but we’re talking over and above that.

Luis Enrique,

I left this post on another thread in answer to your post the other day.

‘ Hey Richard W, with ref. to discussions about QE we had a while back, this might be of interest (by which I mean, it agrees with the argument I was making). ‘

Maybe we were misunderstanding what each other were saying, Luis. There is not much in it that I would disagree with. Although he does not explain how an inflation targeting central bank would not in fact sterilise the actions of the Treasury. The likes of Prof. Sumner would disagree that the Fed lack the policy instruments. They are stuck in a ‘ liquidity trap ‘ of their own making through their conservatism. Torgeir Hoien who used to be on the executive board of the Norwegian central bank does not believe the UK is still in a liquidity trap. More aggressive actions by the Bank and open mouth operations by Mr King appears to have done the trick in escaping from a liquidity trap. Although we might not be in a liquidity trap we need more action to develop a recovery.
http://www.realclearmarkets.com/articles/2010/07/09/how_to_exit_liquidity_traps_98563.html

I quite like the ideas of Prof. Farmer for the Bank to use more QE to offset the consequences of Mr. Osborne.
http://blogs.ft.com/economistsforum/2010/08/we-need-more-quantitative-easing-to-create-jobs/#more-11311

Ricardo Caballero’s idea runs into a major problem in that it is explicitly temporary. This Nick Rowe post from last year discusses how QE that is seen as temporary will only have limited effects.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/03/temporary-vs-permanent-quantitative-easing.html

We don’t want the central banks to be seen as responsible banging on about exit strategies because that raises their credibility. In the type of world we are in at the zero bound we want people to believe they are acting irresponsible.

Richard,

I’ll have to think about Nicks Rowe’s points. Not sure he’s really talking about using QE to (temporarily) pay the govt’s bills without recourse to more borrowing. Right now, that would mean we could sustain govt. spending (avoid these big cuts) and cut borrowing (the free lunch), without putting pressure on interest rates (so long as invester buy the idea that it won’t be too inflationary in absence of recovery). That looks pretty useful to me.

(NB the thing I thought we disagreed about was the existence of this free lunch)

(ah, Richard, now I recall, after having re-read Rowe. So we could have BoE buy govt debt and hang sign over it saying ‘this will never have to be paid back’ (permanent QE, more inflationary, and something I was suggesting might be a good idea) or we could have BoE buy govt debt with sign saying ‘this will be reversed once things have recovered’ (temporary, Cabellero).

The purpose of the Cabellero plan as far as I can see is stimulative through a massive sales tax cut. With it being a sales tax cut it would stimulate as opposed to an income tax cut which would be saved. However, I don’t see the need for it in the UK. If the government wanted to finance the deficit without adding to the national debt they could just issue Treasury bills and borrow direct from the banks. In the UK Treasury bills ( debt security up to 12 months maturity) are not counted as part of the stock of national debt. They could roll them over to infinity. No impact on the national debt and the BoE have sufficient tools to drain liquidity from the monetary system.

The deficit and national debt is not this scary thing of the media narrative driven by ideological politicians. Nothing happens at the debt auctions other than numbers changing on DMO and primary dealer screens. It is just an asset swap between the government and the private sector. The Bank already hold a third of the national debt and they could buy the rest with a click of a mouse and absolutely nothing would happen. National debt gone and the sky did not fall in. The pension funds would be in the shit because they need the assets. Moreover, the huge interest bill that Mr Cameron is always scaring people about but fails to mention half of it is the government paying themselves. Growth worries me more than fake scare stories over the deficit.

I’m with Mike Killingworth, I’m not sure I understand what all this learned discussion on MMT is about but I’d like to learn.

As far I can figure out by reading around, MMT is related to Chartism, which holds that all new money is created by deficit spending on the part of the Government. Therefore it is necessary to run a deficit at all times in order to stimulate the economy.

The theory acknowledges that money can be created by private lending but not net money because private lenders insist on collateral. Therefore, since all liabilities are held against an asset, once the debt is paid off, money has been shifted around but no new value is created.

However, if I buy a car worth £5,000 with a loan of the same amount, at 5% over 3 years, the repayment of that loan will cost me about £400 more than either the value of the car or the principal of the loan. That £400 is new money, which the bank can distribute to its shareholders. Even if I default, the bank seizes the asset, sells it to repay the loan and the interest outstanding and returns the balance to me. However, assuming the asset did not depreciate and that I made at least some interest payments the bank still got back more than the value of the asset (assuming no seizure or resale costs). New money has still been created. And this assumes that all credit is 100% collateral backed – which isn’t the case.

If this is true then states are not the only sources of new money – banks must also be a component. And banks must surely issue at least as much private debt as governments issue public debt (far more in the case of the UK) and generally at better rates of interest.

None of this prevents governments running large deficits or printing money when the money supply dries up but it does mean that a balanced budget does not prevent the creation of new money – provided that the private credit market is functioning.

As to the original post, I find that, much to my astonishment, I think I agree that Balls would be the best leader for Labour.

I might think he’s a git but he does seem to understand that the role of Her Majesty’s Opposition is to oppose. Many of the failures of the last 13 years are, at least in part, the result of a massive group think on the part of both major parties. Nobody thought housing was a big issue, nobody felt able to talk about immigration in case it meant dealing with people who opposed it. Nobody wanted to grasp the nettle over nuclear power or the alternatives to it, nobody wanted to ask whether the answer to social inequality was really the infinite extension of the tax credit system or whether work could be made more rewarding in other ways.

With Ed Balls there’s little danger of any such cosy consensus emerging. And lest one worry that he had himself created or defended some of the positions he will no doubt find himself opposing, well, he has already shown considerable ruthlessness in his disavowal of some of the previous Government’s decisions (notably Iraq and the deficit).

Burnham gets some points for talking rather limply about land taxes. Hooray for him but he hasn’t shown much fight. But both of the Millibands seem to be, at their core, consensus men – I struggle to think of anything really daring that either of them has done. Let’s have Balls and some proper arguments in politics again.

NB @ 31 I meant Chartalism rather than Chartism. Bit of a blunder that

@ GeorgeV

Bank (A) give you a loan of 5,000

You buy a car from a dealer for 5,000

Dealer deposits 5,000 in his bank (B)

Bank (A) has a 5,000 + interest asset

Bank (B) has a 5,000 liability

= no net change other than interest

Unless you printed your own currency you need to pay interest from money you received from someone else and thereby reducing their balances.

The MMT folks do describe approx how things work. However, I would not want to be in a country where the bond market did not exert some discipline on government. They call it corporate welfare but the risk-free rate is a good benchmark for pricing all other risk in the economy.
If you google Marshall Auerback, Prof. Randall Wray. Prof. Bill Miller has a blog that will tell you the the things they believe.
http://bilbo.economicoutlook.net/blog/

Richard W,

Thank you for your response. I’m not sure I agree but I can’t quite figure out why not. Something to do with the distinction between value and money I think.

I’ll keep reading