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David Miliband’s economic policy requires a second look


9:12 am - September 13th 2010

by Duncan Weldon    


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I commented last week on a very interesting Labour Uncut article by Anthony Painter, regarding the politics of “Ed Balls economics”. This provoked an interesting twitter debate with Anthony and Sunny.

I argued earlier in the summer that Labour should drop, or heavily modify, the four year timetable. I’m now, after much discussion, more comfortable keeping it – as long as we place more emphasis now on what is being termed the “escape hatch”, i.e. the option under the Darling plan to slow or stop the deficit reduction if the economy head south again.

Let’s be clear though – I argued for a second stimulus in March 2009, and again in December 2009. I would have made that argument at budget 2010 if I wasn’t barred for publicly commenting by working for the party.

I agree with Ed Balls that the coalition’s fiscal policy is dangerous and increases the chance of a double dip, or even a Japanese style “lost decade”. (And even though I think David Miliband has set out by far the most interesting ideas on medium term policy, I’m still voting for Balls – more on the grounds of the Bloomberg lecture than anything else).

I think we face 5 years of sluggish growth and high unemployment.

Were I Chancellor I would not be cutting now, nor would I be cutting in 2011.

But…

I have been persuaded that Labour abandoning the 4 year timetable straight up, as Sunny seems to want, risks disaster. We would easily be painted as out of touch, as unconcerned with deficit as a party of spending and waste and nothing more.

So what I want to do is talk up that escape hatch and attack Osborne for having no plan B if things go wrong.

Then, if the economy pans out as I expect, we can attack them for cutting in the terms Ed Balls has laid out so well.

In the meantime we can oppose a cumulative £86.5bn of cuts.

Sunny has argued that

All the talk of Darling having an ‘escape hatch’ in his plans are minutae that will go over the head of most voters and the media. Guys, you think they pay that much attention to these plans?

He also argued that it didn’t come across in the general election campaign. It didn’t. He’s right.

We never pushed it (I was speaking to one member of the 2010 intake (and a well informed one at that) recently who had not even been aware of the escape hatch).

We fought a bad campaign on the deficit in 2010. No doubt about that.

Much of our economic argument appeared to be shadow boxing around the notion of cutting £6bn in 2010 with no real disagreement on cutting from 2011 onwards.

Things are different now. We now know the size of Osborne’s tightening and know that it is £40bn more (annually) by 2014/15.

We would tighten by £40bn less is a lot more powerful than “we wouldn’t cut £6bn this year, but will next”.

I’m not arguing that we rerun the 2010 campaign and keep our fingers crossed. I’m arguing that starting now note that we would cut £86bn less over the Parliament and attack Osborne for having no plan for growth and no Plan B.

If, as I expect, the economy does head south we can then expand the attack to we won’t be doing any cuts now.

But we need to lay the groundwork – and the best way to do that is to start talking up that escape hatch.

(And to clarify I’ve preferenced three different candidates – Balls and the Milibands, I’d be very happy with any of those three as leader!)

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About the author
Duncan is a regular contributor. He has worked as an economist at the Bank of England, in fund management and at the Labour Party. He is a Senior Policy Officer at the TUC’s Economic and Social Affairs Department.
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Story Filed Under: Blog ,Economy ,Labour party ,Westminster

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Reader comments


Muppetry of the highest order.

We have a massive deficit, are running up huge debts which in themselves act to choke growth, and despite the “cuts” Labour and it’s union paymasters are so happy to talk about, government spending is still set to increase in real cash terms to 2015. Spending jsut won’t increase as fast as Labour had planned, given Labour’s absoluate denial when it comes to public sector spending reviews….

Tyler,

We’ve had this debate 3/4 times now. I don’t see te need to have it again.

I did think Stephanie Flanders set out the pros and cons of cutting now/later well though:

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/09/austerity_plans_where_do_you_stand.html

On Ed Balls’s economics, it’s worth reading Sam Brittan in the FT on 10 September: The secret of Osborne’s popularity

“According to the pollsters Ipsos Mori, George Osborne is the most popular Conservative chancellor since its records began in 1976. The knee-jerk media reaction is to say: ‘You wait until the public spending cuts bite.’ But I want to dig a little deeper.”
http://www.samuelbrittan.co.uk/text376_p.html

Unless I’m greatly, Sam Brittan is saying that Ed Balls is talking sense.

Duncan,

not directly related to this post, but here is an excellent column about the politics of stimulus, and how economically effective policies may be politically unpopular:

http://www.newyorker.com/talk/financial/2010/09/20/100920ta_talk_surowiecki

This also relates to a conversation I’ve been having with Sunny, here:

http://www.sohopolitico.com/2010/09/who-do-tories-want-to-win-labour.html

and here:

http://www.sohopolitico.com/2010/09/sunny-hundal-on-deficit.html

I think we may be in agreement (and therefore in disagreement with Sunny) at least on the fact that dropping the 4 year timetable now would not be a credible move for Labour.

Let’s recap. Martin Wolf is also saying Ed Balls is talking sense:

Why the Ed Balls critique is correct:
http://www.ft.com/cms/s/0/119c59ac-b6c3-11df-b3dd-00144feabdc0.html

7. Mike Killingworth

How can you have an interesting debate on Twitter? All you can say on it is about six words.

“still set to increase in real cash terms to 2015”

LOL! So a nominal increase (and a real terms cut) becomes a “real” increase when you want to propagandise?

Large resources and ceaseless efforts are being directed into convincing us all that there is no alternative to the scale and timing of the public spending cuts proposed by George Osborne.

Public opinion polls report majority support for the no alternative claim. But it is simply untrue – there are alternatives, as Martin Wolf and Sam Brittan have argued in the FT.

There is the real risk of a double-dip recession if the spending cuts are applied too steeply and too soon.

(Bob if you read that New Yorker article I link to above, it argues that in addition to Conservatives making an effort to sell the no-alternative argument, that stimulus is inherently politically unpopular, and that the no-alternative side has far the easiest job, things are tipped in their favour from the get go. This is in US context but I think it reads across)

@Luis – thanks for that.

In the pensioner circles I move amongst, it’s taken for granted that a budget deficit is a “bad thing” – with much quoting of Mr Micawber from Dicken’s David Copperfield:

“Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

It seems stark staringly obvious that paying down the deficit as soon as possible must be a good thing.

There’s no understanding of the consequential impact on aggregate demand. Notions of keynesian functional finance and contra-cyclical fiscal stabilisation policy are completely alien – a government should run the country like a good company – hence Paul Krugman: A country is not a company or Sam Brittan on: Why UK should not fret about national debt
http://www.samuelbrittan.co.uk/text333_p.html

And, of course, there no shortage of folk ready to claim all that keynesian stuff is old fashion and rubbish anyway. This from John Kay in the FT (again) relates:

“The macroeconomics taught in advanced economics today is largely based on analysis labelled dynamic stochastic general equilibrium. The unappealing title gives the game away: the theorists are mostly talking to themselves. Their theories proved virtually useless in anticipating the crisis, analysing its development and recommending measures to deal with it.

“Recent economic policy debates have not only largely ignored DSGE, but have also been remarkably similar to the economic policy debates of the 1930s, although they have been resolved differently. The economists quoted most often are John Maynard Keynes and Hyman Minsky, both of whom are dead.”
http://www.ft.com/cms/s/0/19491372-472c-11df-b253-00144feab49a.html


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    David Miliband's economic policy requires a second look http://bit.ly/bFiigI

  2. Stewart Owadally

    RT @libcon: David Miliband's economic policy requires a second look http://bit.ly/bFiigI

  3. Duncan Weldon

    RT @libcon: David Miliband's economic policy requires a second look http://bit.ly/bFiigI





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