Labour’s deficit hawks won’t admit it but Cameron has trapped them


8:30 am - January 19th 2012

by Sunny Hundal    


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Late last year I was invited to a small round-table discussion at the launch of ‘In the Black’ Labour (ITBL), where I said that while I also believed in balanced budgets over the long term, I had three reservations about their proposals.

It’s my political objection that was vindicated yesterday, and I’d be interested to know how they think they can get out of it.

My main objection went like this:

Adam Lent wrote on Libcon recently that Labour should not oppose all the cuts the government makes. He didn’t clarify whether the ITBL authors would sign up to the extent or the way that Osborne has chosen to make cuts, especially when it’s now clear Osborne’s choices worsened economic conditions.

But my point was this. George Osborne will continually ask Labour where they stand on the cuts. You could argue that Labour would do things differently, as they are now, or you can say you would go along with Osborne’s cuts.

If you take the latter route, as Black Labour authors imply, what do you say when Osborne turns around in 2015 and says to the public: Hey Britons, the Labour party have finally admitted that they wasted far too much money, and agree with how we chose to deal with this economic crisis. So why should you elect them to see us through this mess?”

How would you respond to that, without annoying the hell out of most of Labour voters who think the Coalition are not managing the economy well?

In response to Ed Balls’ decision to sound more hawkish on the deficit – Cameron did exactly that at PMQs yesterday.

As Daniel Knowles points out – Ed Miliband ‘U-turn’ costs him a win:

And this shows exactly why Labour cannot seem to make any headway on the economic argument. Their case goes as follows: this Government’s cuts have destroyed the economy, widening the deficit. We oppose those cuts. But thanks to the wider deficit we would inherit as a result, we may have to make more cuts of our own. This makes some sense, economically, but it is so nuanced it will never convince most voters. Even Labour’s unions backers don’t seem to understand it: they think that Labour has embraced Tory cuts.

And this sums up my problem too. Ed Balls’ new position is great if you’re an economics graduate or a politico who pays attention to the policy nuance.

Hell, even most lefties don’t pay attention to the nuance.

The deficit hawks have pushed Labour into a trap that Cameron and Osborne will now mercilessly exploit. It doesn’t matter if we’re economically right – they still have a clearer message.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


1. So Much For Subtlety

If you take the latter route, as Black Labour authors imply, what do you say when Osborne turns around in 2015 and says to the public: Hey Britons, the Labour party have finally admitted that they wasted far too much money, and agree with how we chose to deal with this economic crisis. So why should you elect them to see us through this mess?”

If the Tories believe the world is round and evolution should be taught in schools, is the Labour Party duty bound to disagree?

The sensible thing to do would be to say that all sane people agree we cannot spend money we do not have, laying up debt for our grandchildren, indefinitely. Both the Tories and what is left of the Labour Party agree on that. Thus the battle will be fought on other issues. There are other issues besides deficits. The three main parties agree on vastly more than they disagree on. NATO for instance. Retaining the monarchy. Not sacrificing children to Moloch.

C’mon. The government can’t continue to indefinitely run a budget deficit amounting to 8 pc of GDP – not least because sooner or later the financial markets will start to question Britain’s ability to service the continually mounting debt so borrowing costs will rise. Also, notoriously, Labour became complacent about whether the increased spending on public services was being spent wisely and efficiently. Procurement of military stuff by the MOD has been in a mess for decades and Labour failed to sort that out – perhaps because BAE Systems had become Britain’s largest manufacturing business.

More importantly, Labour should point to that admission by Bob Diamond, the CEO of Barclays, that the banks were responsible for what went wrong – Diamond said that in an interview on the BBC Today programme on 4 November.

In 2007, before the financial crisis broke, according to OECD figures, general government expenditure in Britain as a percentage of national GDP was a little higher than in Germany but lower than in Denmark, Sweden, the Netherlands and France. The current budget deficit looms so large because Britain’s GDP fell by 7pc from its peak in 2008Q1 to the trough in 2009, a steeeper fall than in most or all other advanced economies, most likely because financial services feature so large in Britain’s economy. And the steep recession cut government tax revenues, thereby boosting the budget deficit as a percentage of the shrunken GDP.

The failures of the Scottish banks RBS and HBOS, with their headoffices in Edinburgh, were largest contributing elements to the financial crisis in Britain.

If piling up national debt to be paid off by our grandchild were the decisive consideration, Britain would have quickly made a peace settlement with the Nazi Germany in May 1940 and backed out of WW2.

The sensible thing to do would be to say that all sane people agree we cannot spend money we do not have, laying up debt for our grandchildren, indefinitely.

It’s this kind of wrong-headed, vastly over-simplistic thinking that, it has to be admitted, is difficult to counter without resorting to nuance.

As the smart US election strategist Karl Rove said: “if you’re explaining, you’re losing!”

If enlightenment had reached its logical conclusion, right wing politics would have been dead decades ago. People would be educated enough to understand that there are complexities and paradoxes inherent in running a national economy that, if ignored, lead to much worse outcomes – as we are seeing in the British economy right now.

Cutting spending does not equal closing the deficit.

Unlike a household or business the government has little direct control over its income and outgoings. It can certainly stimulate or deflate (the preferred coalition option it seems) but is frankly laughable to believe that you can close a nominal deficit on a spreadsheet through cuts to jobs and sit back and watch it happening out in the real world.

The “deficit hawks” of Right and Left are really “deficit doves”.

They love the deficit – they must do, they’re doing their damndest to maintain it.

The implication that people on the left objecting to Labour’s position are missing the nuance doesn’t stand up, I’m afraid.

As I’ve said before on this, everyone knows you can’t write a budget three years in advance. But you can set the direction of travel, explaining the principles you will use when the time comes. This is what Balls has done. He has said that “keeping all these cuts” is his “starting point”, including a real terms pay cut for care-workers, nurses and other employees of the public sector.

He could have done something quite different. He could have said that whatever size of deficit Labour inherits in 2015, and whatever the extent to which the Tories have damaged the country’s productive capacity and human capital, the burden of rectifying the situation will fall on the poorest and most vulnerable last.

Even if it means pledging that the net effect of this changed approach will be fiscally neutral (it needn’t be, but for the sake of argument), Labour could make that statement. It would not be a promise on any specific budget measure. It would be a promise to apply a specific moral framework on economic policy: to promise to prioritise looking for any possibility to alleviate the burden of austerity on the poorest and shift that burden elsewhere, even while accepting that no specific promises could be made at this stage.

What incoming government in 2015, with the slightest shred of decency, would do anything other than that?

But Balls did the opposite. He accepted the Tories hyper-regressive approach, where the greatest burden falls on those least able to bear it, as his “starting point”.

Perhaps its best that this is clarified now. Perhaps the centre-left has been too wrapped up in questions over the timing of fiscal retrenchment – where a Tory/Labour difference exists – and ignored the bigger picture. All three major political parties are committed to forcing the 99% to pay for the 1%’s crisis, with all the dangerous moral hazard, implications for the structure of the economy, and gross social injustice this involved.

Isn’t a funny coincidence that the crackpot economic theory embraced by Sunny and his left wing chums – spend your way out of recession – just happens to enable them to do what they want to do anyway: blow massive amounts of taxed, borrowed and printed money on social engineering projects?

Next week: the eat-what-you-like diet.

5. Peter

Er, your economic “theories” are working out well right now aren’t they?!

Peter: “Isn’t a funny coincidence that the crackpot economic theory embraced by Sunny and his left wing chums – spend your way out of recession ”

That’s just rubbish – and shows up your ignorance of economic analysis. The inhibiting factor about using additional public spending to boost aggregate demand in present circumstances is the current size of the budget deficit in relation to national GDP.

What’s worrying – and what suggests that there’s a case for slowing the pace of the public spending cuts – is that there are few signs that net exports, business invest ment and extra spending by heavily indebted consumers are currently making up for the cuts in public spending so that there is a net fall in the aggregate demand for goods and services. That means there is a likelihood of recession and possibly even worse: deflation, where the general level of prices falls on trend.

I don’t agree with the view that Ed’s position is too nuanced. What’s the alternative? He could say that Labour will reverse all the cuts and award huge public sector pay-rises. That really would be less nuanced, but who would believe it? Or he could support Osborne’s policy even though it’s visibly failing. Not very nuanced, but giving voters no reason to vote Labour at all. What’s your alternative?

Remember he is positioning himself for a 2015 election not for the next day’s PMQs – shame on you for using that as the test of an economic policy! Labour finds it hard to make headway on the economy this early because they were in charge when the shit hit the fan, and because most people don’t yet feel that Cameron has failed. By 2015 the issue will be whether or not there has been an economic recovery, and who is best placed to deal with the situation if there hasn’t. What anyone said in January 2012 will be long forgotten, but something more nuanced than a simple ‘restore the cuts’ stance will be needed to win the election. Ed&Ed obviously think reforming capitalism is the long-term bet, and they may be right, not just because people agree with it, but because Cameron has to make the same noises, but unlike Labour has to actually do something about it, which he probably won’t. This is the territory Miliband should have occupied more forcefully and earlier, but better late than never – and it accords with Labour’s historic role.

I was amused by ‘even most lefties don’t pay attention to the nuance’. ‘Nuance’ is another word for ‘betrayal’, isn’t it?

I think Labour’s problem is not one of economics, more about ideology. Whether these cuts are needed at the level that the Tories and the Lib Dem say is one thing, but these cuts are ideological in nature.

The Tories are using the cuts to get to their ideological hallowed ground. The Tories WANT less welfare, less government, less regulation, lower pay, less services and they want to cut the NHS, and most of all they want huge tax cuts for those on higher incomes. Nothing or no-one will stop them in that pursuit.

Labour should have been highlighting the ideological nature of the cuts. They should have been pointing at future tax cuts, they should have been standing shoulder to shoulder with the vulnerable.

Instead they did nothing, because, most of them go along with that. This week we saw an MP and Lib Con contributor fall on his sword after a cack handed attempt to smear a political enemy as a Nazi.

This ‘Nazi’, was he responsible for suggesting that Downs Syndrome people should be ‘allowed’ to undercut the minimum wage? Was he responsible for branding the disabled as fraudsters?

Nope, he wanted to defend Scottish people from the dysfunctional mess at Westminster. For the last year and a half, the Labour Party have ‘kept their powder dry’, ignoring wave of attacks on those unable to defend themselves. Now it is time to turn against the enemy and who is that enemy? Alex Salmond. Him with his free prescriptions and free university tuition fees. That is the real enemy for Labour. So, wheelchair bound people getting their lungs kicked out, fine?

The thing is, this is what Labour supporters cannot understand, they think mimicing the Tory should work and if only they had the right leader, the people who hate them would suddenly turn round and become supporters.

It isn’t a new leader you people need it is a fucking backbone you need. And people wonder why we want to get out of the UK? You wonder why the SNP’s support has displaced you in your old heartlands?

Instead of smearing Alex Salmond, why not go after the Tory toffs?

“Instead of smearing Alex Salmond, why not go after the Tory toffs?”

Because Salmond is a Dumbo and the Tory toffs aren’t?

Instead they did nothing, because, most of them go along with that. This week we saw an MP and Lib Con contributor fall on his sword after a cack handed attempt to smear a political enemy as a Nazi.

You lose the internets.

“This week we saw an MP and Lib Con contributor fall on his sword after a cack handed attempt to smear a political enemy as a Nazi.”

Is this Tom Harris? Don’t think he’s ever been a Lib Con contributor – there isn’t much love lost:

http://liberalconspiracy.org/2009/03/05/tom-harris-and-teenage-mums/

Jim @ 9:

Wow, you really can be a bit silly sometimes, can’t you?

First of all, Tom Harris (for I assume you’re talking about him) isn’t a Lib Con contributor. Nor is he “the Labour Party”. Just because one Labour MP says something, that doesn’t mean that the Party as a whole agrees. More importantly, he wasn’t comparing anybody to Hitler. Downfall parodies are very common, and none of them (to my knowledge) are intended to draw any sort of moral equivalence between Hitler and the person being parodied. Rather, they are just using convenient, easily-dubbed footage of somebody losing his temper. Finally, I don’t recall Salmond going on about “the dysfunctional mess in Westminster” when the British Government was bailing out two of Scotland’s largest banks using more money than an independent Scotland could realistically afford. Just what do you think the situation in Scotland would be like at the moment if they hadn’t done that?

Austerity is just another name for what the brownshirts wanted to do anyway. The just thought the economy would turn around somehow, and if did not, well fuck it, the poor and the north can take the hit.

At some point they will pay off the debt, but they give not a shit how many people pay for their ideology. Oh, and when they achieve their aims, there will be no rest bite because they will then cut taxes for their rich friends, which will require another round of austerity.

Austeriy is for ever under brownshirts.

I’ve never seen the debate as being in terms of deficit ‘hawks’ and ‘deniers’. To pose it in those terms is a bit dishonest.

Those who say that public spending was ‘too high’ under Labour? A facile argument that is just a distraction from the fact that an unregulated and feral financial sector got us in this mess. Simple as that I’m afraid.

I don’t think anyone disagrees with the need to cut the deficit. The question is how.

Do we do it by maybe spending a bit more, not making the cuts so viciously and so keeping people in work, thus kickstarting the economy, increasing tax revenues and paying it off that way? That seemed to the original Balls position. Not great, but better than the (economically and historically illiterate) Tory alternative.

The bigger question, and the one that the Labour leadership has always avoided answering, is: who pays?

The Tories think the working class and most marginalised should pay for the follies of the financial sector, even though they didn’t cause it.

Why are so many people on the left buying into the logic of cuts? That the issue is merely the speed and severity of austerity?

By increasing the tax burden on the rich, imposing taxes on the financial sector and closing off tax loopholes the deficit could be paid off in no time at all with no benefits cut and no austerity required. The money is there. It is merely a question of how it is distributed, and having the political will to make those actually responsible and best able to shoulder the burden pay.

Of course getting a government willing to do that and face down the powerful vested interests who would oppose it is the difficult bit : )

Sunny Hundal is right that the two Eds have walked into a trap. Where I would disagree with his analysis is that I think they are in fact motivated by short term polling/media/internal Labour considerations rather than long term ‘credibility’ issues. Where I would imagine I also disagree with him is in what they should be advocating instead.

Labour need to hire Admiral Akbar, he may be a fishy faced twat, but he knows a trap when he sees one.

Sally @ 14:

“Austerity is just another name for what the brownshirts wanted to do anyway.”

And “spending our way out of a recession” is just another name for what the Left wanted to do. Major world event confirms people’s preconceived notions shock.

@15: “Those who say that public spending was ‘too high’ under Labour? A facile argument that is just a distraction from the fact that an unregulated and feral financial sector got us in this mess. Simple as that I’m afraid.”

The financial services industry was not entirely unregulated but there was certainly a failure in prudential supervision by the FSA – as admitted in the Turner Review published in 2009. You forgot to mention that the largest banking failures were of those Scottish banks: RBS and HBOS. Consider the outcry there would have been from the Scot Nats if the London based FSA had sought to block that fateful takeover of ABN Amro by RBS, which sank RBS.

19. Leon Wolfeson

There is no “nuance”. It’s a surrender.

@8 – No, it won’t vanish. This is a turning point. The Left can’t stand around and take it any more. The Unions know this, quite a few of the leftist friends I have are talking about a new party now…

@19: “This is a turning point. The Left can’t stand around and take it any more. The Unions know this, quite a few of the leftist friends I have are talking about a new party now…”

How well I remember that traditional joke about leftist political parties from those times of hallowed memories before Clause IV got abolished. You need at least three members to form a new political party, sufficient for a majority to expel the third for deviationist tendencies.

21. So Much For Subtlety

3. BenM

It’s this kind of wrong-headed, vastly over-simplistic thinking that, it has to be admitted, is difficult to counter without resorting to nuance.

Oh go on Ben, bring on the nuance.

If enlightenment had reached its logical conclusion, right wing politics would have been dead decades ago. People would be educated enough to understand that there are complexities and paradoxes inherent in running a national economy that, if ignored, lead to much worse outcomes – as we are seeing in the British economy right now.

Dare to dream Ben! Imagine how much nicer it would be if no one disagreed with you! If only people were as clever and as well informed as you are! It is a bit of a shame that (1) people tend to be most conservative in any area they are an expert in and (2) people get more conservative as they get older. You know, your sort of political views being mainly found among those who don’t out grow Sixth Form debating societies.

Yes there are complexities and paradoxes. But they are commentaries on the main game. It may be that in bad times, if we cut we will cause even more of a downturn. But that is not the issue. The only way to return to long term economic health is to pay off debt, or at least keep it below a reasonable level. Now Keynes wanted to do that in good times. Brown promised to do it in good times. He did not. If we did not do it then, when do you think we should do it? We can borrow only as long as the markets think we will repay. If our debt level was low, we could try something this time around. It is not. If we don’t cut we will end up like Greece.

Cutting spending does not equal closing the deficit.

Yes it does. More or less by definition. In the short term we can play fun and games with stimulii, but in the medium and long term the only way to reduce the deficit is to cut spending.

Unlike a household or business the government has little direct control over its income and outgoings. It can certainly stimulate or deflate (the preferred coalition option it seems) but is frankly laughable to believe that you can close a nominal deficit on a spreadsheet through cuts to jobs and sit back and watch it happening out in the real world.

No it is not. It is an observable fact. We are even seeing it in Ireland as we speak. We need to reduce government spending and so encourage growth in the private sector – the only place that produces value these days. There is no other choice. No matter how nuanced you want to be.

It’s ironic that leftwingers are still so in thrall to the nonsense of John Maynard Keynes, one of the most snobbish elitists ever to walk the earth. He wanted deficit spending in times of recession because he thought the working class was too stupid to realise their wages were being cut by the consequent devaluation of the monetary unit.


Reactions: Twitter, blogs
  1. Liberal Conspiracy

    Labour's deficit hawks won't admit it but Cameron has trapped them http://t.co/tQID80fE

  2. Patron Press - #P2

    #UK : Labour ’s deficit hawks won ’t admit it but Cameron has trapped them http://t.co/PESfpaCL

  3. sunny hundal

    Labour’s deficit hawks won’t admit it but Cameron and Osborne have them trapped. What now? http://t.co/CGfLmb51

  4. Cllr Paul Bull

    RT @sunny_hundal: Labour’s deficit hawks won’t admit it but Cameron and Osborne have them trapped. What now? http://t.co/VEI2mJ6X

  5. bunmif

    Labour's deficit hawks won't admit it but Cameron has trapped them http://t.co/tQID80fE

  6. Paul Trembath

    Labour’s deficit hawks won’t admit it but Cameron and Osborne have them trapped. What now? http://t.co/CGfLmb51

  7. House Of Twits

    RT @sunny_hundal Labour’s deficit hawks won’t admit it but Cameron and Osborne have them trapped. What now? http://t.co/TfKid9V2

  8. Anthony Painter

    Fact: a m-t structural current deficit means that you are either spending too much or taxing too little @sunny_hundal http://t.co/0B8fZWqb

  9. James Mackenzie

    Labour’s deficit hawks won’t admit it but Cameron and Osborne have them trapped. What now? http://t.co/CGfLmb51

  10. Doug James

    Labour’s deficit hawks won’t admit it but Cameron has trapped them | Liberal Conspiracy http://t.co/iGHdFrfh – An angle from Sunny

  11. leftlinks

    Liberal Conspiracy – Labour’s deficit hawks won’t admit it but Cameron has trapped them http://t.co/uHqheK08

  12. Neill Shenton

    RT @libcon: Labour's deficit hawks won't admit it but Cameron has trapped them http://t.co/uYkMDf0p < got to say, this is horrible but true

  13. Paul Hilder

    Labour's deficit hawks won't admit it but Cameron has trapped them http://t.co/tQID80fE

  14. Rory Hegarty

    Labour's deficit hawks won't admit it but Cameron has trapped them http://t.co/tQID80fE

  15. sunny hundal

    Labour’s deficit hawks won’t admit it but Cameron and Osborne have them trapped. What now? http://t.co/CGfLmb51

  16. WestMonster

    Doesn't anyone have anything fresh to say?! RT @sunny_hundal: Labour’s deficit hawks won’t admit it but they're trapped http://t.co/Nfn1DkIh

  17. Jimmy Wavamunno

    Labour’s deficit hawks won’t admit it but Cameron and Osborne have them trapped. What now? http://t.co/CGfLmb51

  18. Naveed Akhtar

    Labour’s deficit hawks won’t admit it but Cameron and Osborne have them trapped. What now? http://t.co/CGfLmb51

  19. HullRePublic

    Good analysis of Labour's difficulties: Labour’s deficit hawks won’t admit it but Cameron has trapped them: http://t.co/2vliyuOg

  20. shane

    Good analysis of Labour's difficulties: Labour’s deficit hawks won’t admit it but Cameron has trapped them: http://t.co/2vliyuOg





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