As Jonathan Freedland said in the Guardian this morning:
A quick look at the figures confirms that, until the crash hit in September 2008, the levels of red ink were manageably low. The budget of 2007 estimated Britain's structural deficit — that chunk of the debt that won't be mopped up by growth — at 3% of gross domestic product. At the time, the revered Institute for Fiscal Studies accepted that two-thirds of that sum comprised borrowing for investment, leaving a black hole of just 1% of GDP. If the structural deficit today has rocketed close to 8%, all that proves is that most of it was racked up dealing with the banking crisis and subsequent slump — with only a fraction the result of supposed Labour profligacy. After all, even the Tories would have had to pay out unemployment benefit.
This is the reality: Labour managed the economy well until the bankers broke its back.
But that was banker’s fault not Labour.
Osborne’s lie is that this was Labour’s fault.
That is a lie.
He knows it is a lie.
And he trades on that lie.
But he can’t build a solution based on that lie. And that’s why his solution will not work. He’s tackling the wrong problem with the wrong prescription at the wrong time.
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Shhhhhhh! We’ve socialised the losses successfully; now, we need to privatise the pain – a forced privatisation aimed at the bottom 95%.
But then economic pain, like tax, is for the Little People…
What constantly astounds me is that the 2008 crash is, for me, a collapse that intellectually bankrupts the Chicago School of economic management in the same way that, say, the Berlin Wall coming down bankrupted Soviet-type socialism. Yet, we’re meant to ignore that crash and just carry on with US-style inequalities and no-regulation economics regardless? This is akin to Eastern Europe attempting to fix the flaws of Gorbachev-era Soviet Socialism with a return to pure Stalinism.
This is the triumph of faith-based politics over reason. Shame on you, Lib Dems.
Absolute rubbish.
You ignore the fact that one of the duties of a government is to regulate. Labour singularly failed to do that. So it is Labour’s fault.
The boom was mainly due to the enormous revenues generated by the City. You can’t say it was the bankers’ fault the whole thing went mammaries skywards whilst at the same time claiming everything that went before was due to the shrewdness of Labour.
Wake up and smell the coffee. Labour was in power for 13 years. It cosied up to the bankers, allowed the City to let rip so that the huge tax revenues it generated could be sprayed at Gordon Brown’s pet projects and micro management of the rest of the economy. It did nothing to tighten up the City because he was too busy milking the tax it generated.
@Fergal O’Shea
Fergal, are you seriously comparing the regimes and economic failures of Eastern European socialism to the loss of, what, 5% of the highest GDP the world has ever seen.
The trouble with some people is that they do not know just how well off we are in the West. Even the poorest in Western societies are a hundred times better off than those in the East were. How many in the East had mobile phones, plasma screens, and DVDs (as many of the “poorest” in the West do)? And we’re worried about a tiny drop in living standards??!!
@David Miles
The trouble with some people is that they do not know just how well off we are in the West. Even the poorest in Western societies are a hundred times better off than those in the East were. How many in the East had mobile phones, plasma screens, and DVDs (as many of the “poorest” in the West do)? And we’re worried about a tiny drop in living standards??!!
Pardon my French but that is very patronising.
Perhaps a general drop in living standards wouldn’t be so bad if the country were more equal and the pain shared around so it hit the richest hardest of all.
But in an unequal society like ours the poorest are always running to catch up, and any cuts to the support the poor rely on means they fall further behind the rest of society.
Remember, the poor aren’t comparing themselves to people in Eastern Europe – they are comparing themselves to richer neighbours in areas in which they live. And they see those better off neighbours streaking away – even in a recession – leaving the poor to eat the dust generated.
That spells massive issues with social cohension.
@David Miles
Surely not a serious comparison, an analogy. As such, sounds right, as does the idea that the Chicago School delusion is exposed – if not alas conclusively punctured – vide J Lanchester, “Whoops”.
@David Miles
This is right to the extent that Brown was comnplicit – but that doesn’t make the original post “absouluet rubbish”, just overstated in a lesser particular.
I thought Gordon Brown publicly accepted that he and his government had been responsible for the lack of regulation that played its part in the credit crunch?
Those who criticise fail to note that throughout this whole period the Tories argued for less – much less – regulation
@Richard Murphy
But Labour were on watch at the time and it was Brown who actually loosened the regulations/ oversight.
You are burning straw men here.
Of course Labour didn’t create the global recession (although they contributed). They did not manage our money properly during the boom; increasing public spending commitments beyond what was sustainable. Nor did they prepare any response for the recession, presumably because they believed their own propaganda that they had abolished economic cycles.
Even Keynes anticipated that the pumps would be primed with money saved during the good times. Labour increased the national debt during good times and had to resort (by their world view) to massive further borrowing for stimulus when bad times came. Personally I would have let the bankrupt banks fall. HSBC, Barclays and Lloyds TSB (had it not crippled itself at Brown’s request by taking on HBOS) could have picked their bones with their receivers and become even stronger. The shareholders of the bad banks would have taken the rap, as they should. Honouring Northern Rock’s deposit guarantees would have cost nothing compared to its bail out, for example.
Even worse than their economic “crime” is their systematic political corruption in building the public payroll to a point where it’s electorally decisive. The government simply can’t take the necessary action now (until our creditors force it). Yesterday’s announcement was largely theatre for those creditors. It involved no real “cuts”. Public spending – and borrowing – continues to rise. Why? Because the coalition parties fear the wrath of state-dependent voters.
As to your last point, no-one can reasonably blame Labour for lack of regulation (as a lawyer doing finance work I assure you there’s a LOT of regulation); but it’s responsible for the incompetent application on its watch of the regulations it had. Writing words down on paper doesn’t solve problems, even when the Queen scribbles the magic spell in Norman French that makes them law. Intelligent application of the rules is what matters.
Labour was not (and never has been) up to the job. They always spend themselves out of office. The Tories are so disliked largely because they are condemned to be the clean up team brought in to sort it all out so that voters can return to their something for nothing delusion and vote Labour again.
Absolutely – and if Osborne had been in charge in autumn 2008 he’d have probably let the banks collapse and precipitated a meltdown and the complete collapse of our financial system. Imagine millions of people not being able to get money out the cashpoint – as NEF once said, we’d have been “nine meals from anarchy”.
Given the way that Quantitative Easing has reinflated asset prices, if Larry Elliott is right that Osborne plans to rely a lot on more QE to drive us away from a double dip, we could be heading for another crash sooner rather than later. Does anyone think Osborne is up to the job of handling a crisis like that?
@Richard Murphy
what they argued was that Brown had created an impotent system with no one actually taking responsibility. What they pushed for was more effective regulation from less regulators.
@Richard Murphy
What on earth has the Tories’ position got to do with it? You argued that Labour bore not one iota of responsibility for the economic mess they caused. What the Tories might or might not have said is frankly irrelevant.
“Labour managed the economy well” and “Labour did not create the recession”. “Its all the fault of the Bankers”.
Apart from wondering if you are Gordon in disguise (has anyone seen him lately?), am also wondering where you were over the last 13 years? Gordon’s legacy – stoked up the housing bubble; broke up a perfectly good financial regulation system and replaced it with an impotent one; spent, spent spent during the boom years, and did it by borrowing; sold our gold reserves at the bottom of the market; broke the pension system; broke the education system; entered into unfunded spending commitments (Defence anyone?); presided over “welfare reforms” that delivered an incomprehensible system which probably gave away more in errors than it did to sort out need.
Could go on but those are the key bits that refute your analysis.
I am not prepared to accept the Gordon, Tony and the “New Labour” project bear no responsibility. They have proved to be abject failures. Anything they might have acheived will probably now be swept away. And they had the opportunity to remake the political system in its entirety to prevent the likes of Osborne and the far right getting back into power.
That said, remember that this was a global crisis and even Keynes could not have prevented it affecting us.
However, unlike proper Keynesians, New Labour did not prepare for any kind of recession.
Alastair, we didn’t have a pension system for Gordon to break! There were decent pensions in the public sector and for the wealthy. Most workers faced a grim propsect in old age – that hasn’t changed. We did once have a pension system – it was earnings related schemes in the private sector, they were on their way out before 1997. Even then, many workers did not belong to such a scheme.
@James from Durham
we had a personal pension regime which worked on various assumptions, including the no tax on dividend income into the funds assumption. This was the contract Gordon broke. He did it because he thought no one would understand such a technical move. But what it means is that many of my age will see their contributions turned into a lower pension. And all done because he wanted to maintain the lie of lower taxes whilst increasing the tax take. I would accept he did much worse stuff than this, but nonetheless the charge that he broke a pension system is still good.
Not going to get into the argument over who broke the defined benefit system, still enjoyed by many government employees. It is a much more complex argument – or lots of wriggle room.
@Tom Paine
excellent counter-opinion
I think it is a pity Richard that your excellent work on the Tax Gap
and Tax Havens is marred by your increasingly blantant left wing ideology.
You are getting carried away now, you now seem to think you are an expert on everything.I am finding it increasingly difficult to defend your views to others.
@Stephen Griffiths
That’s your problem
Not mine
Do you have problems defending those with blatant right wing ideology?
Or is it a particular bias you have?
@alastair
Utterly untrue
The dividend cut made almost no difference
Over £300 billion of subsidy from the state to pension funds in a decade produced no growth
How much more inefficiency in a state subsidised business can we afford?
@James from Durham
We often agree
And I do not think Labour over spent
It repaid debt for some years and then kept the equation in balance when there was threat of a recession post 2000
I have charted this here
http://www.taxresearch.org.uk/Blog/2010/10/15/the-cuts-are-real-but-there-is-a-real-alternative/
How much surplus did we need?
And why were the Tories so keen on this plan until late 2008?
@David Miles
Rubbish
Government is not undertaken in a vacuum
It is undertaken against opposition – in this case from Tories and the banks
They could have done more – I think – of course I do – but they may have done what was possible – and the crisis was not their fault – that’s my point
If it was how did it also happen around the world?
@Tom Paine
Ah yes – failed banks
Now that was a recipe for the break down of law and order, wasn’t it?
Idiot, is about the best I’ve got to say in response to that
Can you imagine the social chaos that would have resulted when cashpoints did not work?
Tom Paine my proverbial…he’d be rolling in his grave
Sure he hated bankers – but he would not have imposed the pain on ordinary people
@Stephen Griffiths
“Excellent work on the tax Gap”
Do you still seriously believe this? Google “tax gap” and you will find a host of demolition jobs exposing the massive holes in his reports.
@Richard Murphy
“And why were the Tories so keen on this plan until late 2008?”
They did vote against every Labour Budget so that may suggest they weren’t that keen…
@Neil Mckie
Yes, they wanted more lax regulation and less tax so bigger deficits
@Neil Mckie
I am open to other views
But note if HMRC are right we have the cleanest economy in the world by far – and I don’t believe that
In other words, the demolition is politically driven nonsense
@Richard Murphy
hmmm, so you really think taxing dividend income into the funds made no difference to the value of the fund. And why would you call it a subsidy? Its a long established principle that earnings deferred for pension provision are exempted from tax but the income they generate is taxed as income when it is generated. A pretty fundamental contract which many were relying on, and which Gordon broke.
@alastair
look of course it made a difference: a tiny difference, maybe £50 billion over a decade. Yes that is tiny compared to the massive subsidy pensions received during the same period, and the incompetent investment management that was applied to the industry by the city.
So stop making utterly irrelevant excuses for why pensions have failed to deliver and why ordinary people have been ripped off by the city for so long – not least through excessive, upfront, charges on pension policies
@alastair
You seem to forget that Gordon’s tax on dividends earned by pension funds (good level-playing-field stuff) was followed by a stock market crash from which we still haven’t recovered. That was not Gordon’s fault – just unfortunate timing.
@alastair
We once had a state pension regime which worked. It was called SERPS and was trashed by Thatcher.
New Labour was defined by ‘no more boom and bust’ and ‘no regulation of banks’. The boom had gone on so long that there were 2 distinct possibilities. Labour preferred weak-thinking i.e. to believe there were going to be no more recessions which goes against the whole of economic history i.e. Labour has nobody with any understanding of economics. Taking away bank regulation substantiates the Labour belief there could not possibly ever be another recession in the future history of the human race.
Alternatively if you were an economist you could choose to believe that a humongous boom will probably be followed by an equally humongous recession.
Since Labour did not believe in boom and bust they had no reason to hold down spending which is what economists advise at the height of a boom to hold down the deficit in the recession.
The fact that now the EU and elsewhere are bringing in financial regulation on steroids shows that financial regulation was needed but unfortunately went against labour ideology when it was most needed.
Sadly there will still be people who will fall for the nonsense that The Tories spout out. Of course they are not a bunch of hateful, evil right wingers who would like to shrink the state and watch the poor suffer. No they are only destroying public services because it is Labour’s fault! And to those that come out with the rubbish that The Tories always have to clean up the mess after Labour. Let me remind you of the mess that Labour had to clean up in 1997 after The Tories.
@Derek Emery
I guess you’re aware of the paradox of your comments
You blame Labour for a lack of regulation and yet the solution the Tories always proposed was less regulation
Your prescription makes no sense