Two years ago my friend and occasional co-author Howard Reed wrote a response for Compass to Ed Balls acceptance of Coalition economic policies as the basis for Labour Party policy as some in Labour, and most especially a small group called In The Black Labour, had urged him to do. Their demand was for Labour to run a budget surplus, which this weekend Ed Balls has said is now Labour's plan for the next parliament and which I think an exercise in sheer folly and serious economic misunderstanding. I wrote this about Howard's paper at the time and think it worth reproducing it now as not much has changed since:
In response to the ongoing economic crisis and in particular the debate around what Labour's response to the budget deficit should Compass has published a briefing entitled ‘White Flag' Labour? Fiscal policy for the UK's next progressive Government.
‘White Flag' Labour? has been written by Howard Reed and warns that if Labour accepts, in full and seemingly without question, the economic fallacies of “Osbornomics” it risks gifting the Tories an easy win at the 2015 election by allowing them completely to dictate the terms of the economic debate.
Furthermore, given the trouble that the Coalition's deficit reduction programme has run into and the recent economic figures that confirm both jobs and economic activity are down it argues that it would seem ludicrous for Labour to jump on board the austerity bandwagon at just the point it seems to be coming off the rails.
In response to announcements made by the Labour Party in the media last week the briefing states that:
“ Ed Balls' new strategy of accepting Coalition spending cuts as a fait accompli risks making it look like Labour has wholly accepted George Osborne's fiscal strategy — demoralising Labour Party supporters who are fighting against them while allowing the Conservatives to dictate the terms of the economic debate ”
The briefing maintains that Labour's ‘credibility gap' on the economy comes not from its stance on the deficit but the fact that Labour were in Government during the economic crisis and that Labour have hardly given voters any reason to believe that they would manage the economy differently next time.
Looking beyond this Parliament the briefing reaffirms that an alternative progressive government — either a majority Labour government or Labour in coalition with the Lib Dems and/or other smaller parties — should deliver a clear ‘Plan B' alternative to Coalition economic failure through a short-term fiscal stimulus ... coupled with comprehensive reforms to the financial system, industrial policy, tax and benefit systems, and public spending.
That prospect now seems depressingly remote.
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I can only conclude, that like John Rentoul, there are many on the Blairite wing of the Labour Party who would rather see Cameron back in 2015. There was an aside in a Guardian article which said that Ed Balls agreed with Mandelson that Miliband was heading down the wrong road. Of course, Peter Mandelson heads up the neoliberal ‘In the Black’ group which includes regular Guardian columnists like Patrick Diamond.
So there’s a move to get rid of Milliband because he has suggested things that carry a homeopathic hint of anti-neo-liberalism? The convergence to One-party state is nearly complete. probably more chance of something from the Lib Dems -though that won’t happen either -the sleepwalk continues.
Bit confused by this. Presumably Balls is anticipating a period of economic growth, and on any Keynsian view that is exactly when the government should be running a budget surplus. In recent times the idea you run a deficit during boom has been associated with the Reaganite/Bush Right (“deficits don’t matter”, indeed).
Are there any circumstances in which you don’t think government should run a deficit?
There is no prospect of growth in the situation he prescribes of cuts
That was my point
In that case you comment is entirely misplaced
I understand your desire to promote economically sound deficit spending, but I think your reading of Balls’ speech at Fabians is very partial.
It talks, for the right-wing media of fiscal discipline, but in fact he talks of that in terms of current spending. He’s left lots of wiggle room around ‘investment’ in both capital and revenue.
Yes, I’d like him to be more explicitly Keynesian – even MMT – and take on the Tories that way, but I’m afraid we’ll have to make do with what’s implicit in the speech, but more explicit in the key internal party document on the zero-based review.
The battle’s not done, but our side is actually doing a lot better than our side thinks.
FWIW I’ve written more on this at http://thoughcowardsflinch.com/2014/01/25/why-the-left-should-be-celebrating-ed-balls-fabian-speech-on-fiscal-discipline/
I don’t read it that way
You may be right
But I think it’s wishful thinking on your part
I share your cynicism, Richard. This speech (particularly when viewed alongside Rachel Reeves poor-bashing announcements) show every indication that the Labour party are trying to out-Tory the Tories.
Does Balls not see that in accepting Tory thinking on the economy they alienate even more of their natural constituency?
Moreover this speech has within it the implicit message that the Government of which he (Balls) and Ed Miliband were central figures were responsible for the deficit in the first place.
I don’t think ‘trust us even though our ineptitude got us in this mess’ is a message that will woo many voters.
Deeply depressing.
Agreed
Paul’s blog “Though Cowards Flinch” is an excellent piece of work, and I would love to be able to agree with Paul’s view on this… but unfortunately it seems to me that it requires a very heroic interpretation of Ed Balls’s speech to see it as a victory for the left. Yes there is some “wiggle room” around investment, but at the end of the day Balls has committed Labour to running a surplus on the current budget and falling debt/GDP by 2020. Given that the current bubble is almost certainly going to burst by around 2017, Labour is going to be faced with trying to run a surplus in the midst of another major recession – an impossible undertaking which is going to make them look economically incoherent. Balls’s programme is essentially In The Black Labour with a few platitudes grafted on, and it has all the economic illiteracy of ITBL but with a dash of cardboard cut-out Keynesian rhetoric to boot, which will fire up expectations which can’t possibly be met under the straitjacket of trying to run a (current) budget surplus.
A *real* left victory would have been for Labour to reject Osbornomics completely and insist on enacting a programme similar to Compass’s Plan B – a huge stimulus and investment package financed through a combination of large tax rises and “Green” QE, and reversing most of the spending cuts, particularly the vicious cuts in social security. But the left within Labour simply wasn’t strong enough to put the pressure on Balls and Miliband to deliver that. Whereas Lord Sainsbury and Progress have billions of pounds to throw at the issue until the 2 Eds caved in. What a sorry show the Labour party is nowadays.
Howard
I entirely agree – including a 2017 crisis (or sooner)
Richard
A v. useful contribution from Howard. A couple of points in reply
First, I think there’s a general agreement on this site that ‘in the black labour’ fiscal conservatism is, as Howard says, “economically illiterate” so there’s no need to rehearse that further.
Second, I think there’s general agreement that it would have been better for Labour to have raised a more robust challenge to Osbornomics earlier – the kind of challenge that appeared to be being constructed in 2011 as reflected in Balls’ Bloomberg speech,but which was then overtaken by the new message of fiscal restraint in the belief that this would restore ‘economic credibility’.
But we are where we are, and the key question is how we respond to current circumstances. I am not certain that simply accusing Labour of betrayal – calling it a “sorry show” – is very helpful as long as there remains some hope that Labour’s substantive fiscal policy will turn out different from the one they are keen to portray in public.
Howard thinks that a belief that actual fiscal policy will be better than portrayed requires “heroic interpretation”. I disagree, because I base my view not just on the speech but also on:
a) the party’s zero-based review;
b) the understanding that Balls is an intelligent Keynesian (see my 2010 interview with him if you have any doubt http://thoughcowardsflinch.com/2010/08/30/three-minutes-with-ed-balls/), and that he is constrained for the moment in what he can promise around investment by electoral strategy considerations beyond his influence rather than an in-the-black convert.
Even so I will concede that my view is an optimistic one, as it assumes a behind-the-scenes power balance in favour of sensible economic policy (an assumption bolstered, oddly, by Cable’s intervention, which is more carefree Keynesian than Balls’ own, and smack of positioning).
But I’m not optimistic just for the sake of it, or because I’m a Labour loyalist. I’m also optimistic because it’s strategically sensible for someone in Labour to be promoting Appreciative Inquiry of what’s going on, praising the wiggle room created, pushing for more (primarily via detailed engagement in the public spending review, with a focus on targeted revenue investment that can we “wiggled”).
Of course I’m small-fry (though a few Labour VIPs do read my stuff, and I’ll be slightly bigger fry in a few months as I push forward on two fronts). My main job is to keep the flame, and encourage/beseech other more important people like Howard to take a positive approach to promoting sensible policy within the confines of electoral promises (which are, in the end, just electoral promises, and likely to be invalid in 2017 anyway, as noted.
I just think keeping the flame alight, especially when the fiscal conservatives are resting on their victory laurels* (horrible metaphor mix) is more important, though arguably less fun, than screaming betrayal at people who have not yet, and may not, betray.
*Interesting to see Hopi Sen’s tactics in this respect. He’s a canny operator and rather than engage (with me for now) in a substantive debate on what the words in the speech and the review actually mean, he simply glosses over, without direct reference to my calling him out on the actuuality, keen to portray the debate as done and dusted. Our job is to portray it as all being up for grabs.
Thanks for this comment
The workers flag is deepest white,
Our leadership has gone hard Right,
Though spinners pinch and bankers cheer,
We’ll never ever pay our taxes here.
People are just starting to wake up to Osborne’s ‘Kitchen Table’ view of macro economics with its talk of deficits and surpluses . It would be wrong for Labour to fall into line with this.
Do you really think that. From all the polls, people trust this govt more than Labour over the economy.
This is because simplistic, black and white thinking saves mental energy -the basic presupposition of corruption and fascism!
I wish that this were true. I just heard on Radio 4 how a majority still trust the Tories on the economy, yet they believe that they personally would be better off under Labour. When are they going to understand that they ARE the real economy?
Perhaps when the main players in the party stop singing from the same hymn-sheet as the coalition?
The relative level of trust of the parties on the economy means very little. The Tories were ahead on economic competence in the run up to 1997 but still lost by a landslide.
It’s very frustrating the way the Tories’ narrative on the deficit has become accepted and restricted the terms of any debate on this. Guees we can blame White Flage Labour for this. I find it bemusing how the notion of returning the economy to surplus is seen as commonsense with no regard to the consequences; and how only the Tories can be trusted to control public spending. I’d like to hear how the Tories square their narrative with what happened during their last period in charge. Between ’79 and ’97, with the massive North Sea Oil windfalls, £100bn pouring into the coffers from privatisations, they still ran budget deficits for 16 of their 18 years in power. How irresponsible!
What I find strange, very strange, is the absolute failure of labour to put the record straight concerning their last government.
Could we have an opposition that is seeing no benefit in being in government?
A preference for being in ¨opposition¨, and rarely opposing?
Or maybe an opposition that prefers to wait for better times to be an opposition?
Their behaviour during this governments term, so far, is strange.
Of course, with Cameron making himself into a reincarnation of Blair they are wrong-footed….but still..
I would love to imagine that there was something planned in all of this JohnM, although I suspect the truth has rather more to do with the inevitable consequences of the Blairite coup, and the resulting unresolvable paradox of a neo-liberal socialist party.
You could well of course be right, which would go some way to explain the lack-lustre support received by Gordon Brown from his colleagues at the last election. If you are right I would like to personally thank the party for leaving us to rot until they come up with a plan…