Duncan’s Economic Blog

Labour’s Economic Policy: A Clarification

Posted in Uncategorized by duncanseconomicblog on September 12, 2010

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!)

5 Responses

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  1. Syzygy said, on September 12, 2010 at 7:22 pm

    I also think making the comparison that it is only one third the size of the structural deficit after WW2, and how no-one noticed us paying that off over 60 years. I always notice how the condems are careful to say “the largest peacetime deficit”, which I take as covering themselves.

    Can’t help but feel that the bad election strategy 2010, was at least partlly engineered by Lord Mandelson, in order to put himself at the helm of a Lib/Lab coalition with David Milliband. It was an extraordinarily bad campaign given the Tory mess ups, and there was a good economic story that could have been told if Balls had been allowed to tell it.

  2. Tom Freeman said, on September 12, 2010 at 8:22 pm

    I agree that it makes sense to have flexibility built into any deficit reduction plan.

    I have set out five objective economic tests to determine when and how quickly the big budget correction should be attempted: the rate of growth; the level of unemployment; credit conditions; the extent of spare capacity (and therefore, inflation risk); and – crucially – the borrowing conditions in international markets.

    Oh, sorry, my mistake – that second paragraph wasn’t me, it was Vince Cable.

  3. […] (Duncan Weldon has made an interesting case on this, calling for pointing out that Labour’s plans contain an “escape hatch”, in that if things go wrong in the economy there’s still room for action.) […]

  4. stephen said, on September 16, 2010 at 12:19 pm

    I suspect that once again the facts will demonstrate what is the best way of getting us out of a recession. However, what seems to have been forgotten is that all this talk about tackling deficits has meant that very little thought has been given to why there was such a downturn in the first place. At present, Osborne and his ilk are remaining unchallenged in their analysis of the causes, so in the UK public mind the problem is all being linked to excessive public spending and state inference, when the reality is that markets fialed because there was not enough state interference. There also has to be a little honesty on this side of the house as to where we went wrong.

  5. stephen said, on September 16, 2010 at 12:21 pm

    Is it just me but are we getting a reoccurence of all the asset bubbles in commodity markets due to the involvement of hedge funds and other speculators? Will we ever learn?


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