Duncan’s Economic Blog

Osborne’s Guardian Article: A Lesson for Labour and a Question.

Posted in Uncategorized by duncanseconomicblog on March 1, 2011

Osborne has launched a savage attack on Labour’s economic policy in the Guardian.

Sunny at LibCon and George Eaton at the New Statesmen have both responded.

It’s a powerful attack on three main grounds: the structural deficit pre-crash, Labour’s supposed ambiguity on cuts at the moment and the ideological nature of the cuts versus the organisations supporting Osborne.

Most of it is unremittingly negative.

In 772 words, the word ‘growth’ appears only once. It’s almost entirely backward looking and focused on 1997-2010 rather than the years ahead.

Responding to Miliband’s superb Resolution Foundation speech, Osborne can only admit that ‘we can all agree is that these are difficult times for family incomes’ before blaming global factors and ‘UK imbalances’.

I think there is a lesson here for  Labour and also a question.

The lesson is this: Osborne knows that living standards are set to squeezed over the next few years and is desperate to keep the debate on the deficit. He simply doesn’t have an adequate response. He can blame ‘global factors’ and ‘imbalances’ all he wants, but he has increased VAT and his policies will increase unemployment and hence decrease wages.

The question for Labour is more demonstrated by the responses than by Osborne’s piece. We all agree economic policy requires credibility – but does credibility come from defending our economic record as if there wasn’t a problem or from setting out what went wrong (including, as I’ve argued, the structural deficit) and why we wouldn’t do it again?

I’m not sure what the answer to the question is, but Labour needs to learn this lesson and keep the debate on living standards, jobs and wages.


8 Responses

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  1. David Holden said, on March 1, 2011 at 11:47 am

    Firstly it’s important to establish the background – there is no pain free way out of the mess we’re in. None.

    Now with that said Osborne’s policy is correct in one regard, it is addressing the problem – as most people see it – debt. It is however half hearted and the VAT increase is completely retrograde. It is also one where you think the low paid and those of fixed incoming will just eat up the hit that inflation has on their living standards.

    Labour on the other hand as far as I can see have no policy at all. What they do have is some strange version of Keynsianism – one where you still cut but just not as quickly. What that magic rate of cutting is is anybody’s guess. It’s one where you can ignore the bond markets and what a 2-3% increase in interest rates would do to the economy.

    So while Osborne has a little economic credibility, it’s one that he will pay a hefty political price for as the cuts start to hit.

    Labour however currently have no economic credibility in that they really don’t have an economic policy but what they do have is a political policy in that as long as they can fudge their own position they can benefit from the political price Osborne will pay for his.

  2. Newmania said, on March 1, 2011 at 12:56 pm

    We have less money so living standards are reduced . Is this an insight ? Of bears and Popes shall ye speak next Duncan. As for the response of Sunny Hundal..arf arf . He is a perpertual pubescent who lives with his mum has never worked and retains student habits inot his 30s like a guilty adult liking for gobstoppers.
    Anything he says invites the “so what” catharsis by which I am at peace .zzzzzzzz

  3. Andreas Paterson said, on March 1, 2011 at 1:15 pm

    Hi Duncan,

    I think the problem with asking this question now is that for the Labour leadership, the matter seems to be settled. In that we will apologise for our previously far too relaxed attitude to the banks and regulation (Ed M seems to have made speeches offering an apology for this), but not for the structural deficit (Ed Balls claim that there was no structural deficit in 2007).

    This is an approach that I personally agree with since I don’t think “credibility” should be defined soley on someone’s attitude to the deficit. I worry about the political consequences of seeking this kind of credibility. I that if we admit our mistakes, we should focus on those mistakes we made in financial regulation, since I think this subject deserves far more discussion.

  4. Tim Worstall said, on March 1, 2011 at 2:00 pm

    “but he has increased VAT and his policies will increase unemployment”

    Not necessarily. He’s also reduced corporation tax. Given the standard economics of taxation (corporate taxes have higher deadweight costs than consumption taxes) a shifting of said tax burden from higher deadweight to lower deadweight forms should increase economic growth and thus employment.

    Plus, of course, he’s made us more like Sweden: higher VAT, lower corporate tax.

  5. […] It’s obvious why Osborne is desperate to keep the discussion on the deficit (as Duncan Weldon points out) – the public is not convinced by their excuses. […]

  6. DAVID DEE said, on March 1, 2011 at 3:56 pm

    Osborne is running scared of Ed Balls and is desperately trying to keep the debate on his agenda rather than on the vast unemployment that is about to hit us !!

  7. BenM said, on March 1, 2011 at 5:00 pm

    @Tim Worstall

    “He’s also reduced corporation tax.”

    Another typical retrograde step which will ensure Mr Osborne misses his arbitrary target of closing down the deficit by 2015.

    Corp Tax should have been increased back to 33pc so Capital pays its fair share.

  8. Tanweer Ali said, on March 1, 2011 at 8:47 pm

    The issue of credibility is only half the story here. We badly need to shift the debate to growth. If the economy goes back into recession, or if we’re faced with years of at best sluggish growth, with high unemployment, then this will impact the deficit – in other words Osborne’s cuts will have proved counter-productive. And this will not make the bond markets happy.

    But so far the debate in the public mind has focused on the deficit, and this is because the Tories have succeeding in framing the debate around their story. It is only once we have reframed the debate in our own terms that we will be able to start winning the argument, and establishing credibility around something other than how to cut the deficit.

    Just as an example of how the Tories are setting the terms of the debate, I created a word cloud of Osborne’s Guardian article (http://www.wordle.net/show/wrdl/3233143/Osborne%27s_Guardian_article_28_Feb_2011). The most frequently occurring words are ‘Labour’ and ‘deficit’.

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