by Jonathan Todd
Daniel Finkelstein is a leading commentator and one of David Cameron’s most articulate defenders. No other columnist has the economic gravitas of Martin Wolf. Pieces from Finkelstein and Wolf in the week before the Budget exposed the tensions at the heart of the government’s economic and political strategies.
Finkelstein argued that the Conservatives have three assets: David Cameron; a Labour Party that “has pitched itself too far to the left”; and “the large constituency of voters who … don’t want to borrow more”.
On the same day Martin Wolf demolished David Cameron’s “there is no alternative” speech.
“What truly is incredible is that Mr Cameron cannot understand that, if an entity that spends close to half of gross domestic product retrenches as the private sector is also retrenching, the decline in overall output may be so large that its finances end up worse than when it started.”
What Wolf considers economically indefensible – not taking advantage of rock bottom interest rates to borrow more to stimulate recovery – is what Finkelstein considers to be a political strength. Those who join Wolf in advocating stimulus include: Labour, TUC, CBI, BCC, Vince Cable, IMF, NIESR, Bloomberg, The Economist, and Oxford Economics.
Equally, the political rationale that Finkelstein appeals to is not groundless. That 10 per cent more voters blame the last Labour government for the cuts than the current government speaks to the reputation for dangerous profligacy that continues to attach to Ed Miliband’s party (YouGov, 17/18 Feb). These voters believe that the Conservatives are doing the tough but necessary, while Labour offers only a risk, not a sound alternative.
This popular view, which sustains Finkelstein’s political logic, is, however, challenged by a growing economic consensus in favour of an approach quite different from that offered by Osborne.
He talks of supply-side reform when it is an absence of demand that holds the UK back. He claims fiscal responsibility when the stuff of genuine fiscal responsibility would involve recovering this demand. He pins his hopes on active monetary policy – near zero interest rates and QE – when the experience of recent years provides amble justification for Keynes’ view that loose monetary policy amounts to pushing on a piece of string in a depressed economy.
We got used to politicians from 2008 onwards talking about the biggest economic calamity since the Great Depression of the 1930s. While our growth contraction began from a much higher level than in the 1930s, our recovery has been weaker than even that infamously grim decade. Miliband was justified in stressing in his Budget response that we are enduring the slowest recovery in a century.
We will not close the deficit and control public debt till we recover growth. The anaemic growth of the downgraded Chancellor has resulted in debt rising by almost 40 percent during his time in office. We are set to have the biggest deficit in the western world by the time he faces the electorate. Bigger than in disintegrating Greece that was ludicrously held up as where we’d end up without Osborne’s austerity.
The UK was never in any danger of becoming Greece. In contrast to Greece, we run our own monetary policy and currency, as well as hold much longer term debt. Notwithstanding these important differences, Osborne has had a good bash at diminishing the UK economy to Greek standards.
Since 2007 the pound has lost 30 percent of its value against the dollar, 50 percent against the yen, and 20 percent against the struggling euro. Yet – like Greece and other uncompetitive economies – we are still running trade deficits because we have lost the productive capacity to respond to the opportunities created by a devalued pound. The march of the makers was just another naff slogan.
What is economically required is a short-term stimulus driven by a long-term view of how to raise our productive capacity. What is needed politically is a convincing argument that this is a credible alternative.
We are rightly the party advancing an economic strategy closest to that which Wolf advocates. However, the factors that Finkelstein identifies undermine the likelihood of us getting into government and being able to implement this strategy. Osborne clings to these factors but they have boxed him in to an economic strategy that is likely to continue to disappoint and so diminish the potency of these factors.
Labour cannot, though, depend upon the probability of continued government incompetence and poor performance. We need to take positive steps to address what Finkelstein says. We need bold ideas – for example, securing bigger savings from Whitehall by better inter-departmental working – for unlocking more resources to invest in our productive capacity.
Jim Murphy claims that “behind the scenes we are working through our plans” to enact Labour’s commitment to zero-based budgeting. Hopefully, this will generate the ideas we need, not least because yesterday confirmed that Osborne hasn’t got a clue.
Jonathan Todd is Labour Uncut’s economic columnist
Tags: Budget 2013, Danny Finkelstein, George Osborne, Jonathan Todd, Martin Woolf, TINA
Spot on…..
My pennies worth is that developing a “politically convincing argument” has proved difficult largely because of Labour’s recent history of lazily stigmatising the ‘unemployed’ the ‘poor’ (the other); of using a language which justified its employment policies to its target audience, but disregarded its contribution to debilitating social oppression. One nation politics needs the oppression lifted if alternative arguments for economic recovery are to be won, and won convincingly at a ballot box.
Since oppression is now made tangible by the Tories and sucking discretionary spending out of the hands of the least well off is proving disastrous for the economy – never mind those on the receiving end it – you would think that articulating a convincing narrative would be easy enough and consequently made regularly. But the truth is the preference for the easy, lazy talk of strivers and skivers and “the hardworking” remains causing displays of cognitive dissonance for all to mistrust.