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Ed Balls speech: in denial

This is the darkest, most dangerous period for the global economy that most of us have ever lived through, Ed Balls correctly insisted in his speech to the Labour conference today. But never mind; a temporary cut in VAT will soon sort things out.

I exaggerate, of course. But only slightly. At a time when the notion that capitalism is in crisis has gone from being a demented Trot cliché to an everyday topic of debate in the Financial Times, the sheer disconnect between reality and Labour’s willingness to think the potential consequences through is immediately striking. We are somewhere close to the territory that psychoanalysts refer to as being ‘in denial’.

The shadow chancellor’s suggestion that Britain could now a Japanese-style lost decade is actually one of the more optimistic scenarios on offer. A full scale slump on the scale of the 1930s is mercifully not the most likely prospect we face, but neither is it out of the question.

Yet the timidity of the left’s intellectual response is shocking. The terms of debate are more or less limited to the desirability of slightly tighter financial regulation and the ringfencing of investment banking activity. There is no recognition that cyclicality is built into the system itself.

Consider the contrast with the slump that followed the 1973 oil shock. People such as Sam Aaronovitch and Stuart Holland, who later became a Labour MP, produced diagnoses and recommendations that found a reflection in Labour’s official policies.

Of course their work –not beyond criticism at the time, I should add – cannot simply be dusted off. Nearly 40 years on, much of it will have to begin from scratch.  Nobody has even begun that task.

Measures such as VAT and National Insurance cuts, a bank bonus tax and bringing forward public works spending may all have value in themselves. But even collectively they hardly constitute strong medicine.

I was among those who expected the election of the Coalition last year to push Labour towards at least partial rediscovery of social democracy. Instead, the talk is of Blue Labourism, a creed that has little to say about the economy.

Tellingly, even President Obama – acting, it has to be said, out of opportunism rather than ideological conviction – is posturing as a hardline Keynesian, calling for job creation and taxing the rich, and daring the Republicans to knock him down.

So the first time in my political memory, a Democrat president in the US is discernibly to the left of a Labour Party in opposition in the UK. It is a failure of nerve that Balls may yet live to regret.

2 Comments

  1. Red Rag says:

    This must be the first time in history Ed Balls has been accused of being too right wing.

  2. Gary Elsby says:

    An economy allegedly in growth, such as this one, will always have right wing economists challenging any notion of a VAT a tax cut or any other cut.
    They will always claim that nerve must not cut anything resembling a tinkering.
    Therefore the only crredible alternative is a massive spend for job creation as a stimulus to a current slow growing economy.
    The two million social housing build will give homes for the five million people without one and create millions of hours of paid work, hundreds of thousands of skilled jobs and thousands of apprenticeships.

    This was part of my own manifesto which I wrote in response to the nothing Labour put out in Stoke.

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