If there is one reason why Labour may still lose the election next year, it is because the front bench is still fixated on cuts. It is even being suggested now that the reason why the vast majority of us are suffering from debilitating Tory spending cuts is because Brown didn’t promise to do much the same thing. Brown actually posed the 2010 election as being a choice between Labour investment and Tory cuts. According to the Blairite tendency which still infects too much of the Labour front bench, what he should have said was that the election was between Labour cuts and Tory cuts, where Labour would have cut less far, less fast (i.e. reaching the same destination, only more slowly).
That is nonsense, and whilst 2010 may be history now, it matters when exactly the same mistakes are being repeated today. Ed Balls still supports the Tory fetish for cuts in order to eliminate the structural deficit by 2019-20, on the grounds that Labour’s economic credibility depends on it. Chuka Umunna appears to take the same view when he says that Brown wrongly gave the impression in 2009-10 that Labour failed to understand the importance of tackling Britain’s unprecedented peacetime budget deficit. As it happened, the budget deficit in 2008-10 wasn’t ‘unprecedented’ in peacetime since a quite similar fiscal outcome occurred under the Major government in 1993-5, but let that pass. Far more important, however, is the crucial point that spending cuts represent an inefficient way of reducing a deficit because of itsfeedback effects on the private economy that reduce incomes and tax receipts. It may seem obvious that if spending is cut, the deficit will reduce. But it’s wrong, and perhaps qualifies under the category that ‘common sense is what tells us the world is flat’. Continue reading
It’s not often I agree with Gordon Brown – indeed I can’t remember the last time I do so – but I think he may be right when he predicted earlier this month that the global economy may be heading for another meltdown. He said, rightly in my view, that the lessons of the 2007-9 financial and economic crisis have still not yet been properly addressed. Perhaps the the most important of these is the continued growth of the unregulated shadow banking system. It is worrying that insurers and pension companies as well as other financial sub-sectors like asset managers and hedge funds are now part of this shadow system and are seeking to fill the vacuum left by the shrinking banks.
In this switch away from plain old under-writing AIG was a pioneer, and its huge collapse should set the alarm bells ringing. To be fair, the Financial Stability Board has recently included 9 insurers among its list of globally systemic financial institutions that should be closely monitored and held to higher levels of capital adequacy. But is it enough merely to note the problems? What action is being taken to head off another crash rather than pick up the bits again afterwards? Continue reading
Shortly after Labour’s landslide victory in 1997, for some perverse reason I invited Ken Clarke to attend one of our monthly Tribune dinners in the Gay Hussar restaurant, that old canteen of the Labour Left, in London’s Soho.
Clarke professed himself baffled by the assembled journos, cartoonists, MPs and trades unionists asking if we spent all of our time arguing with one another – or rather not listening to him. He then said something that did make us all prick up our ears and listen. He said of the new Chancellor Gordon Brown, “We all knew why he promised to stick to our spending limits to win the election, it’s just that we didn’t expect him to actually stick to them in power”. Continue reading
Despite the claims of Cameron and Osborne (and that rather politically naive and economically illiterate note left by Liam Byrne), the last Labour government was not profligate, it did not over-spend. In fact, as the graph below shows, Labour actually spent less as a proportion of GDP than either the governments of Thatcher and Major.
Labour stuck to Tory spending plans from 1997-99 meaning that public spending did not start increasing in real terms until 2000. The UK had also embarked on an unprecdented period of seemingly stable economic growth that would last until late 2008. Continue reading
So even Alastair Darling has turned against Gordon Brown for the IMF job. But what is disturbing about all the jockeying and jostling now going on is the focus on the wrong criteria. This is not a position – ‘the world’s banker’ – to be decided on the basis of personality incompatibilities (Cameron-Brown) or on whether the successor should be appointed from the same country (DSK-Lagarde) or whether the appointment should follow the switch of economic power to the East and South (Carstens-Manuel) or whether the Eurozone crisis should commend or disqualify an EU candidate for the job, or whether the IMF remains the fiefdom of the Europeans to balance the Americans at the World Bank. Continue reading