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  • Losing the argument on the deficit

    by Sunny
    17th July, 2010 at 10:08 am    

    Since the same argument is raging on the other side of the Atlantic, I’ll let Chris Hayes of the Nation mag make my point for me:

    The conversation—if it can be called that—about deficits recalls the national conversation about war in the run-up to the invasion of Iraq. From one day to the next, what was once accepted by the establishment as tolerable—Saddam Hussein—became intolerable, a crisis of such pressing urgency that “serious people” were required to present their ideas about how to deal with it. Once the burden of proof shifted from those who favored war to those who opposed it, the argument was lost.

    We are poised on the same tipping point with regard to the debt. Amid official unemployment of 9.5 percent and a global contraction, we shouldn’t even be talking about deficits in the short run. Yet these days, entrance into the club of the “serious” requires not a plan for reducing unemployment but a plan to do battle with the invisible and as yet unmaterialized international bond traders preparing an attack on the dollar.

    Now, I’m realistic enough to know that the argument over the deficit has already been lost on one level here. The Labour party had no clear message during the election and they let the Tories define the argument for them. Near to the election pretty much everyone was fretting about the deficit and the debt, even Labourites. When your political enemies have forced you on their turf you’ve already lost.

    I’m saying this partly in response to the astute Hopi Sen, who still reckons Labour should spend all its time drawing up some deficit reduction plan, as if that will somehow revive their electoral fortunes.

    It won’t. The Tories will simply carry on claiming that Labour are playing ‘class war’ by planning to raise taxes and they’ll carry on cutting while saying that even Labour have now started to acknowledge the depths of their own incompetence.

    The election is five full years away. Now is not the time to start preparing for government - now is the time to put the Coalition on the defensive and tell voters they are destroying their local communities. Very simple message: you just repeat it continuously. The Cuts Won’t Work. The only time this Coalition has looked shaky over the last few weeks is when Ed Balls repeatedly slammed Michael Gove and when Tom Watson called him a “miserable pipsqueak”. That’s the only time we saw fear in their eyes. You think they’ll be fearful if the Milibands spell out vague ideas that will be obsolete in a year’s time?

    And even then, they’ll be trying to carve out very minor difference between the Tories using broad phrases like ‘we’re for fairness and equality and job growth’ - the Tories have already pre-empted that by calling their budget ‘progressive’. It’s bizarre that Hopi, John Rentoul and David Miliband et al believe that if they lay out some of these broad principles that somehow the debate will move on to their territory and they’ll grab the initiative back from the Tories. That intense jostling for space in the centre will do nothing to make Labour stand out at all.

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    1. Rumbold — on 17th July, 2010 at 12:26 pm  

      I agree that Labour needs be specific- it makes for a good opposition, which makes for a healthier political scene. And by all means target cuts for the weakest in society. But the deficit does need to be cut- and to attack things like capping HB at £400 a week or pension reform for the civil service just shows up how out of touch with economic reality Labour supporters are.

    2. Shamit — on 17th July, 2010 at 12:35 pm  

      Rumbold -

      Spot on.

    3. Rumbold — on 17th July, 2010 at 1:00 pm  

      Thanks Shamit.

    4. Justin — on 17th July, 2010 at 1:34 pm  


      Macro-economic illiteracy helps the Coalition government’s legitimise sado-masochistic policies. We need to be able to distinguish between reasonable limits to benefits and cancelling capital spending and slashing jobs in both the public sector but also depressing economic activity which will cost jobs and wages also in the private sector.

      The cuts are mostly aimed towards services not benefits, and as a result they will not work.

      Keynes called it the paradox of thrift, by spending less you incapacitate the ability of the national economy to recover.

      You can’t just blindly spend your way out of a recession, but you can invest your way out of one. Compare post-soviet Russia with most scandanavian countries. One used social democratic economics (incl high taxation) to build their country’s educational and civil infrastructure and another followed IMF austerity and privatisation measures which led to the greatest hunger periods and growth in inequality, its country has ever seen.

      Austerity leads to depression, you don’t ask someone who has just lost their job to pay their mortgage quicker…

      The cuts won’t work.

    5. Sunny — on 17th July, 2010 at 2:04 pm  

      But the deficit does need to be cut- and to attack things like capping HB at £400 a week

      Are you working for the Daily Mail now? ;-)

    6. MaidMarian — on 17th July, 2010 at 5:27 pm  

      ‘The Labour party had no clear message during the election and they let the Tories define the argument for them.’

      Well, I’m not sure that is altogether true. Labour had, in government, a very clear strategy for the recession. The scrappage schemes, quantitative easing, 0% interest rates and so on - a counter-cyclical strategy. Cameron was heading for a single party majority until Osbourne started talking about ‘austerity’ as a strategy, at which point the polls went south to the extent that he was not able to get a majority against a historically unpopular government in a recession. On some levels Labour’s 260 seats was a good performance.

      Granted, Labour had no clear message of its own, but I wouldn’t say that Cameron and Osbourne’s plan swept aside all before it. Not all that long ago, Osbourne wanted even less regulation for banks. The Big Society message didn’t seem to capture the imagination. Rightly.

      I actually think that the message Harman and Darling are putting forward is a good one. There must be cuts (Labour set that out in the election), but the social cost of paying down the deficit in one Parliament is unnecessarily high.

      The message that the cuts wont work is a seductive one, but fails the intuitiveness test. That cuts are too deep and too fast, are too uneven and are the fault of banks sounds rather more sensible. Andy Burnham seems to be on the right lines - and as I have said before on here, I hope he becomes Labour leader.

      Rumbold - the problem with the civil service pensions cuts that I have is more the implication that the deficit is the fault of public sector workers rather than well bailed out bankers. The PCS maybe wrong headed, but the tacit message is a pretty nasty one.

      It is, of course the egregious failure of the private sector to provide decent pensions that is a far greater problem than the CS pension scheme. Oddly, no one ever talks about that.

    7. Rumbold — on 17th July, 2010 at 5:33 pm  


      We need to be able to distinguish between reasonable limits to benefits and cancelling capital spending and slashing jobs in both the public sector but also depressing economic activity which will cost jobs and wages also in the private sector.

      Well, the only alternative to cutting the deficit is not cutting it. This has the impact of increasing the government’s debt burden, meaning more money has to be spent on servicing the debt. The money can either come from taxes (which depress economic activity), or spending cuts from departments. Even if deficit slashing depresses economic activity in the short term (which is debatable), that is a price worth paying; the purpose of government is to ensure long term-financial health; current spending is unsustainable, so it needs to be cut.


      Heh. Nope. I just don’t think limiting HB to £21000 tax free per year is a terrible attack on the poor.

    8. boyo — on 17th July, 2010 at 5:38 pm  

      Sunny, I’m just wondering when the hell the Left actually wake up to what is happening.

      The Tories have plainly declared war on the public sector and the Chatterati have just largely offered a collective shrug - maybe they simply don’t realise wtf is about to happen: the Tories (with the support of the Lib Dems) are intent on rolling back 13 years of Labour state in five. First they came for Education, this week Health. None of this, I would add, necessary, just as few of the cuts were necessary this year - but rather than pushing up taxes apart from VAT they’re punishing the public sector.

      It’s so surreal and absurd one doesn’t know whether to laugh or cry - but the proof will be in the pudding by the Autumn of 2011 when the folk laid off in March still can’t find the work…

      I can only surmise that people are still in a monumental state of denial and it is only the people who can see what is happening - who are involved in working out where the cuts will fall - who realise and are making plans for themselves. The transformation has been remarkable - a businessman and doctor who I frequently travel with and who both voted Tory have admitted they’re concerned in the space of 11 weeks. The businessman, whose company had massive public sector capital projects, recently told me in disbelief how the government expected them to simply cancel contracts. “The UK is finished” he said. “It just doesn’t realise it yet.” Well, I did tell them…

    9. boyo — on 17th July, 2010 at 5:48 pm  

      Rumbold, with respect, you’re reasoning is mistaken. Yes, cuts did need to be made, but in a considered and balanced way - the British public sector is one of the smallest and most efficient in Western Europe. Over a million people are about to join the dole queue, drawing upon state coffers and not paying taxes, to be replaced by… the greatest export led recovery since the war?! From where exactly?

      At the same time, taxes are lower than other European countries and the banks owe twice the annual national deficit (350m v 150m) so I’m sure they could be asked to contribute.

      Finally, there is the psychological equation - which is both the least quantifiable but most decisive factor of economics. Under Labour people in the public sector had confidence that yes, although their jobs were under threat, their redundancy was not desirable and would be avoided if possible. Under the Tories, each and every worker in the public sector - whose spending largely assured us a soft landing - will worry that their job is under threat because quite simply the Tory/ Lib Dem government has declared war upon them.

      The result? They’ll stop spending, even if they keep their job.

      I’m sure you can work out what that will mean.

      And I hope, when the Tory’s Depression economics (they were wrong when the crisis hit, and they’re still wrong now as all considered economic opinion agrees) lands us in it, I hope you will acknowledge it rather than pinning it on Labour or the French or the Chinese as I’m sure Osbourne will.

    10. MaidMarian — on 17th July, 2010 at 6:40 pm  

      Rumbold - I’d be more inclined to agree with the Coalition’s plans if there was any sort of obvious plan for dealing with the fallout. They may have a plan, but it is not obvious to me. It is open to question whether the debt is going to kill us all unless we pay it in one parliament as I am being led to believe.

      Perhaps put this another way, do you think that the Big Society is going to provide? We are currently the seventh largest exporter in the world. There is lots of private sector manufacturing in the UK - it just does not employ enough people. The real fun and games will start when Chinese property markets crumble.

      Labour may not be winning the argument on the deficit, but to my mind it is most certainly not a lost political argument.

      In fact, I’d be more comfortable with the Coalition if they would even mention the word, ‘banks,’ in all this.

    11. boyo — on 17th July, 2010 at 7:15 pm  

      What really annoys me is this patronising “you can’t spend more than you have” argument from the Tories, which is precisely the one employed in 1932 and now. It condemned a generation to poverty and was only saved by the kind of Keynes-led policies Labour under Darling were pursuing. Yes, Labour made mistakes - but the recession was not caused by the public sector!

      Why people do not get this I simply do not understand - correction, I understand why born-millionaires Osbourne, Clegg and Cameron who have never, ever had to worry where they’re next pay packet would come from or how they would feed the kids this week say that- but when its parroted by supposed progressives I want to bang my head against the wall. Or theirs, actually.

    12. Sunny — on 18th July, 2010 at 1:15 am  

      The Tories have plainly declared war on the public sector and the Chatterati have just largely offered a collective shrug

      I don’t know who you’re referring to, but I’m certainly not shrugging my shoulders:

      Justin has a meeting on Monday in Southwark against the cuts will lots of local groups.

    13. boyo — on 18th July, 2010 at 7:46 am  

      I probably don’t read LC as much as i ought to. I went off it tbh after all the vote liberal thing, although i suppose i was as conned by it (the liberals i mean) as the next person. Glad my wavering pen plumped for Labour though!

      Digressing, I have also stopped reading the Times, cos its so Tory now, but which i left because the Guardian was so smug and wrong. I recently went back to the Guardian, but was so annoyed by a recent editorial (not for its opinion, but its self-serving factual inaccuracy) that all I’m left with is the Independent, which is barely legible…

    14. joe90 — on 18th July, 2010 at 1:29 pm  

      If labour really want to make a statement, and stand out from the crowd they should attack the big banks who got us into the financial crisis in the first place. Banks should be made to pay the debts from a sizable percentage of future profits.

      Labour where in power obviously when the banks gambled on the stock and housing markets, but these criminals are getting away without even a slap on the wrist. The tories will not even say boo to the bankers while the weaker in society face massive service cuts.

    15. El Cid — on 18th July, 2010 at 6:43 pm  

      If the coalition holds for five years (questionable) and the fragile state-sponsored recovery doesn’t spawn a double dip (also questionable), the Tories have got the next election in the bag.

    16. MaidMarian — on 18th July, 2010 at 8:07 pm  

      El Cid - But the problem is that the Tories (or more accurately, the Coalition) don’t really care about a double dip recession. Plainly they feel that the risks posed by sovereign debt and potential default are worse than the risks of a recession.

      In other words, pandering to the markets is more important than avoiding social costs of recession. At least with Labour there was an obvious counter-cyclical strategy, one that Vince Cable in opposition seemed to agree with.

      I just can’t see the big society pulling together.

    17. El Cid — on 18th July, 2010 at 8:22 pm  

      Yeah, but I guess the Tories are betting that with interest rates kept low as Britain’s credit rating is defended and the private sector ready to do more of the heavy lifting as the public sector is cut back, then there is reasonable chance of sustainable recovery by 2013-14.
      We shall see.

    18. boyo — on 19th July, 2010 at 7:25 am  

      I think people (and in particular the Tories) put too much stock by “sustainable recovery”.

      Look - we’re out of recession now, right? by 2013-14 we may be more out of recession but… unemployment will still be very high, public services - schools, hospitals, etc - will have been viciously pared back.

      The figures may say recovery, but that won’t help you when you’re waiting seven hours in casualty or your kid’s school’s roof collapses.

      And one would hope that by that time Labour will have pulled themselves together sufficiently to hold the Lib Cons to account.

    19. Rumbold — on 19th July, 2010 at 11:39 am  

      MaidMarian and Boyo:

      I don’t think that the coaltion’s plans are perefect. And not everyone who deserves to will feel their share of the cuts. But the cuts needs to be made. The alternative is a debt burden increasing at around £180 billion a year- that’s rougly £3,000 for every man woman and child- every year.

    20. douglas clark — on 19th July, 2010 at 12:32 pm  

      El Cid @ 17,

      Thus spake an idealogue:

      …and the private sector ready to do more of the heavy lifting …

      Private sector, rah rah rah! Bet you’ve got better looking cheer leaders too!

    21. Rumbold — on 19th July, 2010 at 1:33 pm  

      Haha Douglas.

    22. Leon — on 19th July, 2010 at 1:53 pm  

      The cuts won’t work? Sounds like the Verve could do a new version of their the drugs don’t work tune with new lyrics…

    23. vimothy — on 19th July, 2010 at 2:25 pm  

      “You can’t just blindly spend your way out of a recession, but you can invest your way out of one. Compare post-soviet Russia with most scandanavian countries.”

      Or China with OECD average:

    24. douglas clark — on 19th July, 2010 at 4:23 pm  



      What is ‘fixed investment’?

      How do you define it?

    25. MaidMarian — on 19th July, 2010 at 4:46 pm  

      Rubold - ‘But the cuts needs to be made.’

      No one is disputing that. Why keep presenting this as if it is a question of cuts or no cuts with no nuance of any sort.

      Labour are most certainly not saying that there should be no cuts at all - during the campaign they talked about 70+ billion.

      The point is about doing it all in one parliament with all the social costs that entails. To my mind, that is the wrong track, and to say so is not to deny the need for cuts.

    26. boyo — on 19th July, 2010 at 6:25 pm  

      Rumbold - or mister scratched record - I refer you to me @9 and @11.

      I suppose as HMS Sceptic Isle disappears beneath the waves you’ll still be saying “but we had to make the cuts, the cuts, don’t you see, the cu… gurgle gurgle…”

    27. Rumbold — on 19th July, 2010 at 9:32 pm  

      MaidMarian and Boyo:

      I feel these cuts need to be made faster and deeper than either of you do. I may turn out to be wrong, but, based on my understanding now, these cuts need to be made. Yes, people lose out. They are bound to. Money is being cut. The question is whether continuing spending at the current rate is sustainable or not (and even cuts are needed to merely continue spending at the current rate- otherwise the deficit would widen further). It think not. Other people disagree.

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