Thursday, March 31, 2011

Cuts and opportunism

Ed Milliband was again emoting if not explaining his alternative economic strategy on radio 4 this morning. If only we were to borrow and spend more money, that would be good for growth, and therefore good for debt in the long run. It has enough plausibility for people who want to believe it to give Labour cover to proclaim themselves anti cuts, to go on ukuncut demos where by rights they ought to be lynched.

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The reality is that Labour's plans are to cut the deficit more slowly: in 8 years rather than 5. That is reaching the midpoint in 4 years rather than 3. (The coalition reaches the midpoint of deficit reduction in 3 years, rather than 2.5 because the first year (this last one) saw only token cuts.)

What this means is that whenever Labour score political points by "opposing" a cut, they have a policy that would demand that same cut is made, on average, only 1 year later. Not "save our libraries" but "keep our libraries open for one more year then close them" would be an honest slogan. Ditto every other cut.

More could be done by raising taxes of course, but when Evan Davies put the question about not capping council tax, Milliband rejected the idea, saying, rightly that an increase in council tax would squeeze many at a difficult time. (An apology for Labour's record on council tax might have been in order, particularly to pensioners, who didn't even have an earnings link as they do now.)

And that story is repeated. Despite having the policy of somewhat higher taxes and therefore fewer cuts, no tax increase is supported or proposed, save the "jobs tax" that would have raised only about 2% of the deficit.

We are told that Labour's plan would be better for growth. Growth is the answer to everyone, even the Greens it seems, confusingly enough. Of course I would hope they do think their plan better for growth, rather than adopted just for the cheap point-scoring value of pretending to have an alternative to cuts. But believing your plan to be better is one thing. Spending the difference is quite another.

Borrowing to spend is right during a recession to blunt the hard edge of the downturn. It will temporarily boost growth, but at the cost of a long term deadweight of debt dragging the economy down. So as Keynes said, such debts should be paid back when times are good. Now the recession ended in 2009, and we are still borrowing. We will still be borrowing 5 years after the recession, hitting balance in the 6th. Labour's plan is to still be borrowing 8 years after the recession. This is not Keynsianism, just borrowism. Borrowing not just during recession, but all the time, hoping some other party will be in government when it has to be sorted out.

So on the one hand we have lower corporation tax, enterprise zones, apprenticeships, university technical colleges, cutting red tape, part of a comprehensive strategy for growth in the private sector. On the other hand the strategy to borrow and spend in the public sector for 8 years, creating a massive long term dead weight of debt, and neglecting the private sector that could actually bring us the tax revenues we need.

All this for an average 1 year delay to cuts, and the chance to play the good guys.


GoldenLou said...

Interesting take on it - tweeted this out to my followers on twitter, I'm @Bubbalou

Joe Otten said...

Thanks - yes I follow you already :)

Anonymous said...

Come on Joe something about the local elections in Sheffield please after all congratulations are in order for you personally.

As for this piece may I suggest a quick read of Will Hutton's piece in the Observer this Sunday. As he states, again, The UK's GDP to structural debt ratio has been higher for 200 of the past 250 years. What you've bought into is the frightening of the horses in order to put in place neo-liberal policies such as the increasing marketisation of the NHS. Keynes would turn in his grave.

Still good luck with the council work


Joe Otten said...

Thanks Carl.

But why if this is 'frightening the horses' are the government and opposition deficit reduction plans so similar?

Since writing this piece I checked the Labour manifesto, and it actually promised to MORE THAN halve the deficit in four years. Surely the credibility of their opposition to cuts is in tatters.