Contrary to what you may have read on Iain Dale’s diary, I have not lost my economic marbles. Indeed, it is Mr Dale who shows a clear lack of economic understanding.
“I did a short turn on Sky News yesterday alongside Will Straw of Left Foot Forward. Incredibly, he seemed to be advocating that far from cutting public expenditure, we should be borrowing and spending more. He reckoned there was some sort of ‘slush fund’ available to pump money into various sectors because unemployment hadn’t reached the heights many people thought it might. So just because the government hadn’t spent money on unemployment benefit, it could now spend this money on other, as yet undefined, things.
“And there you have the difference between the left and the right. If it were me, I’d use the money to reduce borrowing, whereas Will would spend, spend, spend. And we all know where that gets us.”
Yes, we do, Iain. The economic stimulus of autumn 2008 – opposed by the Tories – has dampened the worst impact of the recession, particularly on the labour market. And yet, the British economy “remains very depressed” according to the National Institute of Economic and Social Research.
And far from Dale’s claim, I was at pains to suggest that there wasn’t a “slush fund” (Martin Stanford’s words) and that any additional economic stimulus should be spent on essential investments. The point here is not to borrow further but to ensure that money not spent on unemployment benefits is used for investment – a point on which I was happy to co-sign a letter in today’s Guardian organised by Colin Burgon MP. For the record, here’s what I said on Sky:
Straw: And of course because the impact of the recession has been less severe on unemployment than previous recessions, there is some money that’s been saved and that can be used for really important projects like infrastructure investments and so on, particularly in green industries.
Sandford: So there’s a slush fund essentially to try and woo the voters?
Straw: No I don’t think we should see it as a slush fund to woo the voters. I think economic times are much, much, much too serious for that. If this money emerges, it should be used for investment purposes for the good of the country.
As for Dale he appears to be in cloud cuckoo-land on a number of fronts. On Sky he said:
“I’ve never expected massive cuts in the first year. So I think it’s a convenient scare tactic for Labour to say that there will be massive cuts which will lead to unemployment and all the rest of it. But I think it’s a false argument.
“I think the more interesting argument is whether this is going to be Gordon Brown’s budget or is it going to be Alistair Darling’s? Because I think Alistair Darling actually understands the seriousness of the situation. He himself has predicted a deficit of £178 billion this year. But we see from tax revenues which are plummeting that it could be much more than that. So any govermment which comes after May 6th will have to make clear what their plans for cutting the deficit are going to be.
Three questions for Iain Dale (I won’t hold my breath):
1. Why do you think cuts in 2010-11 are necessary when they are opposed by the 67 economists who wrote to the Financial Times, the Confederation of British Industry, the Institute for Fiscal Studies, and the IMF?
2. Why is it a Labour scare tactic to fear the pace of cuts from an incoming Tory government when David Cameron has accused the Government of “moral cowardice” by failing to promise immediate public spending cuts?
3. Which economic report have you read which suggests that the deficit will be above £178 billion?
33 Responses to “The economic consequences of Mr Dale”
Political Scrapbook
RT @leftfootfwd: The economic consequences of Mr. Dale http://cli.gs/QGNa2 @iaindale
Ellie Gellard
I'd be shocked if @iaindale answered @wdjstraw 's 3 questions. Will he surprise us? http://tinyurl.com/yhdt3pr
Josh
As usual, Mr Foot advocates voodoo economics whilst forgettinga about the real world. I shall repeat again…
In 1933, the fiscal deficit was 4.5% of GDP in America. During the first 4 years of New Deal, the deficit averaged 5.1%. That is a 60 basis point difference. Are you really suggesting that this means the difference between depression and recovery? If so, why did America not tip back into depression when a deficit of 21.5% of GDP was turned into a surplus of 1.9% of GDP two years later, a swing of 2,320 basis points?
You suffer from the ‘confirmation bias.’ You search out the economists who vindicate your opinion and ignore the other side of the argument, something you once accused me of, yet I ignore all mainstream economists and stick to the heteredox schools who are not funded by government grants and big business e.g. the Keynesians and the Monetarists.
The problem with stimulating using borrowed money is that it must come from somewhere. Since we didn’t have a surplus to utilise (as Keynes advocated*), we had to borrow it, and I’m sure you’ve heard of Ricardian Equivalence. Well, as predicted, the savings rate has exploded from negative rates to nearly 9%. And the empirical evidence suggests fiscal stimulus through spending is about as useful as a one legged man in an arse kicking contest. Hugh Hendry, who unlike academic economists has to work in the bearpit of the marketplace, has an excellent piece in the Telegraph today. I prefer to listen to those with experience in practicing what they preach, unlike the academics in ivory towers who spread doubt and fear with regards to tackling our explosion of debt. As Lucio once remarked, ”Our doubts are traitors, and make us lose the good we oft might we by fearing to attempt.”
Josh
*One final remark, Keynes advocated low public spending (below 20% of GDP according to Skidelsky’s latest book) during boom periods and high taxation in order to build a budget surplus. We had a very large deficit. Why do you always forget 50% of Keynesian theory? Is it the only way to justify the other 50%?
J H Holloway
So what will you do when the money markets either stop lending to your party, or massively increase the interest rate for doing so?
The pound sterling is not a pdf file that sits on Gordon’s desktop, ready to be printed off. There is a limit to borrowing.
Moreover, because Gordo spent more than he collected in taxes at the top of a boom and spends way, way more than he collects at the bottom of a recession, under what circumstance would Labour either spend slightly less or actually only spend what they have?