Politics vs Economics: setting the scene for the Fabian’s Next Economy conference


 

When over a thousand leftist activists, politicians, journalists and academics meet at tomorrow’s Fabian New Year Conference to discuss the economic alternative, the issue of Labour’s political credibility will be foremost in the minds of many.

But as readers of this evidence-based blog well understand, political credibility without actual policy effectiveness is a short term fix that hinders the long term solution. Rather, the party faces the challenge of balancing political credibility against economic effectiveness: the political/economic equivalent of threading a tiny needle with oversized string.

Why? Because the two are at odds with each other.

Political credibility for Labour at the moment, as dictated by the party’s right-wing friends in the media states that austerity in depth and in detail is needed to restore Labour’s electoral fortunes.

Alternatives such as borrowing-to-spend are dismissed as lacking credibility due to the electorate’s seemingly settled view that ‘Labour spent too much’ (regardless of the stats on the matter) as well as the bond markets’ and credit ratings agencies’ repeated demonstrations of power across European and American politics.

So the left faces a dilemma in which we ‘know’ that austerity will not deliver growth; that austerity will in fact deliver higher welfare bills (particularly as the negative externalities of long term high unemployment hit home) which in turn will add to the deficit; and that austerity augurs a Japanese-style ‘lost decade’ of next-to-no-growth.

The left also ‘knows’ that a properly Keynesian response in which government borrowing was increased to allow for far greater spending on those areas that provide for major stimulus to the economy would mean greater growth, more jobs and lower welfare bills.

Such stimulus should be Swiss-style and emphasise infrastructure (particularly mass transit)  and exports which adds jobs in the short term and assists growth ever after.

But almost as soon as the radical idea of doing what the numbers tell us will work is offered it is shouted down by the realists who think they ‘know’ that the market will not bear such heresy and that the electorate will not tolerate even radicalism grounded in sound economics, weighty with previous success .

To date, Labour’s thinking has focused far more on what our economy should be like once growth has restored.

Indeed even the most worthy of contributions on this, Policy Network’s excellent ‘In the Black Labour’ , focuses more on what spending should be like post-crisis then on how to get there.

But with even Osborne admitting that the next government will still have to tackle the deficit what is needed right now is not so much ‘in the black Labour’ as ‘out of the red Labour’ – how would Labour restore growth, reduce unemployment and tackle the deficit all within significant political and economic constraints?

Thus the challenge facing the worthy thousand political and economic brains gathering tomorrow is to thread the needle between political credibility and economic effectiveness. Good luck.

Half Day tickets are still available for tomorrow’s conference

See also:

More grim news: Economists predict UK will be back in recession in 2012 – Alex Hern, December 12th 2011

“In the black Labour” nails its colours to the OBR – the OBR that keeps on getting it wrong – Cormac Hollingsworth, December 2nd 2011

UK growth down as IMF warn deficit reduction should not be at the expense of growth – Shamik Das, October 5th 2011

Growth cut the 2010-11 deficit as fast as cuts – Cormac Hollingsworth, September 22nd 2011

Without growth will we even halve the deficit? – Cormac Hollingsworth, September 20th 2011

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  • Anonymous

    Until you sit down and produce a proper set of accounts for the government, you’re in cloud cuckoo land.

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  • Michael2Brannigan

    Fair point. Not going to happen though. Not with Moribund as leader. This was the man that followed Tory policies, along with his, evident, Right-Wing brother. The reason that New Labour has no cogent political or economic argument is because it has allowed the Tories to dictate the game rules. Until we have a leader who is brave enough to take on the argument and understand the ramifications of an oppressive and vitriolic press backlash, New Labour will be in the shadows for years to come. And deservedly so.

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  • Renideo

    Absolutely right. Labour is in opposition, and the events of the next few years will be dictated by coalition policy. Standing for the correct economic solution may seem untenable, but presents a clearly defined alternative which will be proven by the facts as events move forward. The failure to do this is part of why the Autumn Statement did little to nothing for Labour. The public regard the party as equivocal on economic policy, and ambiguous as to their alternative were they in power *right now*. Ed Balls said he felt vindicated by the AS, but that vindication was not recognised because Labour has failed consistently to produce a clear, unambiguous alternative. Even from a purely political perspective, staying close to the government position will yield no benefits whether or not it succeeds. And as Labour does not believe it will, certainly Ed Balls doesn’t, standing by its convictions is the only reasonable thing to do– the country needs a proper opposition party right now.

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  • http://www.politicalhook.co.uk/ Owenkennedy25

    Too true. I have to agree with @Michael2Brannigan. Labour needs a new leader who will stand up and not only take on the argument but take the argument to the coalition.

  • Anonymous

    I think that the Tories might be about to solve the problem of increasing welfare bills by abolishing the welfare state.

    Since Callaghan’s ‘can’t spend’ speech, Keynes has no credibility either. But the state can raise money by taxing the rich and spending this money on growth. Perfect solution. No need to borrow, reduce inequality, grow the economy.

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  • http://twitter.com/Newsbot9 Newsbot9

    We need a party on the left, you mean. Labour are no longer remotely credible. The LibDems need to split back out into their constituent parties…then there would be one which…

  • http://twitter.com/Newsbot9 Newsbot9

    Great, where are yours?

  • Nick Leaton

    I’ve my set of accounts. I’m not in cuckoo land.

    7,000 bn of debt, and that doesn’t include welfare.

  • Nick Leaton

    Except if the wealth of the UK is less than the size of government debt. You won’t be able to tax everyone to produce the income needed to meet government liabilities.

    The result of that is government default. That doesn’t have to include defaulting on gilts. It involves defaulting on pensions.

    For example, raising retirement age = defaults.
    breaking the linkage with wages = defaults
    changing from RPI to CPI = default.
    ….

  • Anonymous

    Love your point about the government defaulting, but the wealth of the UK is huge compared to the debt. As Greg Filo (http://www.glasgowmediagroup.org/) points out a wealth tax would remove the debt. The deficit can be removed by collecting the tax the rich don’t pay (£120 billion qv Richard Murphy) and adding an odd few taxes (there are loads take your pick) on top.

    It’s a workable solution. If we actually lived in a democracy rather than a plutocracy it’s the policy the government would be pursuing.