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?
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33 Responses to “The economic consequences of Mr Dale”
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John77
3 We don’t need to read any economist, just look at the past record. For the first three years when Brown was enjoying the the lingering benefits of Ken Clarke’s policies he always understated the expected performance of the economy and the budget surplus so that the ignorant would think he had created a benefit. Since the Ken Clarke effect was overwhelmed by the Brown effect he has always published forecasts that were better-than-reality. So the natural result is that everyone expects that the deficit will be greater than Darling’s forecast (yes, I do mean everyone including Darling and you).
Richard Blogger writes academic papers so he expects everything published to be accurate and referenced in triplicate. ONS can only analyse the data that is produced and does not forecast the future; the NAO only looks at the past. Neither of them has access to the numbers hidden by the Treasury including unpublished spending commitments.
The vital point is that you seem to believe that the government and the country can continue spending other people’s money at an accelerating rate and no-one will ever ask for it back. That is probably because you are a spoilt brat with a rich father. No, bad credit risks have to pay interest at increasingly high rates and if we don’t have plans to reduce debt instead of (as Darling and Osborne propose) slowing down the rate of increase in our debt, other countries will stop lending us money and demand their money back on the nail. Now THAT would tip us over into a Ramsay MacDonald-type slump! Only Scargill and his cronies want that.
ManicBeancounter
The question of whether to cut now or later may not be at the discretion of the British Government (Labour or Conservative) for much longer, as there are a number of risks that may cause things to worsen. Last years’ budget five-year forecast relied on low stable interest rates and strong growth rates to keep government debt rising beyond 100% of GBP. That was with massive real (but hidden) cuts in public expenditure.
If interest rates rise, or the impact of the fiscal stimulus (and QE) wears off, or if there is a secondary slump elsewhere, or if public sector pay settlements outstrip inflation, or defence spending is maintained, or if we are have firm policies to tackle climate change, then the economy could tip quickly from its current knife-edge. Then any government will have to slash essential services.
On the other hand, whilst interest rates are kept artificially low, the returns to my private sector pension are low, like millions of others. So whilst the Government delays the inevitable with by low interest rates, I have the choice of reducing my living standards now, or see the compound impact on my retirement in a couple of decades.
The lack of maneuver at present is due to pretending that boom and bust had been abolished. As a consequence, at the top of the cycle we had a large deficit when there should have been a small surplus. Now the majority of the £178bn deficit is structural (i.e. not recession-related). We either start cutting now, or cut more later on. The longer we leave that decision, the lower will be living standards in the decades to come.
On this basis, to justify investment now, it should be properly costed and future benefits heavily discounted. Loose political rhetoric as justification is dangerous.
Tyler
The thing I find most amusing about the Left’s position on the budget deficit is the way they think that having the largest budget deficit in the world is somehow not a problem, and won’t scare off investors (clue: foreign investors have been selling Gilts hard, reinvesting into equities). More rightening though, is the way they also think that the deficit will just halve between 2011 and 2014 – we’ll still be left with a massive deficit, but Labour aren’t willnig to tell us how we are even going to get to that point. And no, we can’t grow our way out – the deficit is simply too big for that.
What they fail to realise though, is that they will simply not be given a choice. If the next government doesn’t take serious measures to curb spending and cut the deficit, the Gilt markets will do it for them, the hard way.
Daniel Arlt
The economic consequences of Mr Dale | Left Foot Forward: And far from Dale's claim, I was at pains to suggest th… http://bit.ly/aP0kY6