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

Marcus Roberts looks at what happens when the 'political reality' prevents you from doing what is actually best


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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