The Sun claims 'no sane person' can believe spending didn't cause the crash. These economists disagree.
The papers are ablaze this morning with write-ups of last night’s BBC Question Time, where Labour leader Ed Miliband defended his party’s record on economics.
While the liberal Guardian and Independent papers lead with Miliband’s declaration he would sooner not be prime minister than forge a deal with the Scottish National Party, the Tory press has seized on his questions about public spending.
When asked by audience members if he agrees Labour spent to much money while in office, Miliband said he did not, repeating his argument that the financial crisis caused the rise in spending, not the other way around.
The audience, which the Tory press warned would be too left-wing before the broadcast, cut with the grain sown by the very same papers that praise them today, accusing Miliband of peddling a lie.
Always at the head of the pack, today’s Sun editorial says:
“To gasps and groans, the Labour leader insisted the Gordon Brown government in which he served played no part in the financial disaster which left the coalition with ‘no money’ in 2010.
It was all down to the grasping bankers and the global crash, he claimed. Not Labour’s overspending.
There cannot be a sane person who believes that.”
As it happens, Miliband does not clear Labour of responsibility. He has said repeatedly its failure to adequately regulate the banks led to the crisis.
But is it true that ‘no sane person’ can believe it was Labour’s spending that caused the crash?
William Keegan, economics commentator at the Observer, begs to differ in his 2014 book Mr Osborne’s Economic Experiment:
“On the eve of the 2007-2008 financial crisis, public spending as a share of the economy was, at 39 per cent of GDP, close to the levels recorded during the latter years of Kenneth Clarke’s 1993-1997 chancellorship.”
Or what about Nobel prize-winning economist Paul Krugman? Writing in March in the New York Times, he said:
“Was the Labour government that ruled Britain before the crisis profligate? Nobody thought so at the time.
In 2007, government debt as a percentage of G.D.P. was close to its lowest level in a century (and well below the level in the United States), while the budget deficit was quite small.
This graph puts spending under the last Labour government into historical perspective (click to enlarge):
In fact, the pre-crisis deficit was lower under Labour than during the previous Tory government of John Major, as this graph shows:
Oxford macroeconomics professor Simon Wren-Lewis, writing in the Independent, explains:
“We can see the surpluses in the early years of the Labour government, followed by the deficits around 2002/3. In the final years before the recession, we can see how policy tightened, so that just before the onset of the recession the deficit was very small.
This is hardly the story of a profligate government creating a crisis. Compare the tiny budget deficit in 2006/7 with the much larger deficits under the Conservative government in 1992-4.”
Of course, government debt as a percentage of GDP did rise under Labour, but after the financial crisis hit and tax receipts collapsed. As this graph shows, the spike in borrowing corresponds precisely with the sharp drop in GDP growth during the crash:
It’s a breakdown in the logic of cause and effect – as well as basic chronology – to say the rise in borrowing and spending after the crash was what caused it.
Writing in his excellent article ‘The Austerity Delusion‘ in Wednesday’s Guardian, (which includes a bruising critique of the current Labour party), Krugman called the idea that Labour’s fiscal irresponsibility caused the financial crisis ‘nonsensical’.
Wren-Lewis said blaming Labour’s spending and borrowing for the crisis is ‘economically illiterate’:
“the last government did not borrow excessively, whilst the recession was a consequence of overleveraged banks and the collapse of the US housing market.
The banks overextended themselves in poorly regulated financial markets, indulging in high-risk lending in the belief that a housing bubble would never burst.”
We’ve seen the Sun try to paint its political enemies as ‘insane’ before, writing on April 14 that anyone who thinks Miliband will run the economy more sensibly than Cameron shoold seek a psychiatrist.
Meanwhile, the current government’s record on the economy is a complete shambles, baring no relation to the rosy picture in the press, and has even seen (gasp) massive borrowing.
Sanity or insanity aside, no sensible person can take the Tory press seriously on economics as long as it continues to promote falsehoods on Labour spending and the financial crash.
Adam Barnett is a staff writer at Left Foot Forward. Follow MediaWatch on Twitter
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39 Responses to “Tory press blasts Miliband on Labour spending and the crash. But he’s right”
blarg1987
Yet the Conservatives pledged to match labours spending pound for pound and demanded the labour government do less regulation, note not the word better but less regulation of the financial industry.
It is also worth noting the debt increased significantly when the government took on responsibility for the banks.
If you took on responsibility for your children’s mortgage would that by your own definition imply your irresponsible?
Guest
Having read this article three times now, there are points to be made on both sides of the fence. Firstly Labour did NOT overspend on public services, but they FAILED to regulate the banks.
This happened as has been pointed out, that both David Cameron and Nick Clegg called for less regulation on the banks, after Gordon Brown (bad PM), went to Parliament to call for more regulation on the financial services industry….result? The banking crisis not of Labours doing, but ALL major parties.
As for Cameron and Osborne saying we’re all in this together, what a joke. Osborne himself is heir to a baronetcy and fortune, but claims child benefit for his children…..do you think he will give that up like he is forcing others to? I doubt it seriously.
This is true of all politicians sadly, and until we embrace Dr Brian May’s campaign for decency in politics, and vote for the MP we feel will fight for LOCAL issues then this situation will keep happening.
Also, looking at the Tory narrative this election, and before….first we had vote Farrage, anmd wake up with Milliband….well in 2010 people voted Cameron, and we woke with Clegg……and now Labour will just get in with the help of the SNP…..unless I am wrong Milliband has ruled out any kind of deal with the SNP.
The real issue for me in all of this is why can’t the tories tell us what cuts are happening in Welfare, being disabled myself and unable to work due to chronic pain, that worries me….and the other issue is why can’t Labour tell us what tax rises we will have?
Let’s face it, neither of the big two parties are being transparent enough……but whoever I vote for, I’ll make sure it is for an MP who will fight for my community, and not my damned vote.
Leon Wolfeson
2006? 2006 is not 2010. And no, it wasn’t inevitable that we’d have a depression – that was the coalition’s choice.
We have a bubble in the city and due to high housing prices, as you oppose normal growth rates, calling a basic functioning economy where poverty is not rising “unsustainable”.
Of course you argue that we don’t have enough austerity and too high a GDP, too high wages. Lots of zero-hour, self-employed (due to desperation) and part-time jobs, while hours worked are flat. This is terrible.
And great, so you argue for the international food aid the poor will need under more austerity, right?
sarntcrip
shock NON DOM OWNED PAPERS COME OUT AGAINST LABOUR
INDY PROVES IT’S NOT INDY BY BACKING THOSE WHO WILL DO LEAST HARM TO PROPRIETORS TAXSAVE THE NHS TOMORROW VOTE LABOUR