Opinion: The Coalition are winning the economic argument

It’s a dark winter night in Westminster but the building from which a group of men emerge is still wreathed in light. The men clamber into a sleek car, which streaks away through the emptying streets. Their journey is short in physical distance, but it’s long on significance for all of them. They are serious of face and purpose as the vehicle stops by one of the quieter spots on the riverbank.

The heaviest of the men is the first to get out, he flashes a look along the river bank, and seeing it deserted, nods quickly to his companions, all of whom except the driver, step gingerly onto the riverbank.

The smallest of the three men takes charge now, nodding at the other two, who without speaking they go to the boot of the car and take out a box. Although both big men, they struggle with it; cumbersomely put together, it’s in danger of collapsing even as they haul it to a spot furthest from the nearby street.

In the darkness they start digging, the largest of the men handles a spade expertly, digging with a quiet controlled proficiency that his friends wish he could apply to everything else he does. The middle of the men, digs with a rambunctious  energy, but his aggression is such that he must surely break the spade if he continues much longer. This man grunts and says to the other two, “you wouldn’t see those posh t*$%s doing this themselves eh, probably have a servant for that.”

John Prescott (for it is he) stares at the man who just spoke, and says, “Ed we don’t forget you went to a public school as well”.

Ed Balls (for it is he) just grunts and contemplates doing a mischief to the spade, which is already bent out of shape from the violence of his digging.

The smallest of the trio, who had watched the work with what he hoped was authority, was getting impatient, lest they should be seen. “Is the hole deep enough yet” Ed Milliband says,” just get the box into it, and lets get away from here”.

Two of them grab the box, stare at it malevolently, and drop it into the hole. It catches a shard of moonlight as it falls, but only four words are visible “Too far, Too fast”.

Prescott spoons some earth over It with the spade, and Balls adds more by kicking.
They clamber up the riverbank towards the car, each knowing without speaking that they won’t mention the box or its contents ever again. The driver presses the engine into life before they get to the top of the bank. As the trio are about to enter the warmth, Prescott pulls away and says he wont be going any further with them, he has to “see his secretary about something”.

Ed Balls guffaws. Milliband looks bewildered but then worries. “They all like John” he thinks, “he gets invited to everything and no one wants him to change, maybe if I went to see my secretary more, then people wouldn’t want me to change”. He must remember to ask his wife about it when he gets home.

Milliband opens his new writing pad, it takes time to find a blank page because each of the pages has one letter from the word RELAUCH written in large print across it.
On finding a clear white space, Ed Relaxes and begins thinking about all the things he is going to say at the next PMQs

And there is where we must leave it, for we have reached the limits of my imagination.
I cannot fathom what Ed is going to say at the next Prime Ministers Questions. Where can Milliband go with that after his shadow Chancellor Ed Balls told the world that Labour’s starting point would be “keeping all the cuts” and the public sector pay freeze.

This is the third shot Labour have loaded in their battle for economic credibility, moving from the cuts being ‘ideological’ right through to endorsing them. In future I may try to anticipate what Ed Milliband will say when next he speaks at a demo by public sector workers against the cuts, their reaction to him can be seen in the more than 900 comments at the bottom of that Gaurdian article.

To argue that there are only brighter times ahead for the economy would be foolish. But there are grounds for optimism.

Twenty consecutive months of growth achieved while delivering borrowing figures lower in 2011 than in 2010 is positive news in any climate, while stronger than expected numbers from the US show that while the EU is in decline, other key British markets are recovering. This explains why the Office of Budget Responsibility calculate that in the last quarter British exports increased, while the country is borrowing at a cheaper rate than Germany. But as I have written numerous times, its the Coalition’s actions on inflation that will determine its success on the economy.

Much of the inflation of the past twelve months is temporary in nature, with Middle Eastern tensions increasing oil prices, and commodity prices driven up by increased demand in developing nations.

But there has always been more to it than that; the weaker the British Economy, the greater the need to borrow, the weaker the pound becomes and the more expensive imports become as a result – this is a key cause of the inflation we have being seeing.

All of this was predictable and inevitable, and was always going to make 2011 a painful year for Britain.

2012 wont be a bed of roses, but as the cuts hit demand hardest, the dramatic reduction in inflation should pick up part of the slack, keeping demand and growth just the right side of the line to prevent the double dip recession Labour have been forecasting since 2010.

The biggest threat to this scenario is further tension in Middle East pushing up oil prices and even greater dysfunction in the Eurozone causing sovereign debt prices to rise. But its not the latest batch of economic stats that can most be used to justify the claim that the Coalition are winning the argument, it’s the direction of travel.

There is still much room for debate on the economy. There are far too many variables in play for any certainty. But the acceptance by Labour of the volume of cuts and the need for public sector pay restraint highlights a victory for the coalition in determining how future economic debate is framed.

*David Thorpe is a Lib Dem member in Hammersmith and Fulham.

* David Thorpe was the Liberal Democrat Prospective Parliamentary Candidate for East Ham in the 2015 General Election

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30 Comments

  • mike cobley 20th Jan '12 - 1:24pm

    Hogwash – just because the Two Eds are intrinsically incapable of deploying a vigorous and genuine argument for a social democratic alternative does not mean that the Coalition has won the argument. With these economic indicators and unemployment figures, store chains closing, town centres being eviscerated, public services the same, while homelessness, poverty and illness signifiers on the rise? I think the words you’re looking for are Epic Fail.

  • toryboysnevergrowup 20th Jan '12 - 1:28pm

    David if you haven’t noticed we are going into recession now. The growth rate is less than in your forecasts, the deficit has not shrunk any where near the extent forecast. Even the ratings agencies have cottoned onto the fact that austerity packages are bad for growth and increase the risk of sovereign default, rather than reduce it. One of the problems with the Eurozone is that the Germans/French are committed to the same austerity thinking as your blessed government. But all you seem to be worried about is political knockabout and winning an argument – rather than changing a Government economic policy that isn’t working. The LibDems may be enjoying playing the role of the Moldovan dancer to Captain Osborne but the navigation error is now apparent to all of us and the rocks are fast approaching.

    Keynes said when the facts change I change my mind (or similar) – when does this apply to you David?

    Miliband saying he will not make commitments until he knows what the situation is at the time at the next General Election is the only thing any sensible politician could say – imagine what you would be saying if he hadn’t said something else. Perhaps rather than reading the newspaper headlines you should look a little closer at the detail about what Labour is saying should be done to the economy now.

  • toryboysnevergrowup 20th Jan '12 - 1:39pm

    David, you are Dr Pangloss and I claim by £5

  • Labour just want their cake and eat it at a time when people don’t like politicians who have their cakes and eat it.

    The problem is the `we can have it all and be damned about the costs` mentality that Labour fostered when it never was like that except for Labour’s bubbles that made people think like that. What we have now is the best that is CURRENTLY AVAILABLE – Labour are trying to say `we’ll tell you our proposals in 2015` works in a time of ever-increasing prosperity but not at a time of austerity which is our only choice: borrow to invest for growth in some sectors, cut as much as possible, hope your cuts don’t stop growth, hope your borrowing doesn’t frighten off lenders. Keynes would have known this, Cameron knows it, Darling knew it, Balls knows (but avoids saying) it, I’m not sure Miliband knows anything.

    The people that spent within their means hit back at the GE and the other problem for Labour is that the people they need to keep are diametrically opposed psychologically, emotionally and mentally to those that are Labour’s core vote so trying to be two things at once. Those that didn’t splurge realise that `more borrowing` just means them propping up the first lot. Of course, there are huge structural problems in the UK economy with inequality of opportunity – Labour tried to patch it up with sops to those most disadvantaged instead of fostering their imaginations to do what all people should do – work hard, delay gratification for the long-term and save (A German or a Swede could show them)

    The problem with Labour is the Labour party. They are too entwined with the unions to be able to promote a Germanic style industrial democracy to the current coalition supporters.

    People have be

    Our only choice is austerity and some damned difficult choices: borrow to invest for growth in some sectors, cut as much as possible, hope your cuts don’t stop growth, hope your borrowing doesn’t frighten off lenders. Keynes would have known this, Cameron knows it, Darling knew it, Balls knows (but avoids saying) it, I’m not sure Miliband knows anything. It’s a simple inequality, Polly.

  • The people that spent within their means hit back at the GE and the other problem for Labour is that the people they need to keep are diametrically opposed psychologically, emotionally and mentally to those that are Labour’s core vote so trying to be two things at once

    I meant the people that Labour need to reach out to

  • How often will Ed Balls’ argument be misrepresented on this website?

    He did not endorse the Coalition’s cuts, he said that due to the effect of the cuts on the economy he could no longer guarantee that there would be the means to reverse them.

    I’m loathe to throw around accusations of deliberate dishonesty, but the pattern of misrepresentation is beginning to look more than coincidental.

  • toryboysnevergrowup 20th Jan '12 - 2:30pm

    Sean
    If you think that Keynes would have argued for government austerity in the current economic climate you clearly have not read Keynes – I think you will find that he argued that governments should be mean in times of prosperity, which may be where you have a stronger case against Labour.

    You perhaps should also think a little about where the surpluses are in the world economy – one of which is the UK Corporate Sector, and how you might start getting them to spend – I very much doubt that further cuts to public spending will do that at the moment. The predominant Centre Right consensus, particularly in Germany, is not going to do much to get growth started again.

    If you haven’t noticed there is rather a large hole in the British and world economy where much of the financial sector used to be. We actually have the alternative of shrinking the economy to plug the hole (i.e. the current plan) or coming up with some strategy to grow the economy elsewhere to plug the gap. While – I’m happy to admit that Labour Party thinking on this has someway to go (as opposed to that of social democratic economists) – you are living in something of a dream world if you think that this govt has anything like a strategy apart from the same old leave it to free markets and dergulate.

    As for your argument that Labour is trying to be two things at once – I do hope you appreciate the irony of this coming from a LibDem supporter as yourself – and perhaps you could remind yourself of what the blessed Vince was saying about the correct time to reduce public expenditure before the GE (or on a host of other things for that matter).

  • “But the acceptance by Labour of the volume of cuts and the need for public sector pay restraint highlights a victory for the coalition in determining how future economic debate is framed.”

    Only half correct… Labour have not accepted the volume of cuts the only reference to that is a sloppy leading paragraph in a Guardian article. They have stated their starting point will be to keep them which is not contrary to their argument that the depth of cuts will harm the economy. If the economy is harmed there will be no scope to reverse cuts. It’s an argument that cannot be proved unless the economy suddenly rebounds in growth and ends up in 2015 balanced…

    If those who think the coalition are right, or those like me that think neither have got it right, frame the argument in disingenuous terms we will never get a sensible debate.

  • David, this is incredible.

    The UK has effectively re-entered negative this quarter, we are just awaiting confirmation. Retailers are going to the wall in their droves. There was -0.5% growth as we left 2010. Unemployment continues to rise especially among the young. The Euro is falling apart, expedited by the Coalition’s unwillingness to deal with it. The UK debt is rising every quarter as our tax receipts fall. Austerity is being extended for at least 2 years longer than the Coalition forecast. The OBR, OECD + IMF have downgraded the UK’s growth projections for 2012 to negligible levels.

    If you want direction of travel to be the key indicator – then the economy is tanking.

    Miliband has been mis-quoted not just by you but Tim Farron as well about cuts; the effect of which has been to create a huge Lib Dem sponsored straw man. This isn’t about Labour. It’s about the economy. ANd it’s getting more critical daily.

  • david thorpe 20th Jan '12 - 3:48pm

    thanks for the commenst to all, willr eply ind etail later

  • @Simon Shaw
    “The verbatim quotes are these (in bold):”

    One of these is a verbatim quote from the author not from Ed Balls. Using this method everything negative written above an interview with a Lib Dem politician can equally be taken as an accurate representation of their policy / viewpoint. Balls needs to be pressurised on which cuts he would not have implemented had Labour won and then be made to demonstrate why they would have aided the economy and voided the need for the current proposed cuts.

  • David Pollard 20th Jan '12 - 7:31pm

    A fascinating graph in yesterday’s Guardian, showed that total UK debt went from 200% of GDP in 1990 to 500% of GDP in 2010 on a slightly rising curve. For a lot of that time Gordon Brown was in charge. Labout cannot use the financial crisis as an excuse. This graph should be used by everyone who wants to show that Labour is in denial.

  • Tony Greaves 20th Jan '12 - 7:33pm

    I am not really interested in what Labour leaders are saying or not saying except to expereince some slight enjoyment that they are getting their knickers in a twist.

    What concerns me is that the Coalition’s economic policy is fundamental wrong. It is based on traditional neoclassical economics which have failed miserably: they got us into this mess and they are now making things worse. Government polices are in opposition to everything the Liberal Party/Liberal Democrats have stood for in my political lifetime. They are proving to be a disaster for the country and a disaster for this party. We have been hoodwinked and brainwashed by the Tories and their pals in the City etc. who alone stand to gain anything by these policies.

    The Emperor really does have no clothes. Perhaps we need a combination of John Maynard Keynes and Hans Christian Anderson to bring some sense to the table.

    Tony Greaves

  • Excellent post by Tony Greaves. Whilst I think Labour have presented their apparent U-turn in a cackhanded way, Ed Balls’ basic point seems reasonable to me; given the likely mess any incoming Labour government would inherit in 2015, it is impossible to make any commitment to reverse cuts or boost public sector pay.

    Rather than plod on with the debate about cuts per se and Labour’s alleged perfidy, perhaps it would be better if we asked whether the right things are being targeted for cuts; should we be cutting DLA yet spending billions on High Speed Rail and an unwanted NHS re-organisation? Is it right that deprived Northern cities are taking a much more severe hit on local council spending than wealthy Tory shires in the south? And how can we ensure that the super-rich pay their fair share of taxes? Even Peter Oborne in the Telegraph, hardly a left-wing paper, is writing today about the threat to social cohesion caused by a super-rich elite.

  • I agree with Tony Greaves that the coalition policy is wrong. The economy is not responding as predicted, the Government will point to the euro zone crisis with some justification. My view has always been that it was just too inflexible and Osbourne has stated this repeatedly. The reason, unlike him, I do care what Labour is saying, and that it is reported correctly, is that we need a decent debate on this and I fear the Lib Dem who would previously had been a leading light in that debate is hamstrung by office.

    @Simon Shaw
    I accept this is the Guardian and not the Daily Murdoch but I have read all the articles they have regarding this, and the reporting of the speech the interview was meant to be a pre-cursor for and find no justification for their statement in the context it was presented. Balls hasn’t had some type of Damascus road conversion, like Osbourne he is far too stubborn to offer such a u-turn even if he felt it was the right thing to do.

    I like to think of the UK’s financial health akin to a dangerously overweight, hypertensive with raised cholesterol. We undoubtedly need to diet, but if we do it too fast the weight just will not stay off. We need a steady diet with the right medicine to combat the hypertension and cholesterol. Whether that medicine is from Dr Keynes I don’t know. But running a business in a city beyond the reach of the motorway network, with rubbish rail links, a recently closed airport and a drastically shrinking defence and public sector, I see everyday that a private prescription alone will not be enough…..

  • David Allen 21st Jan '12 - 1:27am

    “I am not really interested in what Labour leaders are saying”

    Amen to that, and this is why. Slagging off Labour is a camouflage mechanism. It is just a way of diverting attention from the manifold problems with the Lib Dem position. If Labour didn’t exist, our Clegg loyalists would be resorting to pointing upwards at empty sky and shouting “Hey, look at that!”

  • @Simon_Shaw: you seem to miss the thread somewhat. Quoting a Guardian headline is not the same as quoting Ed Balls. You make this differentiation yourself (perhaps unknowingly) in your first post, then seem to hint something about the Guardian’s political allegiance in the second post.

    There’s a reason why the Lib Dems are trying to gain capital out of this by misrepresentation, whilst the Tories are keeping quiet. I just don’t think you or the party can see it yet. Milliband seems to be trying to put doubt in voters minds that the ‘sunny uplands’ Dave and Nick promised will ever happen. If that gets traction, the Tories will be sunk. Nick can’t seem to see indirect threats. This isn’t the first time now, is it.

  • – ”It is now inevitable that public sector pay restraint will have to continue through this parliament.”
    – “My starting point is, I am afraid, we are going to have keep all these cuts.”
    – “There is a big squeeze …. At this stage, we can make no commitments to reverse any of that, on spending or on tax.”

    How anyone can conflate those statements into an ‘endorsement’ of a policy is beyond me. The word ‘afraid’ is, at best, a reluctant acceptance of the current situation….

    Still, rather than scutinise the performance of the past predictions of G. Osborne; let’s concentrate on the nuances of a statement by Ed Balls.

  • @Sean

    It was not people who spent within the means who won the election. It was people who lent beyond their means who won it.

    The Tories were mainly bankrolled by people and corporations from the financial sector.

    If you don’t understand this then you dont understand the first thing about our economic situation or about how power works and whose interests it serves.

  • @ Tony Greaves:

    “Perhaps we need a combination of John Maynard Keynes and Hans Christian Anderson to bring some sense to the table.”

    I hope to see Michael Meadowcroft next week. The pied clarinetist of Bramley. 🙂

  • Bill le Breton 21st Jan '12 - 1:47pm

    The economy, like the economic policy consensus, continues to mirror the performance and consensus of the 1930s (and of Japan over the last twenty long years).

    Labour has joined that consensus in detail, but it was always broadly supportive. It has responded to the pressures of orthodoxy and been bludgeoned into line by Miliband’s poor poll ratings. Highly principled (not) and irrelevant to actual policy.

    David in his piece draws attention to inflation coming down. (We haven’t seen anything yet – wait for January’s figures).

    This is not a pointer to a policy working. It is confirmation, now commodity price increases and tax changes are dropping out of the figures, that deflation is and has always been the major problem.

    Inflation and deflation is everywhere and always a monetary problem. That’s difficult for old opponents of Thatcher to accept, but it was true in the late ’70s and remains so now. Monetary policy has been too tight for over five years now. And was the cause of the crisis. Yes even at 0.5% it’s too tight.

    If people are willing to lend to the Government at 2.5% for ten years it speaks volumes about their opinion about future aggregate demand i.e. anticipated growth and price levels. They are more worried about the return of their money than they are about the return on their money. (HT: Will Rogers)

    What Quantitative Easing there has been has been too little and most of it has filled the banks’ reserves rather boosting nominal Gross Domestic Product (NGNP). In fact the QE we have had has probably been just enough to compensate for/cancel out any change in fiscal injection.

    The amount of words dedicated to fiscal policy swamp the very few you can find referring to monetary policy. What is the Government’s monetary policy? Ur … it doesn’t have one. That’s left to the Bank of England and its Monetary Policy Committee. What?!!!!!!

    We need more quantitative easing, and then more. At first it needs to be used to fund Government Spending, because that way we can make sure it doesn’t just collect in inactive bank reserves. It should include reversing cuts to benefits and, through tax breaks, boosting job creation.

    There is no reason at all why the next £60 billion of Government spending (within this budget) should not be funded, not by the sale of gilts, but by private bank lending to the Government, which would immediately increase the money supply and go through to aggregate demand.

    When the economy begins to move then the next and subsequent rounds of QE should be directed back to the private sector which would then want to use it. We should do this until NGDP is not only back on its 5% trend but has caught up with at least two years of its sub trend performance.

    This technique is what I advocated in my first contribution to LDV three and a bit years ago and that is what I advocate now.

    Even if you think me mad, you might at least appreciate my constancy 😉

  • Dave Eastham 21st Jan '12 - 6:19pm

    I rather think that too much is being made in some quarters of the two “Ed’s” supposed U turn. A botched policy announcement and a sloppy Guardian “interview” a U turn does not make. Perhaps some were reacting to what they thought/hoped had happened . Certainly the reaction of many on the Comment is Free site of the Guardian on the matter was, as they say, “interesting”.

    The reaction of some of the Trade Union leaders did not exactly evidence a secure grasp on what was actually said in some cases. Some of them it seem have run away with their own rhetoric (“Liam Byrne, Jim Murphy, Stephen Twigg and now Ed Balls: four horsemen of the austerity apocalypse.” – oh dear!). And Len McClusky’s actual response, if read, did not actually accuse them of doing what the commentators claimed he said.

    If you actually read what it was the “Ed’s” were trying to do, it was to finally, after 18 months of blanket opposition to everything, (including perhaps, some of their own ideas from when they were in Government?. But mustn’t even approach gloating must we?). They were simply saying that eventually, when/if they return to power, they are not committing to reversing everything and whilst they might not agree the Coalition’s actions so far, it is only so long you can keep up the same mantra. That they would effectively largely keep to the spending plans in 2015 whatever they were likely to be. Thatcher did it in 1979 and Blair did it in 1997. (O.k.. Perhaps not 2 and a half years before an election but I’m not sure that everybody has caught up with fixed term Parliaments yet). So, as far as the “Ed’s are concerned, what’s the big deal?.

    Personally, I agree with others who have posted here, that the details of the Coalition approach so far is mistaken. Rather I fear, using the fiscal situation as an excuse for some of the more unpleasant ideological, Tory, evidence free measures, that far from actually making fiscal savings in the long term, (never mind “temporary” increased costs – Welfare reform, the DLA, not to mention Legal “reforms” and the NHS to name but three), will result in greater costs on the public purse, not less and it all rather deserts all semblance of any Humanity.

    The Lib Dems went into Coalition to yes, implement as much of the LD Manifesto as possible but it was also to put some sort of brake on the Tory excesses that an unfettered Tory right wing administration would undoubtedly have (are) brought. I still think there was no choice other than Coalition, given the actual electoral result and a sulking Labour Party. Plus the undercurrents of a crisis that had been talked up and Britain talked down by Messers Cameron and Osborne. Cameron for instance, claiming in the year prior to the Election that the IMF would have to be called in, a case in point.

    I really think the Lib Dem car needs a change of brake shoes, because if the foot is on the peddle it don’t seem to be having much effect so far!.

  • david thorpe 22nd Jan '12 - 1:55pm

    I deliberately quoted the gaurdian interview because the gaurdian are not going to misrepresent, or stitch up labours shadow chancellor.
    also I say the coalition are winning the argument, have a look at the polls, people have the coalition twenty points ahead on the economy, thats winning the argument.
    france get downgraded britian borrows at cheapest ever rate,
    thats winning the argument.

    whether the general public’s view and the ratings agencies view will prove correct is another matter, but at the moment rhere is no doubt the coalitiona re winning the argument, and labour move closer to the coalition position every day

  • @david torpe

    I made the mistake of judging the coalition’s economic policies by the performance of the economy, whereas you only seem to be bothered about (a) public opinion and (b) the government budget.

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