Six reasons why Cameron is wrong on the economy

It is increasingly clear that the PM is out of his depth and out of touch. This is "nothing for noth

In a speech on the economy yesterday that was 2,235 words long, an out-of-touch David Cameron only mentioned jobs and unemployment once each. He didn't mention the young at all in a week when youth unemployment hit the million mark. It is becoming increasingly apparent that Cameron is a) totally out of his depth when it comes to the economy; b) has no clue what to do to fix the problem; c) has little sympathy for those who are less fortunate than he is. He just doesn't care. Cameron has failed to recognise that his government's economic policies are in complete disarray, and all he can do is resort to spin and obfuscation. Austerity in the UK has failed.

The part of the speech that really struck me was this:

[T]here are some who seriously try to argue that additional spending and borrowing will actually lead to less debt in the end ... despite the fact that no evidence supports this assertion. These arguments are just a way of avoiding difficult decisions ... the kind of something for nothing economics that got us into this mess ... which is why no indebted European country is taking that path. Nor are there any major European opposition parties in high deficit countries arguing for additional borrowing -­ except here in Britain.

It is about time we put this joker straight.

1) Actually, additional spending would stimulate growth and that would increase tax revenues, as it did in the US under the Clinton boom. In case you haven't noticed, Dave, your pal Osborne slashed spending and raised taxes, which increased borrowing. That is why you are in such a mess. What if the government borrowed £100bn that was funded by the MPC through QE, and used the money to say, build ten nuclear power stations. That would lower the cost of fuel, employ people and help masses of small and large firms. It would raise productivity and in the long-run lower our debts, wouldn't it? If not, why not, Prime Minister?

2) There is an enormous amount of evidence to suggest that fiscal and monetary stimulus can increase growth. There is actually no evidence from anywhere in the world to support the ideology you have been following of an expansionary fiscal contraction, especially when it is not possible to lower interest rates. Such a view is "oxymoronic", as Larry Summers has said.

3) These arguments are not a way of avoiding making difficult decisions. They are what has to happen, because your government made the wrong decisions by imposing austerity before the recovery was fully established. You can't blame the eurozone, as it was clear when you formed your government that there were major downside risks to UK recovery from the European periphery and European banks. You just chose to look the other way and go forward with your mistaken policies, wilfully disregarding the potential dangers for the British people.

4) "Something for nothing economics" is a nice phrase but is totally meaningless. If I recall, Dave, you matched Labour's spending plans, supported deregulation and opposed rescuing the banks. It looked like you may have to do the latter if things continue the way they are. Lloyds and RBS are in trouble again. What you did was slash and burn hoping for growth, but you killed off the tender shoots of recovery. The policies you have undertaken without a growth plan is "nothing for nothing economics".

5) "No indebted European country is taking this path." Well, actually, most other European countries grew faster than the UK did over the last twelve months. GDP growth was as follows. Belgium 1.8 per cent; Germany 2.6 per cent; France 1.6 per cent; Netherlands 1.1 per cent; Austria 2.8 per cent; Finland 2.8 per cent; and the UK 0.5 per cent. The eurozone is headed into recession because they are stuck in monetary union. Portugal this week went to the IMF and asked for more stimulus as austerity has failed there too. Austerity doesn't work when banks aren't lending and your major export market is heading into depression. The German central bank, the Bundesbank, today cut its 2012 growth forecast to between 0.5 per cent and 1 per cent, from a June prediction of 1.8 percent. It said a "pronounced" period of economic weakness can't be ruled out if the crisis worsens.

6) "Nor are there any major European opposition parties in high deficit countries arguing for additional borrowing -­ except here in Britain". Denmark has lower bond yields than the UK and lower unemployment, and its new government is introducing more fiscal stimulus. These other countries would do this if they could, but they are stuck in a fiscal and monetary straightjacket. That is why there is talk of the eurozone breaking up.

Dave, you are in a big mess on the economy. What are you going to do if the crisis worsens, as it looks like it might? Panic, I guess.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

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There is no mandate for cutting immigration at the expense of living standards

Leave voters were asked if they would pay a price to cut immigration. The answer was clear. 

The Tories are in a mess on Brexit. The nation remains divided. But everyone accepts the need to prioritise reducing immigration, even at the expense of lower living standards.

These are the three key truisms of post-referendum Britain. But it turns out that only the first of those two propositions is actually true. The third, that there is a popular will to lower immigration at almost any cost, is not true at all. The latest poll from YouGov shows that even a majority of Leave voters are unwilling to accept any reduction in their living standards at all in order to curb immigration.

In the era of "fake news", it is important to begin with the facts. YouGov conducted its latest poll on Brexit on January 11 and 12. It found that the nation was indeed split and only marginally changed from the June referendum outcome.  In this poll, 44 per cent of all voters said they would to Remain and 43 per cent said they would vote Leave. This is well within the margin of error (as was the June referendum itself), and there was little recorded movement from one side of the divide to the other.

By introducing the question of immigration the YouGov pollsters made the responses much more decisive, and quite at odds with the received wisdom on the issue. YouGov asked only Leave voters what is the maximum amount of money they would be willing to lose "in order to regain control of immigration". The responses ranged from nothing at all to accepting a loss of over £200 or month per month and all points in between. The clear majority opted for nothing at all. They were willing to make no financial sacrifice at all. 

Remember, this is solely among Leave voters. It cannot be ruled out that some minority of Remain voters are willing to give up income to see immigration. But this would surely be a minority, possibly a tiny one. Therefore, the overall majority of voters, Leavers and Remainers combined are not will to let their living standards fall in order to lower immigration.

This stands in complete contrast to widespread assertions that the narrow Leave win in the referendum was "really" about curbing immigration. Theresa May herself has said that voters gave a very clear message they wanted tighter controls on immigration.  But of course immigration was not on the ballot. We know that popular sentiment is not pro-immigration. How could it be when voters have been told for years that it is the cause of all their woes?

Still, the clear evidence from the latest YouGov poll (and others) is that voters are unwilling to accept any decline in their living standards to achieve lower immigration. This makes it clear that immigration is not the paramount issue. Living standards are, as they usually are.

This has clear implications for all political parties. YouGov’s poll shows us that Labour cannot win by promising to cut immigration at the expense of living standards, which would surely follow any decision to quit the single market. Indeed, 65 per cent of the 2015 Labour voters voted to Remain. Among the minority Labour Leavers, two-thirds would not be willing to see any fall income in order to reduce immigration. The net result is that just 1 in 10 Labour voters in 2015 are willing to cut see their incomes fall to curb immigration.

Labour’s winning strategy will be to focus on its economic programme for government. Our electoral strategy will show people how Jeremy Corbyn and John McDonnell's economic plan can make the overwhelming majority of people better off. And keep on showing them. The reactionary Tory agenda can only make people worse off.

Diane Abbott is Labour MP for Hackney North and Stoke Newington, and shadow home secretary. She was previously shadow secretary for health.