The deficit doves strike back

Blanchflower, Skidelsky and Stiglitz to the rescue.

I've long argued that it's a mistake for the left, and the government in particular, to sign up to the "cuts agenda" pushed by the Tories, the right-wing press and the free-market think tanks since the financial crash in late 2008. Instead, Brown, Darling et al should have questioned the underlying (and economically illiterate) premise of the Tory argument: how does cutting spending in the middle of a recession help economic growth or prevent widespread unemployment?

As I pointed out in a speech at Ken Livingstone's Progressive London conference last month, going into an election campaign advocating only "nicer" and "smaller" cuts is both unwise (in terms of economic policy) and pointless (in terms of political strategy). The fact is, on spending v cuts, the much-reviled Ed Balls has been right all along.

It is therefore a delight to see some of the country's -- indeed, the world's -- top economists come out in favour of deficit spending, and against immediate and "swingeing" cuts, in two letters to the Financial Times today.

My colleague George, on the Staggers blog, has already posted on the two letters and pointed out that they make a mockery of George Osborne's claim that there is a "consensus of expert economic opinion" behind his plans to make cuts to public spending as soon as he walks through the door of No 11.

Letters signed by economists have a long pedigree in British politics -- the celebrated 1981 letter by 364 academic economists, protesting Geoffrey Howe's monetarist budget, is often cited. The 60-plus economists in the FT today were responding to the silly, incoherent letter signed by 20 other economists in the Sunday Times last weekend. From the Murdoch-owned paper:

Signatories of a letter, published today in the Sunday Times, include the former chief economist of the International Monetary Fund, a former deputy governor of the Bank of England and head of the Financial Services Authority, and a former permanent secretary to the Treasury and cabinet secretary.

. . . It was organised by Tim Besley, a professor of economics at the LSE, who left the MPC last year. The names include Lord Turnbull, Sir Howard Davies, Lord Desai, Ken Rogoff, Thomas Sargent and Sir John Vickers.

As I said, George has already highlighted how foolish today's letters make Osborne look, but I'd point out that they make Tim Besley look like an even bigger fool. Here's his quote in the Sunday Times:

"I don't want this to be seen as us siding with anyone," he said. "But it does suggest that the Conservatives are where majority opinion lies."

How foolish he must have felt this morning, confronted by two letters of rebuttal signed by, among others, Nobel Laureates such as Joseph Stiglitz and Robert Solow, Ivy League heavyweights such as Richard Freeman of Harvard, and former members of the Monetary Policy Committee such as our own David Blanchflower, Sir Andrew Large, Rachel Lomax, Chris Allsop and Sushil Wadhwani. Not to mention grandees such as Lords Layard, Skidelsky and Peston. Sorry to seem so petty and immature, but the Sunday Times list looks rather pathetic, insubstantial, underqualified and second-rate in comparison.

Of course, for some people, this will all seem like gobbledegook and another example of dull, internecine warfare within the (much-discredited) economics profession. One is reminded, as our prescient leader in the magazine this week points out, of Churchill's line: "If you put two economists in a room, you get two opinions." Or even Harry Truman's declaration, in response to equivocations from his economic advisers ("on the one hand . . . but on the other . . ."): "Give me a one-armed economist!"

Nonetheless, the future of the economy, and the lives and prospects of millions of unemployed Britons, depend on fiscal policies enacted by the next government. The two FT letters expose Osborne and his Sunday Times supporters as being in the minority, rather than the majority, of "expert economic opinion". It is therefore difficult to disagree with a spokesman for the Chancellor, Alistair Darling, who said this morning that the latest letters showed that Osborne had "jumped on the wrong bandwagon".

Yet this debate will rumble on. The modern-day Hooverites will not give up so easily. Their agenda is to shrink the state, not grow the economy.

So who are YOU going to trust? Economists such as Stiglitz, who warned of the dangers of financial deregulation in the 1990s, and Blanchflower, who saw the recession coming and voted for rate cuts in 2007 and 2008, or Ken Rogoff, a lifelong proselytiser for the deregulatory reforms and financial liberalisation that helped cause the crash, and Tim Besley, who failed to spot the recession coming and voted for a hike (!) in interest rates as late as July 2008?

I know which side I'm on.

 

 

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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PMQs review: Jeremy Corbyn prompts Tory outrage as he blames Grenfell Tower fire on austerity

To Conservative cries of "shame on you!", the Labour leader warned that "we all pay a price in public safety" for spending cuts.

A fortnight after the Grenfell Tower fire erupted, the tragedy continues to cast a shadow over British politics. Rather than probing Theresa May on the DUP deal, Jeremy Corbyn asked a series of forensic questions on the incident, in which at least 79 people are confirmed to have died.

In the first PMQs of the new parliament, May revealed that the number of buildings that had failed fire safety tests had risen to 120 (a 100 per cent failure rate) and that the cladding used on Grenfell Tower was "non-compliant" with building regulations (Corbyn had asked whether it was "legal").

After several factual questions, the Labour leader rose to his political argument. To cries of "shame on you!" from Tory MPs, he warned that local authority cuts of 40 per cent meant "we all pay a price in public safety". Corbyn added: “What the tragedy of Grenfell Tower has exposed is the disastrous effects of austerity. The disregard for working-class communities, the terrible consequences of deregulation and cutting corners." Corbyn noted that 11,000 firefighters had been cut and that the public sector pay cap (which Labour has tabled a Queen's Speech amendment against) was hindering recruitment. "This disaster must be a wake-up call," he concluded.

But May, who fared better than many expected, had a ready retort. "The cladding of tower blocks did not start under this government, it did not start under the previous coalition governments, the cladding of tower blocks began under the Blair government," she said. “In 2005 it was a Labour government that introduced the regulatory reform fire safety order which changed the requirements to inspect a building on fire safety from the local fire authority to a 'responsible person'." In this regard, however, Corbyn's lack of frontbench experience is a virtue – no action by the last Labour government can be pinned on him. 

Whether or not the Conservatives accept the link between Grenfell and austerity, their reluctance to defend continued cuts shows an awareness of how politically vulnerable they have become (No10 has announced that the public sector pay cap is under review).

Though Tory MP Philip Davies accused May of having an "aversion" to policies "that might be popular with the public" (he demanded the abolition of the 0.7 per cent foreign aid target), there was little dissent from the backbenches – reflecting the new consensus that the Prime Minister is safe (in the absence of an attractive alternative).

And May, whose jokes sometimes fall painfully flat, was able to accuse Corbyn of saying "one thing to the many and another thing to the few" in reference to his alleged Trident comments to Glastonbury festival founder Michael Eavis. But the Labour leader, no longer looking fearfully over his shoulder, displayed his increased authority today. Though the Conservatives may jeer him, the lingering fear in Tory minds is that they and the country are on divergent paths. 

George Eaton is political editor of the New Statesman.

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