I’m proud to be a “deficit denier”

The Tories have no empirical or historical basis for their hysteria over the debt.

I've spent the past year on this blog mocking and riling so-called climate-change sceptics or "deniers", so I'm amused to find myself for the first time included in a different list of "deniers". According to the Prime Minister, those of us on who are critical of his government's austerity measures, and prefer to delay spending cuts and tax rises, are "deficit deniers". Hilarious.

Let me be clear: I'd much rather be a so-called deficit denier than succumb, as the Tories and their allies in the media and the business world have, to "deficit hysteria". Those of us who oppose the coalition's fiscal sadism do not deny the existence of this country's largest Budget deficit since the war, nor do we pretend that cuts will never come. We prefer, however, to contextualise the deficit and to point out that, for example:

  1. the national debt as a proportion of GDP is much lower than at other periods in our recent history,
  2. the national debt as a proportion of GDP is lower in the UK than in the United States, Japan, Italy and other industrialised nations,
  3. the UK and Greek economies are not at all comparable,
  4. deep and early spending cuts don't guarantee the retention of our much-lauded triple-A credit rating,
  5. the deficit is a result of a collapse in tax revenues after a recession caused by the bankers, rather than Labour's "profligacy", and
  6. the best route out of debt and deficit is economic growth and fiscal stimulus rather than Hooverite cuts and premature fiscal consolidation.

This last point is perhaps the most important. I'm amazed that some senior Labour Party figures seem to have bought in to this Tory narrative of the deficit and the importance of deficit reduction.

The shadow industry secretary, Pat McFadden, said in a speech this morning that Labour's current opposition to cuts risks exposing the party to accusations by voters of "wishing the problem away".

Peter Mandelson says in his new memoir that the party's biggest mistake in its final years in office was "allowing ourselves to be characterised as indifferent to the deficit or in denial about the consequences as to what was happening in our public finances".

This is a load of rubbish. Labour figures should be at the forefront of explaining the importance of deficits in rescuing fragile economies from double-dip recessions. Labour figures should be, as David Miliband has said, making the "moral" case for deficits. Labour figures should be excavating their copies of J M Keynes's General Theory of Employment, Interest and Money.

As the economists Ann Pettifor and Victoria Chick argue, in a brilliant contribution on the Bloomberg website:

It may seem obvious that if you want to cut debt, you cut expenditure, but Keynes showed that the government finances were very different from a household budget. For him, macroeconomic outcomes were often the reverse of outcomes based on microeconomic reasoning.

Keynes was instrumental in the development of national accounts, which give us the opportunity to test his conclusions. Combining the official estimates with British economist Charles Feinstein's invaluable historical estimates permits an analysis of the impacts of fiscal policy over the past century.

They point out that there are "eight episodes over which changes in the public debt (as a percentage of gross domestic product) can be compared with those in public expenditure" and they report that "the results stand wholly opposed to the conventional wisdom". As Pettifor and Chick write:

Comparing for each episode the average annual change in the public debt as a share of GDP and the average annual growth in government expenditure in cash terms, we have results that are perhaps even more remarkable than Keynes might have imagined. There is a very strong relationship between changes in government expenditure and the public debt.

But, outside the two world wars, the relationship goes in the opposite direction to that predicted by most commentators: increases in public expenditure are associated with reductions in public debt. Very roughly, so long as there is unemployment, for every percentage rise in government expenditure, the public debt falls by half a per cent, and vice versa. This is very compelling evidence in favour of Keynes's insights.

Even Simon Jenkins -- no friend of Gordon Brown or Alistair Darling! -- argues in today's Guardian::

Worst of all for Osborne is that, were it not for the continued rise in public spending, Britain would still be in recession. The ONS was quoted today on the crucial role of government spending in the first three months of this year in underpinning the economy. Private wages have been falling by 1.9 per cent and state wages rising by 3.6 per cent. Osborne is right to assert that this dependency on government is unwise and unstable. But it is one thing to accuse the patient of being a drug addict, quite another to send him cold turkey overnight.

Everyone professes not to want a double-dip recession, yet every bit of news, from home and abroad, suggests that this is now a real prospect.

He adds:

Why the west's economic leaders seem so trapped in a pre-Keynesian time warp is intellectually intriguing. An answer recently given by the economist Paul Krugman in the New York Times is that they care more about their "institutional credibility" in financial markets than about refloating a depressed economy. They are like statesmen who prefer to rattle sabres than avert war.

Another answer, closer to home, is that politicians seek to curry favour from their immediate circle. In the crises of the 1960s and 1970s, Britain's rulers spent their time with trade unionists and businessmen. They neglected the "supply side" and generated raging inflation. Now they associate with bankers obsessed with the security of bonds, and therefore with budgetary asceticism. In this respect, Osborne is no different from Darling. Both ignore Keynes's simple insight that businessmen will not invest and the economy will not grow if there is no consumer demand for products.

Hear, hear!

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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Tony Blair might be a toxic figure - but his influence endures

Politicians at home and abroad are borrowing from the former prime minister's playbook. 

On 24 May at Methodist Central Hall, Westminster, a short distance from where he once governed, Tony Blair resurfaced for a public discussion. Having arrived on an overnight flight, he looked drawn and puffy-eyed but soon warmed to his theme: a robust defence of liberal globalisation. He admitted, however, to bafflement at recent events in the world. "I thought I was pretty good at politics. But I look at politics today and I’m not sure I understand it."

Blair lost power in the summer of 2007. In the ensuing nine years, he lost reputation. His business ventures and alliances with autocrats have made him a pariah among both the public and his party. A YouGov poll published last year found that 61 per cent of voters regarded Blair as an electoral liability, while just 14 per cent viewed him as an asset. In contrast, John Major, whom he defeated by a landslide in 1997, had a neutral net rating of zero. It is ever harder to recall that Blair won not one general election (he is the only living Labour leader to have done so) but three.

His standing is likely to diminish further when the Iraq inquiry report is published on 6 July. Advance leaks to the Sunday Times suggest that he will be censured for allegedly guaranteeing British military support to the US a year before the invasion. Few minds on either side will be changed by the 2.6 million-word document. Yet its publication will help enshrine Iraq as the defining feature of a legacy that also includes the minimum wage, tax credits, Sure Start, devolution and civil partnerships.

Former leaders can ordinarily rely on their parties to act as a last line of defence. In Blair’s case, however, much of the greatest opprobrium comes from his own side. Jeremy Corbyn inclines to the view that Iraq was not merely a blunder but a crime. In last year’s Labour leadership election, Liz Kendall, the most Blair-esque candidate, was rewarded with 4.5 per cent of the vote. The former prime minister’s imprimatur has become the political equivalent of the black spot.

Yet outside of the Labour leadership, Blairism endures in notable and often surprising forms. Sadiq Khan won the party’s London mayoral selection by running to the left of Tessa Jowell, one of Tony Blair’s closest allies. But his successful campaign against Zac Goldsmith drew lessons from Blair’s election triumphs. Khan relentlessly presented himself as “pro-business” and reached out beyond Labour’s core vote. After his victory, he was liberated to use the B-word, contrasting what “Tony Blair did [in opposition]” with Corbyn’s approach.

In their defence of the UK’s EU membership, David Cameron and George Osborne have deployed arguments once advanced by New Labour. The strategically minded Chancellor has forged an unlikely friendship with his former nemesis Peter Mandelson. In the domestic sphere, through equal marriage, the National Living Wage and the 0.7 per cent overseas aid target, the Conservatives have built on, rather than dismantled, significant Labour achievements."They just swallowed the entire manual," Mandelson declared at a recent King’s College seminar. "They didn’t just read the executive summary, they are following the whole thing to the letter."

Among SNP supporters, "Blairite" is the pejorative of choice. But the parallels between their party and New Labour are more suggestive than they would wish. Like Blair, Alex Salmond and Nicola Sturgeon have avoided income tax rises in order to retain the support of middle-class Scottish conservatives. In a speech last August on education, Sturgeon echoed the Blairite mantra that "what matters is what works".

Beyond British shores, political leaders are similarly inspired by Blair – and less reticent about acknowledging as much. Matteo Renzi, the 41-year-old centre-left Italian prime minister, is a long-standing admirer. "I adore one of his sayings,” he remarked in 2013. “I love all the traditions of my party, except one: that of losing elections."

In France, the reform-minded prime minister, Manuel Valls, and the minister of economy, Emmanuel Macron, are also self-described Blairites. Macron, who in April launched his own political movement, En Marche!, will shortly decide whether to challenge for the presidency next year. When he was compared to Blair by the TV presenter Andrew Marr, his response reflected the former prime minister’s diminished domestic reputation: “I don’t know if, in your mouth, that is a promise or a threat.”

The continuing attraction of Blair’s “third way” to European politicians reflects the failure of the project’s social-democratic critics to construct an alternative. Those who have sought to do so have struggled both in office (François Hollande) and out of it (Ed Miliband). The left is increasingly polarised between reformers and radicals (Corbyn, Syriza, Podemos), with those in between straining for relevance.

Despite his long absences from Britain, Blair’s friends say that he remains immersed in the intricacies of Labour politics. He has privately warned MPs that any attempt to keep Corbyn off the ballot in the event of a leadership challenge would be overruled by the National Executive Committee. At Methodist Central Hall, he said of Corbyn’s supporters: “It’s clear they can take over a political party. What’s not clear to me is whether they can take over a country.”

It was Blair’s insufficient devotion to the former task that enabled the revival of the left. As Alastair Campbell recently acknowledged: “We failed to develop talent, failed to cement organisational and cultural change in the party and failed to secure our legacy.” Rather than effecting a permanent realignment, as the right of the party hoped and the left feared, New Labour failed to outlive its creators.

It instead endures in a fragmented form as politicians at home and abroad co-opt its defining features: its pro-business pragmatism, its big-tent electoralism, its presentational nous. Some of Corbyn’s ­allies privately fear that Labour will one day re-embrace Blairism. But its new adherents would never dare to use that name.

George Eaton is political editor of the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad