Mehdi Hasan

Mehdi Hasan’s polemical take on politics, economics and foreign affairs

Memo to Ed and Ed: ignore the call to embrace austerity

The New-Labour, me-too approach on cuts is a political and economic dead end.

By Mehdi Hasan Published 06 January 2012 13:39

Jim Murphy, long regarded as the leading Blairite in Ed Miliband's shadow cabinet, has attracted a handful of headlines today with his Guardian interview, in which he says Labour must have "genuine credibility" on the economy and reveals that he would accept £5bn of Tory defence cuts.

The shadow defence secretary tells Nick Watt:

It is important to be both credible and popular when it comes to defence investment and the economics of defence. There is a difference between populism and popularity. Credibility is the bridge away from populism and towards popularity. It is difficult to sustain popularity without genuine credibility. At a time on defence when the government is neither credible nor popular it is compulsory that Labour is both.

"Genuine credibility". A phrase right up there with Paul Krugman's "Very Serious People". Don't get me wrong. I support cuts to the UK's defence budget. And, of course, credibility is self-evidently important. But Murphy and his fellow Labour deficit hawks have outsourced the definition of credibility to the Tory party, the right-wing press and neoclassical economists. After all, is "genuine credibility" secured through growth of 0.5 per cent? Or unemployment at 2.6 million? Yet, bizarrely, despite the economy tanking, and Osborne's deficit-reduction plans falling apart, an increasing number of New Labour figures are buying into the Tory narrative on the deficit and embracing their right-wing opponents' monomaniacal obsession with deficit reduction over economic growth and job creation.

As Watt notes:

The timing of Murphy's intervention is significant in domestic and international terms. On the domestic front it comes just as key Labour figures express doubts about the party's economic strategy. These concerns were highlighted in a pamphlet by Lord Mandelson's Policy Network think tank last month which criticised the "vagueness" of Labour's deficit reduction plans.

But embracing austerity is bad politics and bad economics. It is a strategy (if one can call it that despite the fact that I have yet to hear how it will help Labour present a convincing and appealing alternative (yes, alternative!) to the Tories' failed austerity agenda) premised on a myth: that Labour went into the last general election opposed to cuts and committed to higher levels of public spending. This is nonsense. Alistair Darling's plan to halve the deficit over four years was enshrined in the Labour manifesto - to the irritation of some on the centre-left (like Polly Toynbee, David Blanchflower and, er, me!) In fact, Darling went as far as to claim that Labour planned to make "deeper and tougher" cuts than Margaret Thatcher made in the eighties. It's a fiscal strategy that was then adopted by the two Eds, Balls and Miliband, despite the fact that it muddied the ideological and policy water between the Conservatives and Labour and has since enabled coalition ministers to defend their draconian austerity measures with a version of: "Well, Labour's own figures show they would have had to cut almost as much as we are."

If the two Eds, egged on by the likes of Murphy, now truly believe Labour can win the economic argument with a "we want cuts too, but not just yet and not as many", and by going beyond Darling, they are living in a fantasy world. Politically, austerity-lite won't cut it with the voters. Economically, it won't work in spurring much-needed growth (see here, here, here and here). It is time, as a wise man once said, for Labour to say that deficits aren't "immoral" and make the argument that "sometimes deficits are necessary to serve the society you live in". (Interestingly, the wise man in question was David, not Ed, Miliband, during the Labour leadership contest of 2010).

In fact, in today's Guardian panel on "what Ed needs to do now", columnist Zoe Williams hits the nail on the head:

The problem with Ed Miliband's opposition is not that they won't admit their past mistakes but that they don't articulate properly either their mea culpas or their triumphs. A simple graph, rendered in word form (preferably spoken by Miliband himself, rather than Balls) would demonstrate that there was no systemic deficit problem before the crash, and the upkick that made the spending look dangerous was due to the banking crisis. Then they could legitimately apologise for failing to regulate banking; point out that the coalition hasn't regulated it either and we're still subject to the same risks; and mention, furthermore, that Gordon Brown averted disaster over that period. . . If they won't make that case, they are just left tugging at the threads of the austerity drive, which comes across as unconstructive and watery.

To abandon opposition to cuts, as those cuts begin to bite, as voters back a slowdown in the deficit-reduction programme and as more and more data shows that austerity is killing the British economy, is just madness. The New-Labour, me-too approach on cuts is a political and economic dead end and, in my view, best ignored.

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Tags: Alistair Darling budget deficit Economy Labour

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30 comments

Sat, 2012-01-07 11:22 — C Baker

Labour were great pals with Murdoch, did not regulate the banks, went to war over anything Bush wanted and practically tried to push through the suspension of habeas corpus.

How can anybody take them seriously in terms of addressing social inequality? They let the banks raid the public sector pension pot. Was this actually a Labour party?

The reality is, they are useless. Maybe Ed will win the next election, but it will be a Labour party that is crass and of no importance.

It's a sad day for UK politics, when the opposition is so amateurish.

Ed is already falling in to the trap of taking too much notice of the pr geeks. You can tell he has had a word with his puppet master, Balls.

Balls has no idea what to do with the economy and so needs Ed to pave the way for him, before he has to face the public and say he has no alternative, other than, copy the tories.

The mps were happy to pass a five year term for this parliament. Job security! Ed gets his salary and never has to come up with a policy.

The worse thing about Labour is that they have no vision for the future. The cabinet front bench looks exactly the same as before. The tired clique.

Is Ed really going to fight the next election, on I don't agree with Cameron. Or, we wouldn't have done that, as his mantra. I can see the billboards now. What would Ed do? with loads of blank canvas!

Sat, 2012-01-07 12:21 — john henry (not verified)

Can someone please tell me why labour won't make the case that there was no systematic deficit problem before the crash and their spending plans were being matched by Georgie Boy? It continues to baffle me why Labour won't make this case as it will surely get them out of the problem that the Tories are saying that they caused the massive deficit and so they can move on to show the damaging effect of the Tories counter-productive, anachronistic, austerity programme.

Sat, 2012-01-14 12:48 — Villan (not verified)

What would be the point of voting Labour if they are coming out now and saying they support Tory policies? This is political suicide.

Fri, 2012-01-06 17:35 — Arturo Bandini (not verified)

I really cannot believe that Labour has allowed the Tories to exploit the fact that a lie shouted loud and often enough is allowed to become the the truth.

They need to show some balls and call these people out - ask them in the Commons, are you ignorant of economics or simply a bunch of liars?

Sat, 2012-01-07 13:38 — Phil (not verified)

Spot on as usual Mehdi. It's frustrating isn't it John? The tories have peddled this myth that the global financial crysis was labour's fault, and got away with it! Partly due labour's recent political incompetence but mainly because have been so relentless with their mantra.

You have to hand it to them though, if nothing else, the tories are bloody good at conning people.

Fri, 2012-01-06 18:30 — Martin (not verified)

"Politically, austerity-lite won't cut it with the voters"

Where is your argument for this?

Remember Gordon Brown and that Prudence stuff? What was the politics behind that?

Labour has always had a problem with being trusted to run the economy. That's just a fact. Cite any opinion poll you like.

That was a political problem. Gordon Brown dealt with it by being ruthless about controlling spending.

Then what happened? Before the crash, Brown was running a consistent deficit. We were borrowing at the height of the boom.

Did that turn out to be either good politics or good economics? Would Keynes have approved? What did this do to Labour's repution for competence?

Most voters know instinctively that Labour was spending too much before the financial crisis. That contributed to the size of the deficit now. And it restricted our capacity for inflating our way of the crisis - because we were already running a deficit at the height of the bubble.

Do you seriously thing any sceptical voters are going to be persuaded by either a defence of Brown's recent record ("Everything was fine until the car hit a brick wall") or "We were borrowing heavily before the crash. What we need now - in the middle of a sovereign debt crisis - is even more borrowing."

Even if the economics made sense - we must run the biggest deficit we possibly can - the politics are very iffy.

Your post would be more persuasive if you at least acknowledged that a) there is some merit in not running a huge deficit; and b) some voters are reluctant to vote for high taxes and big deficits.

Sat, 2012-01-07 15:28 — Shinsei67

@Phil:
"The tories have peddled this myth that the global financial crysis was labour's fault,"

Ten pounds to the charity of your choice if you can find one Tory who said the global financial crisis was entirely Brown's fault.

The criticism of Brown has always been:

1) The UK banks and housing market were a major contributor to the global over leverage that led to the banking crisis. Labour's poor regulation of the banks and too low interest rates (forced on BoE by inflation target that excluded asset prices) was responsible for this (as were similar US policies)

2) UK was ill-equipped to deal with banking crisis and recession as UK's poor recovery post crash has shown.

3) Poorly thought out and expensive bank bail outs that did nothing to rein in bankers (either their bonuses or risk taking activity).

Thu, 2012-01-12 14:45 — EatYourGreens (not verified)

"Murphy and his fellow Labour deficit hawks have outsourced the definition of credibility to the Tory party, the right-wing press and neoclassical economists."

That's the best thing you've written in ages, thank you!

Sat, 2012-01-07 16:07 — john henry (not verified)

I agree @Phil that Labour has to admit that its "soft touch" policy on City Regulation was an error. They shouldn't be ashamed of admitting this as it was the continuation by New Labour of the Thatcherite policies concerning the City. That is, "The Market Rules. OK!" In admitting this they must also show that Boy Georgie and The Tories were in full support of this policy and so they cannot wash their hands of the ensuing debacle. It's sickening to hear and read the hypocrtical tripe spewing from Dodgy Dave and Boy Georgie concerning Tory policy on this.

Sat, 2012-01-07 16:22 — Shinsei67

@JohnHenry:

"In admitting this they must also show that Boy Georgie and The Tories were in full support of this policy"

Only the Tories actually opposed Labour's removal of the BoE from its well established and successful role of regulating the banks and vehemently opposed teh creation of the toothless FSA.

Look up any of Francis Maude's comments as shadow Chancellor back in the late 90s for proof.

And if you think there was light touch regulation in the 80s then you evidently know little about financial regulation.

There was a plethora of new legislation to tighten up stuff like money laundering, insider dealing and forcing City professionals to be regulated.

Sat, 2012-01-07 16:53 — Pobinr (not verified)

I am a Liberal democrat.

I demand in the name of democracy that whether you want to or not;

You will like the fact that immigrants are taking our homes so adding to the housing shortage.

You will like the fact that we give £45,000,000 a day to the EU.

You will like the fact that immigrants are taking our jobs so adding to unemployment.

You will like the fact that immigrants are ruining our quality of life by adding to road congestion & over crowding in this little Island of ours.

You will like the fact that hundreds of millions of your taxes are spent each year on translators in the classroom & courtrooms.

You will like the fact that a disproportionately high percentage of crime is committed by immigrants http://www.bbc.co.uk/crimewatch/wanted/

You will like the fact that being in the EU is the worst thing to happen to this country since WWII

I am insane

Fri, 2012-01-06 19:22 — Shinsei67

"and appealing alternative (yes, alternative!) to the Tories' failed austerity agenda)"

Osborne's key economic strategy is to maintain low interest rates. As this is the biggest single stimulus to the UK economy.

Seeing as bond yields are at a modern day low, the AAA rating is for the moment secure & the UK is regarded as a safe haven, and the deficit appears to be falling much in line with expectations then Osborne's economic strategy is clearly working.

Fri, 2012-01-06 19:27 — PhilDuval

@ Martin

Were the credit rating agencies warning about the deficit prior to 2008? No.

Was this borrowing historically high? No.

The Tories matched New Labour spending up to 2008.

Why did the borrowing skyrocket after 2008? To bailout fraudulent banks which claimed they were suffering a liquidity crisis when actually they were INSOLVENT and STILL are.

How do you expect to achieve growth to pay your debts when the private sector is deleveraging? In comparison to private sector debt government debt looks positively healthy.

http://articles.businessinsider.com/2011-12-04/markets/30473957_1_househ...

New Labour followed YOUR ideology to the letter.

'Labour has always had a problem with being trusted to run the economy. That's just a fact. Cite any opinion poll you like.'

And that's just an opinion too. In what sense have the Tories managed the economy any better over the last 30 years? The growth of the 80s was no higher than the troubled 70s - all that Thatcher did was displace a crisis onto the shoulders of those least able to bear it.

In what sense is Osbourne running the economy any better? He set out claiming to reduce the deficit and yet he has had to borrow billions more despite sacking tens of thousands of public sector workers and many private sector workers whose jobs relied on public contracts. He claimed private sector job creation would outweigh public sector job losses and he has been proved conclusively wrong.

The historical revisionism is obscene.

Understandably many voters are reluctant to vote for high taxes. Why should they bail out not just reckless financial speculation but systemic fraud? Corporation tax is half what it was in the 60s and we know that thanks to the tax havens and transfer pricing they don't pay anywhere near the 26% they are supposed to. Let these monopolistic behmouths pick up the tab.

This economy is going no where until the insolvent banks are allowed to go to the wall and national investment banks can be set up to lend to productive and sustainable businesses. But since half of Tory party funding comes from the City I won't hold my breath.

@ Shinsei67

'Osborne's key economic strategy is to maintain low interest rates. As this is the biggest single stimulus to the UK economy.'

Low interest rates are there to allow insolvent banks to borrow at very little cost and then try to gamble their way to making some sort of good on their toxic Mark to Model assets. So, stimulating whose economy? Non-financial private sector has flat-lined.

In what possible sense is borrowing more than you planned in line with your expectations of falling deficits?

Jesus wept.

Fri, 2012-01-06 19:44 — Shinsei67

@PhilDuval

"In what possible sense is borrowing more than you planned in line with your expectations of falling deficits?"

The deficit is falling on an annual basis. This year's deficit is on target for the forecast of £127bn. The deficit peaked in 2010 at £155bn.

Perhaps you mean that the future path of deficit reduction is slower than initially forecast. Which is true but the deficit is still falling. As the OBR clearly said recently the reason for lower growth than forecast in 2011 is entirely down to higher than expected oil prices. Nothing to do with cuts or austerity which were already factored into forecasts.

I'd lay off the "jesus wept" comments as you are clearly somewhat confused by economics.

Sat, 2012-01-07 17:58 — john henry (not verified)

Shinsei67. As I said above, Boy Georgie and the Tories DID NOT OPPOSE New Labour's "soft touch" policy on the regulation of The City. Did they or did they not?

Wed, 2012-01-11 17:45 — John P Reid (not verified)

You say that Ed doesn't need to wrry about his image as Nick Clegg was popular with the leaders debates ,yet his vote didn't go up, well, The Lib dems did well in 2005 for being the Anti iraq praty, and some people who voted for them because of this went to the tories or back to Labour as 7 years had past in 2010,
there was also a 8% increase in voter turnout in 2010 ,so even though Libdem vote only went up by 1% the otry vote only went up 3%,

Sat, 2012-01-07 18:59 — Hugh Markey (not verified)

If the Ed-twin-set opt for a carbon copy of the Tory austerity package, no matter how feint, the media and the faint-hearted in the Party and the Coalition Government will claim there was no other option, Labour have at last seen the light, and Cameron and Osborne were right all along.
O K Ed Milliband may claim not to be 'Tony Blair' but he is the slavishly following the NOW Blairite Blueprint, somewhat gingerly we admit, but with no deviation as far as we can see. BB stands for Blairite Blueprint not Big Business.
Just go back to the mid- 1940s. Shortages and coupons and the Tories deriding a Labour Government for imposing restraint upon a population that had defeated the Nazis Germans, the Fascist Italians and the third-axis-power Japan.
So the Labour Government nationalized the Commanding Heights of the Economy, created the NHS, boosted employment and opportunity and yet the Conservatives kept on about 'the freedom to dine at the Ritz'.
In Paris ladies who ventured out in Dior garments were promptly and roughly disrobed by other more hard-pressed females. But British women's magazines kept on about the shortages to women whose disposable family income had to go on the bare necessities.
Luxury hotels and restaurants did not have to bother with 'coupons' during WWII. They rationed by price, and occasionally by breeding. They were always full of the right sort of people being cosseted by the 'wrong' sort of people.
Should the Labour Party don on sackcloth and ashes the Conservatives will hark back to the grim days of post-War Britain when Labour was in charge. Obviously no mention will be made of the earlier part of the Twentieth Century when the Tories, for the most part, were in the driver's seat.
Is that foregoing a valid account of this period of British?
Michael Gove will definitely swear blind it is spurious. What more can we say?

Kings & Queens

Fri, 2012-01-06 20:51 — Martin (not verified)

@PhilDuval

I believe I dealt with your points about pre-2008 spending with "Everything was fine until the car hit a brick wall".

Yes, things were relatively peachy before we hit the brick wall. The public finances were not in crisis pre-2008. We were prefectly able to run a deficit. Unfortunately, it turned out that we were doing so at the peak of the business cycle. That was the problem. About a third of the post-2008 deficit was structural.

No one who is serious believes it's a good idea to run a deficit indefinitely, across tho whole business cycle. Keynes certainly didn't believe that.

"Why did the borrowing skyrocket after 2008? To bailout fraudulent banks"

This is false. The bailout had zero effect on the deficit. It was a one-off capital payment. It increased the debt but not the deficit.

The reason the banking crisis wrecked public finances is that there was a collapse in tax receipts. That's because Brown was running a bubble economy. The bubble burst - the tax receipts disappeared.

"And that's just an opinion too."

It is. But, unfortunately, it is an opinion widely held among people whose votes Labour needs if it is to win a general election. That is the reality Labour faces.

It is not clever politics to say: "We will run as big a deficit as possible and increase public spending as much as possible". That is not going to dispel the notion that Labour can't be trusted with money.

Fri, 2012-01-06 14:05 — Neil Clark1

"To abandon opposition to cuts, as those cuts begin to bite, as voters back a slowdown in the deficit-reduction programme and as more and more data shows that austerity is killing the British economy, is just madness"

Absolutely. And we mustn't forget what the 'hidden agenda' behind the cuts is: destroying the last remnants of the progressive post-war mixed-economy settlement.

Labour shouldn't just be rejecting the politics of austerity, it needs to reject neoliberalism in its entirety and it can do that by pledging to support renationalisation of our railways, national infrastructure and utilities and supporting a major 'New Deal' style programme of public works and public investment to reduce unemployment.

Fri, 2012-01-06 14:16 — mike cobley (not verified)

Jim Murphy calling for credibility made me laugh like a drain. Er, credible with who, exactly? Well, we all know the answer - why, its those international financiers and investors, the same vultures whose greed ate away at the heart of national economies and brought continents to the brink of ruin. The 2 Eds need to get some genuine anger across, and Murphy needs to stop listening to the spawn of Friedman.

Thu, 2012-01-12 00:50 — Awake!

that's right Mehdi the clown, the best thing labour can do is what u say.
HAHAHAHAHAHAHAHA
Truly u cannot take a pulse

Sat, 2012-01-07 02:38 — Michael Dixon (not verified)

The advice from by Zoe Williams, as advocated as good in this article, is the very reason why Labour are in big trouble. Mention of Brown is political suicide. Whether his supporters think it fair or not, the truth is he is either forgotten, ridiculed or hated outside Labour circles. Based on years of example from Brown, the mentor of Balls and Miliband the younger, of denial as to mistakes, his juniors lost their moment to admit they got a lot wrong in 2010. Now too late.

Labour was the government when the banking crisis occured and as such every one of their policies was put under the microscope. The pitfall of power. It happened to John Major who was PM on Black Wednesday and even though he left a decent/improving economic situation in 1997, people did not forgive or forget and could not wait to give his government the boot.

The 2010 election left Labour as a rump of a Party outside Scotland, the north-east, parts of London and parts Wales. Reading this article there seems to be absolutely no recognition on how deeply unpopular Labour were as a Government and how distrusted they remain as a Party.

Truth be told I am not that sure anyone is really listening to Labour and their views on the economy.

Fri, 2012-01-06 14:50 — Colin (not verified)

Mehdi and the ideologues would rather lose on a Bennite programme than win on a Blairite one. If only the public was presented with a clear alternative, they moan, we could perhaps achieve a socialist victory. Trouble is, the voters ain't buying the command economy prescription as all the polls show.

Oh by the way, Medhi - Cameron says carry on!

Tue, 2012-02-21 07:57 — Abraham2

Should the Labour Party don on sackcloth and ashes the Conservatives will hark back to the grim days of post-War Britain when Labour was in charge. Obviously no mention will be made of the earlier part of the Twentieth Century when the Tories, for the most part, were in the driver's seat. http://www.101realestate.net/

Fri, 2012-01-06 16:04 — DK (not verified)

Well said, Mehdi and Neil Clark! Yes, it's time to insist that a well-trained workforce and a well-educated population benefit everyone, as does a functioning and equitable health service and public-transportation infrastructure. These things cost money, but it's money well-spent and adds more to the economy in any case than the massive mountains of hoarded cash the super-rich use to play financial roulette. Higher taxes are needed to put that money back into the real economy.