Paul Krugman said Labour was "weak". Source: Getty Images
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Mehdi Hasan interviews Paul Krugman: Labour is "weak" in its opposition to cuts

The Nobel economist is scathing in his criticism of the two Eds.

In person, Paul Krugman is short, shy and quiet. But the Nobel Prize-winning economist and New York Times columnist isn’t afraid to hurl verbal hand grenades at his opponents – as I discovered to my amusement when I caught up with him on a visit to London this past week.

Krugman, who was in town to plug his new book End This Depression Now!, struggled to find anything positive to say about the EU’s leaders, President Barack Obama or the Israeli government. But it was the Princeton University professor’s comments about the Labour Party that stood out for me.

He was scathingly critical of Labour’s “weak” opposition to the Conservative-led coalition’s spending cuts. “Certainly, economically, they’re too cautious,” he said, dismissing the party’s plan to halve the deficit over four years.

His comments will make uneasy reading for the two Eds, Balls and Miliband, who are petrified of being tagged as “deficit deniers” by their right-wing critics. Under pressure from the Blairites inside the party, they have been trying to find the right balance between opposing the coalition’s austerity measures in the short run and supporting deficit reduction and cuts in the long run.

Krugman seemed to have little sympathy for them: Labour’s position on austerity, he told me, “has been a kind of ‘We’re like them but only less so’. And it does come across as fairly weak.” He continued: “It does seem odd that when you ask me: ‘Where is the really effective intellectual opposition coming from?’, it seems to be think-tank people and journalists. The opposition is Martin Wolf [of the Financial Times], Jonathan Portes [of the National Institute for Economic and Social Research], Simon Wren-Lewis [of Oxford University], David Blanchflower [of the New Statesman] and me.”

That, he said, is a “sad commentary” on the state of Her Majesty’s Opposition.

To add insult to injury, the Nobel laureate had high praise and much sympathy for Miliband’s predecessor, the much-maligned Gordon Brown. “He has been treated unfairly by history,” he said. “Yes, [Brown] made mistakes, but he is a much better guy than his current reputation suggests.”

I asked Krugman if he stood by his now-famous October 2008 description of the former prime minister as the leader who “saved the world financial system”. The economist nodded furiously. “Yes, he took the lead on the financial rescue which did save the world,” he told me. Without [Brown’s leadership], things would have been much, much worse. He was a smart guy.”

Krugman, a long-standing critic of the European single currency, was also keen to remind me how it was Brown who, as chancellor of the exchequer during the late 1990s, “kept Britain out of the euro. It would be a catastrophe here if Britain were in the euro.”

My full interview with the professor will appear in the New Statesman later this year.

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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How the Conservatives lost the argument over austerity

After repeatedly missing their deficit targets, the Tories can no longer present spending cuts as essential.

“The age of irresponsibility is giving way to the age of austerity,” declared David Cameron at the Conservatives' 2009 spring conference. Fear of spending cuts helped deny his party a majority a year later, but by 2015 the Tories claimed vindication. By framing austerity as unavoidable, they had trapped Labour in a political no man's land. Though voters did not relish cuts, polling consistently showed that they regarded them as necessary.

But only two years later, it is the Conservatives who appear trapped. An austerity-weary electorate has deprived them of their majority and the argument for fiscal restraint is growing weaker by the day. If cuts are the supposed rule, then the £1bn gifted to the Democratic Unionist Party is the most glaring exception. Michael Fallon, the Defence Secretary, sought to justify this largesse as "investment" into "the infrastructure of Northern Ireland" from "which everybody will benefit" – a classic Keynesian argument. But this did not, he hastened to add, mean the end of austerity: "Austerity is never over until we clear the deficit."

Britain's deficit (which peaked at £153bn in 2009-10) was the original and pre-eminent justification for cuts. Unless borrowing was largely eliminated by 2015, George Osborne warned, Britain's public finances would become unsustainable. But as time has passed, this argument has become progressively weaker. The UK has cumulatively borrowed £200bn more than promised by Osborne, yet apocalypse has been averted. With its low borrowing costs, an independent currency and a lender of last resort (the Bank of England), the UK is able to tolerate consistent deficits (borrowing stood at £46.6bn in 2016-17).

In defiance of all this, Osborne vowed to achieve a budget surplus by 2019-20 (a goal achieved by the UK in just 12 years since 1948). The Tories made the target in the knowledge that promised tax cuts and spending increases would make it almost impossible to attain – but it was a political weapon with which to wound Labour.

Brexit, however, forced the Conservatives to disarm. Mindful of the economic instability to come, Philip Hammond postponed the surplus target to 2025 (15 years after Osborne's original goal). Britain's past and future borrowing levels mean the deficit has lost its political potency.

In these circumstances, it is unsurprising that voters are increasingly inclined to look for full-scale alternatives. Labour has remade itself as an unambiguously anti-austerity party and Britain's public realm is frayed from seven years of cuts: overburdened schools and hospitals, dilapidated infrastructure, potholed roads, uncollected bins.

Through a shift in rhetoric, Theresa May acknowledged voters' weariness with austerity but her policies did not match. Though the pace of cuts was slowed, signature measures such as the public sector pay cap and the freeze in working-age benefits endured. May's cold insistence to an underpaid nurse that there was no "magic money tree" exemplified the Tories' predicament.

In his recent Mansion House speech, Philip Hammond conceded that voters were impatient "after seven years of hard slog” but vowed to "make anew the case" for austerity. But other Tories believe they need to stop fighting a losing battle. The Conservatives' historic strength has been their adaptability. Depending on circumstance, they have been Europhile and Eurosceptic, statist and laissez-faire, isolationist and interventionist. If the Tories are to retain power, yet another metamorphosis may be needed: from austerity to stimulus.

George Eaton is political editor of the New Statesman.

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