If my memory serves me correctly, one of the rounds of applause received in the UK election debate on Thursday was when Clegg said that Miliband should have apologised for crashing the economy when they were in office. That suggests that a significant number of people (I suspect not including Nick Clegg, but that may be optimistic) think it is true that Labour should apologise for crashing the economy. Are they right?
You can see why they might think this, because much of the press keeps saying they did. In addition, the more non-partisan parts of mediamacro hardly ever challenge members of the governing parties when they make the claim that Labour crashed the economy.
The difficulty here is that ‘Labour crashed the economy’ is not complete fiction. If the accusation was that Labour crashed the economy through fiscal profligacy (which it sometimes is), that is a straightforward falsehood, and it is easy to show it is a lie. The economy crashed because of the global financial crisis. But if fiscal profligacy is not mentioned, the claim cannot be dismissed as completely wrong. This is because the Labour government, like their Conservative predecessors, brought about or tolerated a regulation regime and a financial sector that allowed the global financial crisis to have a particularly damaging effect on the UK economy.
That is I guess why Ed Miliband seemed to respond to this accusation by saying something like: “yes we did get financial regulation wrong, but …”. That may be an honest reply, but it is not very effective, because many will read it as admitting Labour caused the recession. A better reply would be: “everyone knows that the recession was caused by the global financial crisis and insufficient regulation, but the recession would have been worse if the Conservatives had been in power.” As Mervyn King says “the real problem was a shared intellectual view right across the entire political spectrum and shared across the financial markets that things were going pretty well”, a view which he of course shared. I think the claim that the recession would have been worse if the Conservatives had been in government can be justified on two grounds. First, the Conservatives did accuse Labour of too much financial regulation, not too little. Second, they were against Labour’s fiscal stimulus in 2009.
Why is it important that Labour combat this charge effectively? Because it seems to me, being as impartial as I can be, that when it comes to a contest of macroeconomic competence between the last Labour government and the current coalition, Labour wins hands down. That is not so much because Labour were so good (although they got some important things right, like not joining the Eurozone, setting up the Monetary Policy Committee, and fiscal stimulus in 2009), or because the coalition has been all bad (setting up the OBR was clearly a positive move). It is because the coalition made such a bad mistake with austerity, a mistake that very many warned them about. Losing the equivalent of at least £4,000 per household is a big deal, with no obvious equivalent in my professional lifetime. Even if we were prepared to forgive this as a genuine mistake, to plan to make exactly the same mistake again either suggests a complete inability to learn, complete incompetence, or a duplicitous pursuit of ideology over social welfare.
On a more positive note, if you want a detailed assessment of the coalition’s record on a whole range of economic issues, look both here and at the Coalition Economics website. The latter is by the same team that made an assessment of economic policy under Labour for the Oxford Review, and that issue is also available on the website, so even if the authors do not make an explicit comparison between the two governments, you have the information to do so. Some excellent articles are already there (including one on financial regulation), and more are to follow.