Winner of the New Statesman SPERI Prize in Political Economy 2016

Friday, 19 June 2015

Where Labour went wrong

When the New Statesman asked me to write something on Osborne’s budget surplus law, they also suggested I talk about what Labour’s attitude should be. Space constraints meant that I could not say much on the second question, so let me amplify here.

Let's start in 2009. The Labour government's policy at the time was absolutely right. They provided fiscal support for the economy in the midst of the recession even though it meant increasing the deficit. Given the belief at the time that the recession might be short lived their policy was also quite clever, using a temporary cut in VAT as a close proxy for looser monetary policy.

What line should they have taken in 2010? I remember reading some reports that Gordon Brown initially wanted to continue placing the recovery above the need to reduce the deficit. If true, he was right. However it was perhaps inevitable that Labour began to also focus on deficit reduction: the recovery looked like it had begun, the debt problems in the Eurozone were constantly in the news, and the Conservatives and much of the media were saying we could become like Greece. So they instead fell back on the idea that recovery could be achieved at the same time as implementing policies designed to reduce the deficit. We can call this the ‘too far, too fast’ period, from the mantra Ed Balls used to criticise George Osborne’s policy.

This was when they made their first big mistake. Both Coalition parties had developed their own mantra, which I can call the ‘clearing up the mess Labour left’ line: Labour profligacy had maxed out the credit card, and so difficult measures would be needed. This is what Bill Keegan calls the big lie. Apparently Alastair Campbell advised Ed Miliband to get an independent figure to do a report on Labour’s fiscal record in an effort to counter this lie, but this advice was rejected. (The paper I wrote came out in 2013, but still to my knowledge Labour has never used it.)

I have seen two reasons given for why Labour chose not to defend its record: Miliband wanted to establish his independence from a government that had lost an election (to ‘move on’), and it was thought that the Coalition strategy of blaming the last government would lose its potency after a year or two. The second argument proved horribly wrong. Instead the ‘clearing up the mess’ line was used to blame Labour for damage caused by 2010 austerity. It was complete nonsense, but it worked. 

In a way 2011 and 2012 were too easy for Labour: the economy was stagnant and Osborne looked vulnerable. But Labour should have anticipated that growth would return at some point before the election - if I could, surely they could. They will not have anticipated the stagnant productivity that allowed unemployment to fall so rapidly, but in political terms growth would have probably trumped high unemployment anyway, as I suggested back in 2012.

What should have happened in 2012 is that the ‘too far, too fast’ line should have changed to become a full blown attack on austerity: that was their second big mistake. By 2012 it was obvious that fears about a UK debt crisis had been completely overblown. The problem with ‘too far, too fast’ is that it sounded like austerity-lite: the need to focus on the deficit was conceded. Labour could have easily got away with changing its line at this point. They could have said that we thought there was a debt funding problem, but now we know there wasn’t. The argument that austerity should be postponed until the recovery is assured (i.e. when interest rates are well away from the Zero Lower Bound) was right in terms of the macroeconomics, but it would also have allowed Labour to combat the ‘clearing up the mess’ line, and profited from Osborne’s move to plan B.

Instead Labour seemed to be constantly triangulating between sensible macroeconomics and what the focus groups were telling them, and thereby producing a policy that failed to convince. Their fiscal policy proposals going into the 2015 election were much more sensible than George Osborne’s, but instead of attacking his renewed austerity they tried to pretend that they too were ‘tough on the deficit’. It was left to the SNP to argue against austerity.

The problem was that instead of presenting a clear alternative vision, Labour looked like it was always playing catch-up with Osborne. As John Curtice writes: “the Achilles’ heel of Labour’s campaign appears to have been a failure to convince those who were sceptical about the Conservatives’ economic record that Labour offered an attractive alternative.” As Lord Ashcroft’s polls show, and as I noted sometime before the election, by 2015 around half the public were against the continuation of austerity, yet Labour’s message on this was confused.

Today Labour continues to think that triangulating on the deficit, or worse just copying Osborne, is the answer. I think this tells us a great deal about the Labour party. That it is light on good macroeconomic advice and expertise, of course. But also that it spends too much time listening to people in the Westminster bubble and fails to spend time thinking about basic electoral strategy.

What Labour needs to ask now is what will prevent the Conservatives convincing the electorate in 2020 that Labour just cannot be trusted on the economy? Admitting their past fiscal mistakes when in government now, however much that is partial and hedged, will just give ammunition to their opponents in five years time. (Just read this, and extract the quotes.) More serious still, by allowing the focus to remain on the deficit, it lets Osborne get away with the damage he inflicted in 2010-2012, and the continuing social costs of austerity. What is the point in talking about the record on growth or productivity, when you appear to have conceded that reducing the deficit is all important, and Osborne is doing plenty of it?

In my New Statesman piece I say it is still not too late to change tack, stop triangulating and try something new - to start telling the truth. But I think there is a danger that this sentence frames the discussion in the wrong way, so it appears to be a contest between pursuing the right policy and winning elections. This post is all about the best way of regaining economic credibility, which means taking a strategic view rather than looking at what sounds good to today’s focus group. Put simply, if around half the electorate already think austerity should not continue, why on earth are Labour giving in to deficit fetishism? In electoral terms, the fact that attacking austerity is also good macroeconomics is just a bonus.


32 comments:

  1. Using the same G that (only) you use to state that there was no austerity in the U.S. in 2013, there is no austerity in the UK under Osborne.
    https://research.stlouisfed.org/fred2/series/GBRGFCEQDSMEI

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    1. Its not the same series, and I do not say 'there was no austerity in the US in 2013'.

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    2. Poor, clueless James. Must be doing it for a bet...

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    3. No, its a much more serious problem. He believes what he reads in Scott Sumner's posts (details in my next)

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    4. Ah, so it really should be 'James in cloud-cuckoo land'

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    5. This comment has been removed by the author.

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    6. In the blog "Faith Based Macroeconomics" SWL took a chart of G in the US to claim, against everyone else, not just Scott Sumner although he was the target of the ridicule, that there had been no new austerity in the US in 2013. When I take a chart of G in the UK and it shows no dip, and in SWL's terms no new austerity, I am ridiculed by SWL and his commentators. Come on guys!

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    7. You must be very, very confused. Referring back to that blog 'faith based macro', nowhere does swl claim 'no new austerity in the U.S. In 2013'. He takes sumner apart for his nonsensical analysis, and sumner claiming austerity started in 2013! Swl replied to you back then and clarified this point, yet you still make the risible claims.
      Incidentally I also replied to you in the comments section, destroying your ridiculous claim that mon pol had offset the austerity impact, which of course it hadn't as the data shows. I don't really wish to ridicule but when someone is so deluded and wrong, making false claims etc, and continues to do even after they have shown to be incorrect, it is difficult not to.

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  2. Tim Bale, on BBC Parliament channel, said in his research for his latest book on the role of the Labour Party during the coalition government, that Miliband had early on in the parliament appointed two men to deal with the written press but only very late in the campaign did he appoint someone to deal with the broadcast media. Given the BBC was already biased towards the Tories before 2010 and in the years after it, shown in the 2012 study ‘BBC Breadth of Opinion Review’ paid for by the BBC Trust and undertaken by the Cardiff School of Journalism, Media and Cultural Studies – pdf available elsewhere on this blog – you really do start to tear your hair out when you see ow amateurish was their campaign.

    The Brontosaurus Blairites were unhappy with Miliband apologising for the Iraq war, while at the same time they were angered at Cameron and Clegg trashing their fiscal record 1997-2007. How Miliband steered through this one would define his leadership abilities - and it has.

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  3. Excellent as usual. In the sixth paragraph, do you mean stagnant productivity caused reduced levels of UNemployment? The less productive companies are (in relative terms) the more people they need to employ, right? I've always thought that this is the Tories other Big Lie - that their headline figure of "two million jobs created" derives from stagnant productivity rather than strong underlying growth.

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    1. Yes, that should have been unemployment. Now corrected - thanks.

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    2. Those supposed two million jobs are largely made up of the people on workfare (work for dole) and the people on the end of IDS' benefit sanction regime. Both groups are removed from the unemployment figures, IIRC.

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  4. To my mind what Labour should be concentrating on is productivity. Osbornes cutbacks will almost certainly affect productivity, either by cutting infrastructure spending but also cutting back on support for such things as training and R & D. Osborne shows no sign of caring one whit about this and yet it is crucial over the coming years, quite apart from being a long term failure of the UK. After all there are long term secular trends which are going to make productivity even more important (aging, globalisation, technology) and we have a government that is only interested in short term political advantage.

    I don't think labour should try and defend its record because, as you imply, nobody is listening; what they should do is switch channels.

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  5. Simon - have you ever thought of speaking at an anti-austerity rally like the one taking place tomorrow? An Oxford professor would lend some credence to the argument and possibly media interest. Or do you ever get invited on to, say the BBC News channel, to talk about economics during coverage of such a rally?

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  6. If this isn't Labour Propaganda I don't know what is.

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    1. Please do feel free to point out the flaws in SWL's analysis. What he's written in this post seems pretty reasonable to me.

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    2. You'll be equally as quick to condemn 3/4 of the national press as Tory propaganda, yes?

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    3. Of course this is not Labour Propaganda. All Labour did was to make some mistakes in their campaign. But they are still better than the Tories, aren't they? That's only reasonable, isn't it?

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  7. Firstly let me say it was a very strange election result , from the point of view of swings and vote shifts, no one would have expected the Liberal vote would totally collapse and go almost entirely to the Tories , no one would expect that the Ukip support would come almost all from Labour and that all the Tory Ukip voters would return to the Tory fold, finally until it happened did any one really think Scotland would really only return one Labour, Tory and Liberal MP. Fear and pensioners won the day for the Tories in England and even Wales.
    I think that Labour under Ed were just a very poor , for the entire 5 years in opposition. They missed easy goals against the Tories on countless occasions , such as failing to make much of the Chancellors best man getting preferential access to Post Office shares making 25 million on the deal and selling the lot. They as you say failed to counter the Tory propaganda that they crashed not only the UK but the world economy , you can read the posts today still in the Guardian and even the Independent article you quote , the believe has past in to the woodwork not sure if it can be removed ever. It was however worse than that, they really put forward very little new or visionary. I read a figure that manufacturing shrank from 19% to 10% from 97-07 , that alone if true should make Labour hang it's head in shame, since most of it's natural support would tend to work there.
    I think that both the main parties Tory and Labour are passed their "sell by date", they represent a 19th century vision of society, the rentiers (aka the 1%) against the working rest (aka the 99%). If nothing else Labour always stood for getting their fair share of the national income for the 99%( to endless rentier taunts of envy), they seem to have lost that in favour of whats perceived as only supporting a bunch of feckless fools, highlighted in reality TV programs like Benefits Britain. There are certainly enough people out there in society who are angry and dispossessed able to forge a new party or take an old one in a new direction, the young , students , those victims of the Buy to Let baby boom pensioners who had it all for nothing and gave nothing to their children and grand children but debt so they could live a comfortable unearned retirement, the entrepreneur struggling to get access to finance to grow their businesses, the greens , those who think TIPP will be and globalization has been a disaster for everyone in the west but the capital owners, those who realize that in a consumption society if you your wages do not keep up with productivity gains you can buy less and a downward spiral starts which benefits no one except the 1%. The party needs to speak again to the people who get up every morning for 40 years and go to work and keep the whole thing running, , not the people who load us up with 700 trillion dollars of worthless derivatives and financial debt.
    They need to include experts with vision , one thing the internet has given us is knowledge and access to non MSM propaganda , the party needs to include advisers like yourself, Micheal Hudson, Stiglitz, etc they need an all encompassing new vision , tinkering around the edges will not do any more.

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  8. I always through the phrase double-dip recession was a problem - it frames the period as a single crisis with a single source. Instead Labour should have talked about two recessions - put there hands up for the first " insufficient regulation" and a second recession caused by austerity.

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  9. Hello Simon. I hope you'll humor me by answering a quick off-topic question about the Keynesian model. In a recent post Scott Sumner described it as such:

    "1. Keynesian: Fiscal austerity is contractionary at the zero bound regardless of whether you have an independent central bank."

    He then presented a number of scatter plots with regressions. According to your interpretation of the Keynesian model:

    Does it make sense to include individual countries in the Euro Area (like Greece) which were at the zero lower bound from 2009 to 2014 even though they don't have an independent monetary policy? Scott's description sounds to me like a state qualifies for inclusion if and only if it's at the ZLB. However there's some question about this.

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  10. I have a BS detector with politicians - whenever they say "We need to get tough on X, W, or Z" that means 90 percent of the time they're gonna take us over a cliff. You wanna be a tough guy, pol? Chuck the focus groups and tell the truth. That's being tough not saying you're tough.

    One note as an American - there has been massive austerity at the state level in certain states run by wingbats; the most striking example is Kansas, where austerity has rendered it a fiscal basket case, gutting schools, exploding the budget deficit, so bad it literally made the right wing governor cry (not making this up). Kansas is America's Greece without the good seafood.

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  11. I have to admit that I am finding the leadership campaign uninspiring. Osborne, I think is ruthlessly exploiting the inward-looking of his opponents. I haven't yet heard anything from the leader candidates that makes me think Labour will fight back effectively. Although the deputy leadership candidates give me more hope.

    Labour appear to be paralysed by the fact that they have failed to counter this deeply unfair narrative.

    I am not completely despairing though. Osborne is an idiot. He may well be a very clever idiot but an idiot nonetheless. (see http://alienfromzog.blogspot.co.uk/2015/06/osbornomics.html) There is a better than even chance that he will scupper the economy again. I think, like 2011-12, there will be opportunities in 12-18 months time as the wheels come off. Labour must be ready with a coherent argument and a fight.

    I am not yet convinced Labour will be ready but they must be: It is of vital - even existential - importance for the party. It is only slightly less important for the country.

    AFZ

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  12. I notice the Danes have moved from centre-left to centre-right. You might find some similar policy problems of the centre-left in Denmark and the centre-left in Britain which would lead the electorate to move right in both countries.

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  13. A lot of good points here. The basic reason for Labour failing to convince people on the economy always seeks to come back to the fact that it was offering ‘austerity-lite’ : if you believe austerity is needed, then why would you ever vote for the lite version when the Conservatives or Liberals can give you the real thing ?

    But why did so many people believe that austerity was the right policy in the first place ? Your article contains a number of paradoxes which point to deeper problems with the way our democracy works, the role of facts and science in developing public policy and how ideas are publicly presented and discussed.

    For example :
    “Instead the ‘clearing up the mess’ line was used to blame Labour for damage caused by 2010 austerity. It was complete nonsense, but it worked.” 
    If this is true, then look no further for reasons why Labour did not pursue a different policy. Few parties will be able to resist ‘complete nonsense’ if enough people believe it.
    Or even more so, given Labour’s obsession with focus groups :
    “Instead Labour seemed to be constantly triangulating between sensible macroeconomics and what the focus groups were telling them, and thereby producing a policy that failed to convince.”
    If even focus groups appear to be rejecting sensible policies, then picking them up won’t look like a good strategy to convince people.

    So fighting against the austerity myth appears a bit desperate :
    How is it possible for something that is ‘complete nonsense’ to convince millions of people ? And why can’t ‘sensible’ policies’ seem to convince people even in focus groups ?
    Against that background, few political parties (although the SNP may be an intriguing exception…) will be able to promote sensible policies or resist complete nonsense. The fact that we can even say that about an issue as big as the economy shows that there is something quite dysfunctional in our political process.

    But it would be worth going a bit deeper into two issues :
    the role of the media - how are ideas about the economy publicly presented and discussed ? What topics are selected ? How are the questions framed ?
    the way macroeconomic issues are publicly explained : everyone can understand the ‘maxing-out the credit card’ story. As long as macroeconomists resort to explanations of the variety ‘but the economy as a whole is different from households’ the game is lost. It will surely be possible to find stories which are more accessible to people to explain why alternatives to austerity are right.

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    1. "But why did so many people believe that austerity was the right policy in the first place?"

      Because the British people have a long-standing distaste, broken only by a 1950s to 1970s historical aberration, for tax-and-spend policies, large-scale redistributive measures (or "predistributive" as Miliband would say), big-government interference, subsidised fecklessness and the failure to differentiate between deserving and undeserving poor, all of which policies are the bulwark of the Labour programme (albeit in theory if not in practice). The sincerely held belief by many left-wingers that Britain had changed forever from the nineteenth century free-trade, night-watchman goverment nation that it has been since the Mercantilist Revolution have proved ill-founded, I am happy to say.

      Macro-Economic arguments, especially if "mainly" focused on as in this blog, have an unfortunate propensity to miss the wood for the trees: even if it does provide a temporary (and I would argue largely synthetic) fillip to the national economy, supposedly Keynesian measures to accelerate economic growth via expansion of the size of the government are profoundly disliked by a decent subset of the British (and even more profoundly, the English) people, who prefer the size and interventionary powers of the government to be kept to a minimum. No amount of crying about "austerity" will change that, and unless the Labour party reverts to its Blairite sheep's clothing it will not win a General Election for the foreseeable future.

      It used to be a truism, even if it has now been forgotten by many: Britain, and especially England, is in the main a small-c conservative country. Labour must either shape up to match, or ship out.

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    2. "subsidised fecklessness and the failure to differentiate between deserving and undeserving poor, "
      Despite the propaganda, the vast majority of the unemployed want to work.
      The solution is to provide jobs. That is much better than welfare. A Job Alternative Guarantee at the living wage to eliminate shite jobs. And to deal with monopolies and rentier issues. Also restricting open immigration to a country with similar scheme/social infrastructure.
      The best way to assess "fecklessness" is to offer the poor a job
      There are ways to try and appear pro market and not too left wing but not Blairite.
      The vast majority of the British public support nationalisation too.
      It should be noted Brown won the 2005 election and during his later years Blair was unpopular. There was a boost in mid-2007 until the crisis.

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  14. "As long as macroeconomists resort to explanations of the variety ‘but the economy as a whole is different from households’ the game is lost."

    Exactly so, and rightly, too.

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    1. Households are currency users. Governments in most cases is a currency issuer. Big difference.

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    2. Random20 June 2015 at 14:47

      Not with Independent central Banks, which are more or less becoming the rule.

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  15. What? The economy as a whole is totally different to a household. Is your problem the truth telling or are you saying economists need to say more?

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  16. Random20 June 2015 at 14:47
    alienfromzog20 June 2015 at 05:29

    You're on your best way to Labour's next defeat.

    Voters dislike more public debt, Inflation, and like strong currencies (see Krugman's last).

    How do you explain that countries following such policies have got along quite well?

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