I have written at great length about the myth that the Labour government created the need for austerity, or as George Osborne likes to put it, how he has had to clear up the mess that Labour created. Here he is again, in an exchange with Yvette Cooper yesterday. And I long for the day that after he, or any other Conservative, repeats this line, someone has the courage to reply: “that is total bollocks”. This bit of oral [1] history has survived for too long.
I will not go again through all the details (for that see these two posts), because a simple picture tells you all you need to know. Here is the UK government deficit, as a percentage of GDP, since 1970.
The deficit in the five years before the global financial crisis was around the average over this whole period. It shoots up in 2008/9 and 2009/10 for one simple reason: the UK, like most other countries, experienced the largest recession since WWII. Osborne has been clearing up the mess left by a major recession, which left UK GDP around 15% below its pre-recession trend. And the real irony is that he has done nothing to fix that very real problem, but instead obsesses about one of its symptoms.
Yet as long as this myth continues to go unchallenged, Osborne can portray Labour as unfit to run the national finances. As long as it goes unchallenged, a large section of voters will continue to believe that austerity was Labour’s fault. I think most people now agree that Labour made a huge tactical mistake when they failed to combat this narrative five years ago. But as this little exchange from yesterday shows, the damage to Labour the myth has done is not going to go away because the Conservatives will not stop repeating the myth.
I therefore have a suggestion. John McDonnell should send a copy of this chart to every Labour MP and tell them to always keep a copy with them. The next time the ‘clearing up the mess they left’ line is repeated, they should respond not by changing the subject or looking sheepish. They should produce the chart and say that it is just not true. The deficit went up because of the recession following a global financial crisis, and this chart proves it. [2]
[1] I know I'm abusing the meaning of 'oral history' here, but I do so because the written history is very different. The few scholarly papers on fiscal policy under the Labour government are consistent with the data and facts.
[2] I am also happy to suggest simple knock downs to possible responses. For example:
C: The recession was caused by inadequate financial regulation during Labour’s watch.
L: But you were constantly arguing for less regulation at the time.
C: IMF/OECD data show huge cyclically adjusted deficits in the pre-recession years
L: Extremely dubious (the OBR who use real data to cyclically adjust do not have this, and few signs of a huge boom at the time), and pure hindsight (both groups suggested otherwise at the time).
C: Everyone knows Gordon Brown bent the rules and missed his targets
L: George Osborne has missed 3 of his own targets. Of course policy was not perfect under Labour, but that does not change the fact that the deficit more than tripled in size between 2007 and 2009, and that was all down to the recession.C: Labour did nothing to tackle the deficit in their last two years in office, when George Osborne was saying they should.
L: You are right, and we make no apology for it. In 2009 the UK, along with the US, Germany and China, undertook a fiscal stimulus, which George Osborne argued against. Every serious economist agrees that helped prevent the recession being even worse than it was. Which means if Osborne had been Chancellor in 2009, UK unemployment would have risen by more and real wages would have fallen even more.
If only you had some role whereby you influenced the way in which the Labour Party conducted its economic policy and politics!
ReplyDeleteCouldn't agree more. I hope you witnessed and enjoyed Nicky Morgan's interview on Newsnight the other day, when she was confronted and bamboozled by a chart showing the distributional impact of the budget. Credit to Evan Davis for not allowing her to change the subject, but this sort of interview should be the norm, not the exception.
ReplyDeleteAlex
Hi. Love the article. What does it mean when the %age goes negative?
ReplyDeleteBudget surplus
Delete"C: The recession was caused by inadequate financial regulation during Labour’s watch.
ReplyDeleteL: But you were constantly arguing for less regulation at the time."
The problem is that most of the public believe that Gordon Brown didn't care about bank regulation because the tax receipts were providing the cash that he needed to spend on the NHS and welfare.
The public don't like the banks, it is up to Labour to show how they would regulate the Banks better.
I agree with your last point.
DeleteYour third question was posed repeatedly by Eddie Mair (of whom I expected better) on Budget Day, but in a more confrontational gotcha! form:
ReplyDeleteDid Gordon Brown overspend?
The Labour spokesperson dodged it, which was right in a way - it's a silly and irrelevant question (particularly in 2016!) - but still left the impression of a question being dodged. Perhaps the smart answer would have been a kind of judo move - a quick Yes, pushing the interviewer into follow-up questioning, which would make it easier to debunk the unspoken premises of the question: So George Osborne's right - he's had to clean up Labour's mess? ...and cue the chart. But then, knowing the BBC, the 'Yes' would probably become the story, and the public would be left none the wiser. Labour's in a really difficult position, thanks in no small part to the party's master strategists of 2010.
I think a better answer to this question is No.
Delete"He didn't overspend? But he missed his own targets!"
DeleteHe only missed his own targets because of the Great Recession
DeleteYou can also add the following graph from
ReplyDeletehttp://www.tradingeconomics.com/united-kingdom/gdp-growth
you can set it to max and it will run from 1955-2016 and you can change it to a column display which looks cleaner.
This shows the recessions at 1957, 1972-3, 1980-81, 1991 all caused by Tory policies at the time and the final one at 2009, which is really an American recession but you could blame Labour for taking their eye of the ball.
Although it's an American video you could also try this YouTube video , Labour should be making their own version of this.
"www.youtube.com/watch?v=qKRcCWPoTgo"
The main problem with all this is it's very difficult to put this across in sound bites, or what ever passed for news nowadays and as the Tories exemplify negative and fear based sound bites are very potent, when you do not have access to real information.
That said labour are doing a really poor job at the moment, maybe they should all print out a giant copy of these graphs and sit at PMQ holding them up, because at the moment Simon you seem to me to be doing a better job than Labour.
I am not sure who you are convincing by saying Labour doesn't say this. Labour representatives said it repeatedly over and over again. They say it now.
ReplyDeleteThose who don't want to place the emphasis on this are making a political judgement, not an economic one.
Politics and economics not having very much relation, one to the other.
For Osborne to have failed to get halfway through his own deficit reduction target in the last parliament and then to have got through the election campaign in 2015 without it being mentioned once let alone every time he said 'long-term economic plan' by a single BBC journalist!
ReplyDeleteI imagine that's where his confidence comes from.
It must feel nice for a liar to have so many others repeat your lies.
Here's Duncan-Smith 18 August 2012 talking to the Mail on Sunday:
"When the news is good, the BBC view is: 'Get the government out of the picture quickly, don't allow them to say anything about it. When the news is bad, [it's]: 'Let's all dump on the government. Last month, there was a marginal rise in youth unemployment so they centred on that. This time it came down so they cast doubt on the figures. [Flanders] said it could be industry is so bad they have to take on two people where one person could do the job.She was peeing all over British industry and the private sector. It was terrible. Our private industry is unbelievably robust compared to much of Europe."
And now the same man is:
"I am unable to watch passively whilst certain policies are enacted in order to meet the fiscal self imposed restraints that I believe are more and more perceived as distinctly political rather than in the national economic interest."
It appears the BBC has found itself to the political right of Duncan-Smith. Nice work...
Great stuff. This Labour member is tearing his hair out.
ReplyDeleteThis would be an excellent retort for the childish behaviour of the Tories.
ReplyDeleteBut it is not enough, although I stress it is an excellent start.
The reason that I say this, is that I listened to the appalling repsonses from Cameron today, wherein he indulged in more of the moronic nonsense you describe.
But in addition, he expresses how wonderful it is to be cutting the deficit and working towards a surplus.
Could you also send to John McDonell a way of following up the above with some more truths. Something like surpluses and deficits are neither good nor bad, but propaganda makes it so?
A surplus at the moment, is a disaster, drawing more money out of the system than what is going in, sucking out demand, forcing people into either more private debt or hunger.
To allow Cameron to get away with this is misleading the public, making an evil into a virtue.
Have you and your Economic Advisory Committee Colleagues sent this set of responses to anyone in the party?
ReplyDelete(That said, please don't get McDonnell to pull out a chart in the Commons, he looks amateurish enough a debater as it is)
I think its an improvement on the little red book!
DeleteThat is what I was thinking of,
DeleteIt sounds a good idea but yet again all it does is support fiscal conservative framing and propaganda of a household budget and puts the left back to square one.
ReplyDeleteHow are you going to pay for it ? Where they have been for the last 40 years.
I wish someone had the courage to say what deficits actually are. That would really turn the debate on its head.
The government deficit = the non govermental sectors savings to the penny.
The national debt is just all the deficits added up together and represents the wealth of everyone else who holds £'s as savings to the penny.
Non govermental sector being - Every individual and entity that is not part of the UK government. That includes households, businesses, residents and nonresidents, as well as foreign corporations and foreign central banks.
So let’s say the monopoly issuer of £’s spends ( reserve add) £600 billion but only collects £550 billion in taxes ( reserve drain) after this original spending.
Where is the other £50 billion?? Has it vanished ?? What has happened to it ??? Who has it ???
It is still in the economy of course in all of our pockets it is government spending that has not been taxed yet. We have it, there is nowhere else it can be.
Hence:
The government deficit = the non govermental sectors savings to the penny.
So when the fiscal conservatives say they want to reduce the deficit or run a budget surplus.
I wish someone from the left would say. Osborne can only reduce the deficit if he can make us spend our savings that cause it in the first place.
How is he going to do it and who's savings is he going to destroy ?
That's the line of attack that should be taken.
Which is why IDS mentioned pensions because we have £1.6 trillion in our pension funds.
https://kclpure.kcl.ac.uk/portal/files/37839926/2014_Pober_Angela_1042818_ethesis.pdf
That figure ring any bells ???
Now that would be a game changer. No more household budgets in sight.
Even the most fanatical fiscal conservative would panic if they knew the reality, that reducing the deficit meant that it might be their savings that was at risk.
The primary deficit might be a better measure for this purpose.
ReplyDeleteBecause the interest payments include an inflation component.
And because each government is responsible for paying interest on previous governments' deficits.
I agree it might be. The idea is in Portes and Wren-Lewis
DeleteBrilliant! But will Labour ever stand up to this Conservative rubbish and is it too late now anyway?
ReplyDeleteCome back Ed Balls, all is forgiven!
Bravo. I also get annoyed whenever this lazy myth is trotted out and am astonished it's lasted so long given it can be refuted by a single chart. This one is well overdue being killed off.
ReplyDeleteS
Yes but the sin is that in those 5 years the economy was consistently growing, a great time to pay back debt.
ReplyDeleteAnd that's ignoring 20bn from 3G auctions (a solid 1% of GDP!)
Interesting that the 8% swing between -1% (in 1990) and 7% in 1993 is about the same as 3% in 2007 to 11% in 2010
The time to pay back debt is NOT when the economy is growing. It is when the level of output is above trend. The consensus view at the time was that the economy in 2007 was at trend.
DeleteThe one I have come across is that Labour should have been running a surplus before the recession = saving for a rainy day.
ReplyDeleteWhat's your quick and easy response to that?
The only time it makes sense to run a surplus is in a boom. The consensus view before the crisis was that the economy was not enjoying a boom.
DeleteBut then they would come back with:
DeleteIf 10 years of economic growth isn't a boom- then what is?
Or:
Has there been any time in the last 20 years when the government shouldn't have been borrowing in your view?
I'm not disagreeing with you on the economics- but I think you are underestimating how difficult this would have been for Labour to sell to the public- even at the time.
Easy response to both. When the economy is growing at a steady pace, you do not need to run surpluses to reduce the ratio of debt to GDP. That is why debt to GDP fell from 1955 to 2007, with hardly any surpluses.
DeleteIf only the Labour Party would actually use these arguments, instead of waffling on about how they would cut the deficit more fairly! Mcdonnell sort of hints at it when he says that Labours approach is to deal with the deficit by growing the economy, so I suspect he does understand it, but he needs to spell it out.
DeleteOkay- I know I shouldn't try my luck and respond a third time but...
DeleteThe figures show that debt to GDP was falling from 1997 to 2002, but then rising until 2007. It was lower in 2007 than in 1997.
For that period 2002 - 2007: is it justifiable for debt to GDP to be rising when the economy was growing at a steady pace?
It would also be good if McDonnell could get his colleagues to challenge the statement that a public sector deficit implies that "the country is living beyond its means". It would also be good if they pointed out that debt service costs are not at historically high levels, that 25% of the National Debt is held by the BOE, and that to welcome low inflation is to celebrate the failure of the MPC to meet its remit, along with higher real interest rates. But I won't hold my breath
ReplyDeleteLabour did introduce the Financial Services Marketing Act 2000 though, which, by saying that the effect on the economy had to be considered before any senior banker could be prosecuted, effectively placed senior bankers above the law, which is probably why time and again when there are prosecutions it's some hireling who goes to jail and the people running the crooked companies simply carry on as before. So while all you say above is true and should have been said in the House years ago, Labour were themselves at least a little bit naughty. I note too that Darling, Brown and, surprise! Mandelson all have positions which could be described as senior with banks these days, while Blair is an expensive (senior?) consultant for JPM. Coincidence, I'm sure :-)
ReplyDeleteThis is not a debate about whether Labour did anything wrong. Its about fiscal policy. Confusing fiscal policy and financial regulation does no one any favours.
DeleteYesterday Richard Burgon, Shadow Minister - Treasury, with the help of Afshin Rattansi does manage to say a little to refute the false narrative, but it's not enough: https://youtu.be/mZj7OYsFBSQ?t=4m58s
ReplyDeleteAgree. With it all. You are correct. Most of us thought this analysis was correct at the time as well. We've agreed with it ever since.
ReplyDeleteBut doesn't your post whiff of 'fighting the last war'? Please get on with fighting the coming one, which may occur sooner than you think, and help prevent the party you support becoming an irrelevance because it will if unsuccessful now.
We should move on was exactly what the Ed Miliband team said, and they were wrong then and its wrong now. This will not go away. But you may have also noticed that Labour have recently made some very good proposals about future fiscal policy.
DeleteNo; they urged everyone to ignore the question. Not the same thing at all. And I'm no Milliband supporter so you miss your mark.
DeleteI have noticed. Many have noticed. They are good. Keep it up.
Slightly OT, but Osborne in front of the Treasury Committee today (http://www.theguardian.com/politics/blog/live/2016/mar/24/osborne-budget-treasury-committee-trump-vote-to-leave-eu-because-of-immigration-craziness-politics-live?page=with:block-56f3c5f1e4b021d3973cf807#block-56f3c5f1e4b021d3973cf807):
ReplyDelete"Chris Philp, a Conservative, goes next.
Q: Why is it important to run a surplus?
Osborne says what Labour are proposing would lead to a “permanent deficit”. He believes in normal times the government should be running a surplus."
And it's left there. Did no member of the committee think about asking if any economist would agree with this?
Can you add dates of when different partys were in power?
ReplyDeleteI could but I do not have the time!
DeleteGreat article. I think “that is total bollocks” should be the standard by which all Labour responses to false Tory statements should be judged :)
ReplyDelete