Mr Balls in The Times
Discussion
http://www.thetimes.co.uk/tto/news/
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‘You can’t borrow your way out of a debt crisis.” That is the simple mantra we have heard from the Prime Minister week after week. The Government took it as read that deep and immediate spending cuts and tax rises would at least serve the goal of deficit reduction — no matter how much Labour warned that going too far, too fast would be bad for borrowing as well as for jobs and growth.
So while the scale of borrowing set out in last week’s Autumn Statement is certainly a challenge for Labour, it is a jarring setback for the Government. Far from reducing the deficit as promised, it is now set to borrow £158 billion more than planned.
The Chancellor had claimed that public retrenchment would boost private sector confidence, investment and job creation. He called it “expansionary fiscal contraction”. But this has turned out to be a false prospectus — a repeat of the discredited “Treasury view” of the 1920s. Instead, fragile consumer and business confidence was crushed by the inflationary rise in VAT, the anticipated fall in public sector demand, the reality of falling incomes and the fear of rising unemployment. And so it is George Osborne who is being forced to borrow billions more — to pay the price of slow growth, increasing job losses and a bigger benefits bill.
Yes, in recent weeks, worries about the eurozone crisis have added to the gloom. But our exports have actually been overperforming compared with expectations. It is weak domestic demand that has driven growth in the UK down, borrowing up and depressed interest rates on long-term government bonds. This is not a sign of enhanced credibility but a reflection of stagnant growth in our economy, as it was in Japan in the 1990s and is in America today.
But, I can hear Conservative ministers scoffing, Labour’s proposal is to borrow even more. Let me deal with that argument head on — not in the phraseology of economics textbooks, but in the language of the real world .
This autumn, many young people who would otherwise have stayed on at school have lost their education maintenance allowance and — after the abandonment of the Future Jobs Fund — many more have gone straight into unemployment, contributing to the one million young people out of work.
On the surface of things, cutting EMAs and the Future Jobs Fund saved money and reduced borrowing. But how much more will it cost our society and economy to leave those young people unemployed and unproductive, receiving benefits rather than contributing to the national wealth?
And this is the simple argument: if we let a year of flatlining become a decade of stagnation, what price will our country pay in the long term? That is why I believe it makes sense to act now with temporary tax cuts and investment in jobs and growth to save ourselves from the future bills of failure.
Even the IMF has said that if our economy undershoots expectations and risks a period of stagnation, the UK should slow down the pace of spending cuts and tax rises. That is why it is right for Labour to set out a clear jobs plan now — to stop a decade of slow growth and higher debts becoming a self-fulfilling prophecy.
The fact is, any British government would be borrowing now. The argument is whether it is better to be borrowing billions more to keep people out of work on benefits or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a fairer way.
But it would be naive for anybody to think that the Government’s deepening economic failure will automatically translate over the coming months into success for Labour. We have never denied that a plan is needed to get the deficit down and that it would mean tough decisions on tax and public spending. The question was not “whether” but “how” and “when”. And yes, we would not have started from here — a fairer and more balanced approach to deficit reduction would not have choked off recovery and thrown borrowing plans wildly off track.
But we are where we are. And the question the public naturally ask is whether and when Labour can be trusted on the economy again. After all, the biggest global financial crisis since the 1930s happened on the previous Labour Government’s watch.
That is why it is so important that we set out before the next election tough fiscal rules that the next Labour government will have to stick to — to get our country’s current budget back into balance and national debt on a downward path. And these fiscal rules will be independently monitored by the Office for Budget Responsibility.
The same iron discipline that guided decisions such as granting independence to the Bank of England and using the £22 billion windfall from the 3G mobile phone auction to repay the national debt (despite Tory demands to spend it) must guide a future Labour government too. So in our manifesto we will commit to do the responsible thing and use any windfall gain from the sale of the Government’s stakes in RBS and Lloyds to repay the national debt rather than for a giveaway. And as Ed Miliband and I have made clear, we will need long-term reforms of our economy to deliver social justice in straitened times.
Credibility is based on trust and trust is based on honesty, so we must be clear with the British people that under Labour there will have to be cuts. But honesty does not mean going along with a failed Conservative plan because it is easier in the short term. We tried that when Labour supported the disastrous decision to join the ERM in 1990 and stuck with it .
I have heard much advice over the past year from people who admit that combining stimulus now to get the economy moving with a tough but balanced medium-term deficit plan may be good economics, but they argue that it is bad politics because it is “out of tune” with the public mood.
But I also remember the advice of my old friend Ken Clarke: that, in the end, good economics is good politics too.
Ed Balls is Shadow Chancellor
So while the scale of borrowing set out in last week’s Autumn Statement is certainly a challenge for Labour, it is a jarring setback for the Government. Far from reducing the deficit as promised, it is now set to borrow £158 billion more than planned.
The Chancellor had claimed that public retrenchment would boost private sector confidence, investment and job creation. He called it “expansionary fiscal contraction”. But this has turned out to be a false prospectus — a repeat of the discredited “Treasury view” of the 1920s. Instead, fragile consumer and business confidence was crushed by the inflationary rise in VAT, the anticipated fall in public sector demand, the reality of falling incomes and the fear of rising unemployment. And so it is George Osborne who is being forced to borrow billions more — to pay the price of slow growth, increasing job losses and a bigger benefits bill.
Yes, in recent weeks, worries about the eurozone crisis have added to the gloom. But our exports have actually been overperforming compared with expectations. It is weak domestic demand that has driven growth in the UK down, borrowing up and depressed interest rates on long-term government bonds. This is not a sign of enhanced credibility but a reflection of stagnant growth in our economy, as it was in Japan in the 1990s and is in America today.
But, I can hear Conservative ministers scoffing, Labour’s proposal is to borrow even more. Let me deal with that argument head on — not in the phraseology of economics textbooks, but in the language of the real world .
This autumn, many young people who would otherwise have stayed on at school have lost their education maintenance allowance and — after the abandonment of the Future Jobs Fund — many more have gone straight into unemployment, contributing to the one million young people out of work.
On the surface of things, cutting EMAs and the Future Jobs Fund saved money and reduced borrowing. But how much more will it cost our society and economy to leave those young people unemployed and unproductive, receiving benefits rather than contributing to the national wealth?
And this is the simple argument: if we let a year of flatlining become a decade of stagnation, what price will our country pay in the long term? That is why I believe it makes sense to act now with temporary tax cuts and investment in jobs and growth to save ourselves from the future bills of failure.
Even the IMF has said that if our economy undershoots expectations and risks a period of stagnation, the UK should slow down the pace of spending cuts and tax rises. That is why it is right for Labour to set out a clear jobs plan now — to stop a decade of slow growth and higher debts becoming a self-fulfilling prophecy.
The fact is, any British government would be borrowing now. The argument is whether it is better to be borrowing billions more to keep people out of work on benefits or whether action now to get our economy moving will get more people into work paying tax and help to get the deficit down in a fairer way.
But it would be naive for anybody to think that the Government’s deepening economic failure will automatically translate over the coming months into success for Labour. We have never denied that a plan is needed to get the deficit down and that it would mean tough decisions on tax and public spending. The question was not “whether” but “how” and “when”. And yes, we would not have started from here — a fairer and more balanced approach to deficit reduction would not have choked off recovery and thrown borrowing plans wildly off track.
But we are where we are. And the question the public naturally ask is whether and when Labour can be trusted on the economy again. After all, the biggest global financial crisis since the 1930s happened on the previous Labour Government’s watch.
That is why it is so important that we set out before the next election tough fiscal rules that the next Labour government will have to stick to — to get our country’s current budget back into balance and national debt on a downward path. And these fiscal rules will be independently monitored by the Office for Budget Responsibility.
The same iron discipline that guided decisions such as granting independence to the Bank of England and using the £22 billion windfall from the 3G mobile phone auction to repay the national debt (despite Tory demands to spend it) must guide a future Labour government too. So in our manifesto we will commit to do the responsible thing and use any windfall gain from the sale of the Government’s stakes in RBS and Lloyds to repay the national debt rather than for a giveaway. And as Ed Miliband and I have made clear, we will need long-term reforms of our economy to deliver social justice in straitened times.
Credibility is based on trust and trust is based on honesty, so we must be clear with the British people that under Labour there will have to be cuts. But honesty does not mean going along with a failed Conservative plan because it is easier in the short term. We tried that when Labour supported the disastrous decision to join the ERM in 1990 and stuck with it .
I have heard much advice over the past year from people who admit that combining stimulus now to get the economy moving with a tough but balanced medium-term deficit plan may be good economics, but they argue that it is bad politics because it is “out of tune” with the public mood.
But I also remember the advice of my old friend Ken Clarke: that, in the end, good economics is good politics too.
Ed Balls is Shadow Chancellor
Brown Balls said:
That is why it is so important that we set out before the next election tough fiscal rules that the next Labour government will have to stick to — to get our country’s current budget back into balance and national debt on a downward path. And these fiscal rules will be independently monitored by the Office for Budget Responsibility
Didn't Brown have some golden rules which he ignored?Thanks for that NDA.
I still don't understand how they'd solve the issues by increasing spending and reducing VAT (I know it's not specified in this article but that's the only cut I've ever heard from Labour).
- Borrow more due to a decrease in VAT
- Borrow more due to raising spending with inflation (would inflation be even higher with them doing this?)
- Higher borrowing costs due to more public expenditure, so less money in the longer term for spending
He harps on about EMA being our savior, as it will help us all in the long term. I still don't see how this is true, too many people have gone to college and then university, we have had Labour build up more 'University's' with people doing non degree's creating a bigger and bigger dependace on the state. EMA's been about for a long time and youth unemployment has been rising since, it was an early step onto the dependence of the state for some, and for me, my way of bank rolling my hobby of computer games.
The government are now undertaking new infrastructure projects which is always good and much needed, this will create jobs and wealth, which is also good but critically they are private sector companies that will continue on after this is all over and contribute back into UK PLC income. Labours solution would have been more public sector jobs, always dependent on the state.
I still don't understand how they'd solve the issues by increasing spending and reducing VAT (I know it's not specified in this article but that's the only cut I've ever heard from Labour).
- Borrow more due to a decrease in VAT
- Borrow more due to raising spending with inflation (would inflation be even higher with them doing this?)
- Higher borrowing costs due to more public expenditure, so less money in the longer term for spending
He harps on about EMA being our savior, as it will help us all in the long term. I still don't see how this is true, too many people have gone to college and then university, we have had Labour build up more 'University's' with people doing non degree's creating a bigger and bigger dependace on the state. EMA's been about for a long time and youth unemployment has been rising since, it was an early step onto the dependence of the state for some, and for me, my way of bank rolling my hobby of computer games.
The government are now undertaking new infrastructure projects which is always good and much needed, this will create jobs and wealth, which is also good but critically they are private sector companies that will continue on after this is all over and contribute back into UK PLC income. Labours solution would have been more public sector jobs, always dependent on the state.
The numbers can be spun either way. In my opinion the fact that domestic demand is shrinking, but exports are rising, giving us a very small amount of growth, is a good sign; that's what we wanted to do and the rate of conversion from domestic consumption to export earnings is about correct.
With unemployment, we have to remember that the unemployment claimant count has not really gone up all that much at all meaning we aren't paying any more for the unemployed than we were in 2009. this possibly has something to do with the "official" numbers being based upon a survey rather than anything more accurate.
Balls knows that he couldn't do anything very much different than the current government, he has to make small tinkering changes around the edges. The VAT rate seems to have no net benefit; as the rate increases consumption decreases so the take stays broadly similar.
With unemployment, we have to remember that the unemployment claimant count has not really gone up all that much at all meaning we aren't paying any more for the unemployed than we were in 2009. this possibly has something to do with the "official" numbers being based upon a survey rather than anything more accurate.
Balls knows that he couldn't do anything very much different than the current government, he has to make small tinkering changes around the edges. The VAT rate seems to have no net benefit; as the rate increases consumption decreases so the take stays broadly similar.
NDA said:
it is a jarring setback for the Government. Far from reducing the deficit as promised, it is now set to borrow £158 billion more than planned.
The only difference is that if Labour were still in power they'd have a higher starting point upon which to add at least an extra £158bn!! NDA said:
We have never denied that a plan is needed to get the deficit down and that it would mean tough decisions on tax and public spending. The question was not “whether” but “how” and “when”. And yes, we would not have started from here — a fairer and more balanced approach to deficit reduction would not have choked off recovery and thrown borrowing plans wildly off track.
Perhap my memory has gone wonky, but I recall they spent the bulk of the election campaigning on "Labour investment versus Tory cuts"?LeoSayer said:
Labour's only hope for re-election is if they promise to implement more spending cuts than the coalition are doing now, not less.
Who really believes Labour when they say they can cut less by borrowing and spending more?
The average voter doesn't care. They want Labour to spend money on them, where ever it comes from.Who really believes Labour when they say they can cut less by borrowing and spending more?
Last month the German Govt. sold 3.6b euro's worth of newly issued 2% 10yr Bunds.
The total auction was supposed to be for 6 billion.
As a result, the auction was technically uncovered.
If Germany is unable to sell bunds in the current marketplace, what hope is there for the rest?
Tell me Ed, apart from firing up the printing press, how do you plan to obtain all this new wonga with which to instigate your Helicopter Money plan?
Puggit said:
The average voter doesn't care. They want Labour to spend money on them, where ever it comes from.
And there you have it.The majority of the electorate have no interest in macro economics, and very little understanding of the numbers. Labour wilfully conflated the deficit and the debt during the 2010 election campaign. They are now spinning a line that taking another couple of billion from the bankers will somehow negate the need to address the £100 billion plus deficit. This is all Disney economics.
The West has overspent using borrowed money. Successive govts have made promises with money they did not have. The voters bought the lie. Ed Balls has learnt nothing from the last 3 years and is simply perpetuating the lie.
Its a pity hardly anyone understands that the government deficit is equal to the pound to non government sector savings. Otherwise they wouldn't be so quick so suggest the government reign in the deficit.
No govt debt means, no private sector savings at all! Wipe out pension funds, bank balances etc, sure great idea.
http://www.3spoken.co.uk/2011/10/uk-sectoral-balan...
The problem is household debt. Unless the government runs a deficit something else has to...
http://blogs.ft.com/martin-wolf-exchange/2011/12/0...
Government debt never needs to be repaid. Nor should it. Its simply a tally of non government sector savings.
No govt debt means, no private sector savings at all! Wipe out pension funds, bank balances etc, sure great idea.
http://www.3spoken.co.uk/2011/10/uk-sectoral-balan...
The problem is household debt. Unless the government runs a deficit something else has to...
http://blogs.ft.com/martin-wolf-exchange/2011/12/0...
Government debt never needs to be repaid. Nor should it. Its simply a tally of non government sector savings.
ringram said:
Its a pity hardly anyone understands that the government deficit is equal to the pound to non government sector savings. Otherwise they wouldn't be so quick so suggest the government reign in the deficit.
No govt debt means, no private sector savings at all! Wipe out pension funds, bank balances etc, sure great idea.
http://www.3spoken.co.uk/2011/10/uk-sectoral-balan...
The problem is household debt. Unless the government runs a deficit something else has to...
http://blogs.ft.com/martin-wolf-exchange/2011/12/0...
Government debt never needs to be repaid. Nor should it. Its simply a tally of non government sector savings.
There is no plan to reduce Govt debt. In fact, Govt debt is planned to rise, year on year.No govt debt means, no private sector savings at all! Wipe out pension funds, bank balances etc, sure great idea.
http://www.3spoken.co.uk/2011/10/uk-sectoral-balan...
The problem is household debt. Unless the government runs a deficit something else has to...
http://blogs.ft.com/martin-wolf-exchange/2011/12/0...
Government debt never needs to be repaid. Nor should it. Its simply a tally of non government sector savings.
The plan is to remove the deficit over the course of this parliament.
Two very different things.
Ozzie Osmond said:
NDA said:
it is a jarring setback for the Government. Far from reducing the deficit as promised, it is now set to borrow £158 billion more than planned.
The only difference is that if Labour were still in power they'd have a higher starting point upon which to add at least an extra £158bn!! NailedOn said:
Puggit said:
The average voter doesn't care. They want Labour to spend money on them, where ever it comes from.
[b]And there you have it.The majority of the electorate have no interest in macro economics, and very little understanding of the numbers.[/b] Labour wilfully conflated the deficit and the debt during the 2010 election campaign. They are now spinning a line that taking another couple of billion from the bankers will somehow negate the need to address the £100 billion plus deficit. This is all Disney economics.
The West has overspent using borrowed money. Successive govts have made promises with money they did not have. The voters bought the lie. Ed Balls has learnt nothing from the last 3 years and is simply perpetuating the lie.
I'm always on my soapbox on NP&E about funding for SMEs no because I have this problem (thankfully), or that I have customers and suppliers which have the problem (although on both those counts I do) but because it is a fundamental weakness for our economy.
Not really. One leads to the other. Elimination of the deficit means no new savings in aggregate at that point.
Given the UK runs a deficit in trade then eventually all UK funds will depart offshore leaving nothing behind.
A balanced budget is also impossible on this basis. A cyclical 3% balance might be more appropriate with variance above and below this to act counter to the prevailing economic winds. But as we know governments arnt likely to pour water on growing economies.
Either way cutting the deficit in a recession is retarded. Though the current level is more than appropriate IMO. No need to spend more. In fact house prices need to come down and some companies and banks still need to be wiped out to clean the chaff from the economy and start with a nice base. Plenty of inefficiencies still exist.
Given the UK runs a deficit in trade then eventually all UK funds will depart offshore leaving nothing behind.
A balanced budget is also impossible on this basis. A cyclical 3% balance might be more appropriate with variance above and below this to act counter to the prevailing economic winds. But as we know governments arnt likely to pour water on growing economies.
Either way cutting the deficit in a recession is retarded. Though the current level is more than appropriate IMO. No need to spend more. In fact house prices need to come down and some companies and banks still need to be wiped out to clean the chaff from the economy and start with a nice base. Plenty of inefficiencies still exist.
0a said:
Ozzie Osmond said:
NDA said:
it is a jarring setback for the Government. Far from reducing the deficit as promised, it is now set to borrow £158 billion more than planned.
The only difference is that if Labour were still in power they'd have a higher starting point upon which to add at least an extra £158bn!! ringram said:
Not really. One leads to the other. Elimination of the deficit means no new savings in aggregate at that point.
Given the UK runs a deficit in trade then eventually all UK funds will depart offshore leaving nothing behind.
A balanced budget is also impossible on this basis. A cyclical 3% balance might be more appropriate with variance above and below this to act counter to the prevailing economic winds. But as we know governments arnt likely to pour water on growing economies.
Either way cutting the deficit in a recession is retarded. Though the current level is more than appropriate IMO. No need to spend more. In fact house prices need to come down and some companies and banks still need to be wiped out to clean the chaff from the economy and start with a nice base. Plenty of inefficiencies still exist.
Not too sure how you come to the conclusion that eventually all UK funds will depart offshore, but suffice to say many other countries have previously reduced their deficit whilst enduring economic stagnation. It is a typical Krugman/Stiglitz myth to suggest it is simply not possible to do. Continuous belief in stimulating aggregate demand through Govt action is a road to ruin. There is a time & place for fiscal stimulus & the benefits of the multiplier. Working with a deficit the size we have, alongside an external debt the size we have means the Govts options are severely limited.Given the UK runs a deficit in trade then eventually all UK funds will depart offshore leaving nothing behind.
A balanced budget is also impossible on this basis. A cyclical 3% balance might be more appropriate with variance above and below this to act counter to the prevailing economic winds. But as we know governments arnt likely to pour water on growing economies.
Either way cutting the deficit in a recession is retarded. Though the current level is more than appropriate IMO. No need to spend more. In fact house prices need to come down and some companies and banks still need to be wiped out to clean the chaff from the economy and start with a nice base. Plenty of inefficiencies still exist.
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