March 2, 2010
A Poisoned Chalice?
Given the Tories’ continuous slide in the polls, there was an almost tangible feeling of opportunity at last night’s “Osbornomics” event.
Hosted by the New Political Economy network and Compass, debate was mainly focused on what can be expected from a Tory chancellor. But rather than being grimly resigned to defeat – as would almost certainly have been the case 6 months ago – the audience and panel focused enthusiastically on how Labour can stop the Conservatives, and even what it can do differently if it wins. There was talk of a hung parliament with Vince Cable as Chancellor, even of a small Labour majority.
One of the key factors identified in the Conservatives’ popularity slide was the fact – as Polly Toynbee put it – of the “phantom recession”. At present, unless you are unemployed or one of your immediate family members is, the chances are the recession hasn’t hit you. Your mortgage repayments have probably fallen, prices in the shops are still affordable, and public services are the same as in 2007.
For over a year politicians have been solemnly intoning that “cuts will have to come” and that there are “hard times ahead”. But for many the fear-factor has worn off. So it could be that Tory promises of cutting harder, faster and deeper are turning people away. Many voters are now asking themselves: why do we need to cut at all?
But the truth is that cuts will have to come. Not as soon as the slash-and-burn Tories desire, but eventually. Labour’s pledge to halve the deficit in 4 years is necessary. Protecting the tentative recovery in the short-to-medium term is essential – but eventually the debt has to be dealt with. And when the cuts come, it’s going to hurt.
Which brings us to the question of the next election. As members of the audience and panel became enthusiastic about a Labour resurgence, the understated but excellent Andrew Gamble had a small and important point to make: be careful what you wish for.
For if Labour wins in 2010, the consequences could very well be worse than defeat. Labour would need a clear plan about how to tackle the deficit and stimulate economic growth – hardly an enviable task. The party would be under immense pressure from financial markets to outline and stick to such a plan. Tough – even savage – cuts might be necessitated, and the impact would be felt by ordinary voters who returned Labour out of fear of the Tory axe.
Furthermore, Labour would find itself in a position of having to justify its actions to an increasingly angry electorate, now feeling real economic pain. It would somehow have to find new ideas to revitalise the party from within and without – despite the fact it already looks exhausted and drained of initiative after 13 long years in power.
In short, the danger is that a 2010 win for Labour would be the equivalent of a 1992 win for the Tories. It could spell 5 years of disaster – disaster which might put the party out of power for a generation, or possibly even destroy it. As Jon Cruddas with appropriate under-emphasis put it: “with this one, the stakes are really high”.
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Seriously, when even the obnoxious Obnoxio is telling you to vote Labour, it’s definitely worth thinking about why.
Dan said,
March 2, 2010 at 11:28 am
Nice post, I’ve thought this for a while. Once the stagflation kicks in in a year or two (thanks Keynes!), Labour will be far better off if they are not left holding the can. For a start, there is no way they would be able to make a case that they aren’t responsible.
Still, though, I do expect the Tories to win, even if their majority isn’t as big as they hope.
Paul Sagar said,
March 2, 2010 at 8:37 pm
Cheers Dan,
Though in fairness, the ideas are really Dr Gamble’s. I had similar thoughts before, but hadn’t structured them properly. Credit to him. (He was really very impressive last night).
Bill le Breton said,
March 3, 2010 at 10:41 am
Paul,
I am sure this will NOT get through your spam filter. Perhaps, it is just an email to you rather than a general post – I leave it up to you. It is a version of something I’m writing for a Lib Dem audience, but it worries me when someone like you says that cuts are inevitable (via halving the deficit over the next four/five years)
This is a cutting from the Wall Street Journal:
“Market has encountered resistance since hitting new highs Tuesday, natural in view of the sweeping rally up to then. Previous pauses in early Jan. and mid-Feb. were followed by renewed rallying; evidence this is a similar period of consolidation seen in pattern of declining volume on recessions, indicating line of least resistance remains upward.”
Yes, “Upwards and Onwards!”
With the Dow today on 10,500 and the FTSE around 5,500, are we out of the woods and ready for the private sector to take the strain?
Nope! The date line on that Wall Street Journal cutting was 2nd March 1931. That’s about the same length of time after the Wall Street Crash as we are now since the Great Credit Crunch began in 2008.
Two years on from that optimist market view at the start of 1933 it would be one quarter the value.
We are moving towards a General Election in which the public will hear a consensus among its political class that cuts in overall Government Expenditure are essential. The argument they will hear is one about the start of those cuts; now or next year.
In September 1931, in an effort to balance the budget and restore confidence in the pound, the Chancellor of a new National Government produced an emergency budget which put into effect a round of severe cuts in public spending and wages. Public sector wages and unemployment pay were cut by 10%. Income Tax was raised by 11%. By 1933 unemployment had risen by 150% and exports were down 50%.
The Osborne budget of June/July 2010?
Or there is the example of Japan.
Here you’d need a chart of the Nikkei which would illustrate that the index peaked in 1990 at 38.9k. Property prices had risen by 50% in the previous four years. A year later it had fallen to 20.2k only to rebound 35% during the next four months to 27.3k. Over the next year it halved to 14.2k. Twenty years later it’s at 10.25k.
If the FTSE follows this path (after a Darling and/or Cable’s budget) it will be down at 2050 in the year 2030.
Since 1991, property prices in Japan have halved. Not with a dramatic fall, but with a steady decline over 20 years. Now, no-one would say that housing was exactly affordable at the moment but the social and economic consequences of a twenty year decline in house prices is a mighty big problem for a lot of people.
Japan used stimulus packages, monetary policy including Quantitative Easing and all the stuff we have been throwing at the problem over the last year – there are similarities with the Brown/Darling approach to date. It is often argued that Japan ended stimulus packages and altered monetary policy too soon and, as a chart of the Nikkei from 1990 would suggest, choked off a number of nascent recoveries – perhaps four or five. (Darling/Cable economic policy over the next 4 years).
Perhaps, therefore, the choice facing us is an economic policy that would lead to a mighty Depression or one with a couple of ‘Lost Decades’ with revival followed by austerity leading to further decline?
You suggest that some in the Labour Party are already saying that it wouldn’t hurt if they lost this election and let the Tories face the ‘Time of Cuts’.
What kind of future do they foresee if this were to happen? A replay of the 1970’s with Osborne in the role of Healey and Cameron as Callaghan? An iteration of Crossland’s ‘The Party is Over’ speech from the new Local Government Minister?
The 1930’s would suggest otherwise.
Some amongst the Liberal Democrats have been saying that the cuts must come not now but sooner rather than later and would see themselves as part of a Coalition or even a National Government helping to enable those cuts.
Is this not just a re-enactment of Snowdon’s 1931 budget with all its disastrous consequences?
The first task is to prevent an Osborne Budget in June. The second is to ensure that the March Budget contains a programme that looks at changing the way Government Expenditure is financed and begins to transform the spending from revenue to capital projects, rather than to see any too precipitous fall the level of Government expenditure; and that there is sufficient support for that approach after the election to see it carried through.
Long peiece not because I like the sound of my own voice, but because I think you could make a difference.
B