There
is still a big problem for electability for Labour, and it cannot be
swept away. However badly the Conservatives have done in handling the
economy, the fact remains that millions upon millions of voters still
remember the horrendous crash in the economy when Gordon Bown was
Prime Minister. People still remember that it was Gordon Brown
previously claimed that he had ended boom and bust in the economy.
Probably
Labour did the best that they could, when trying to deal with the
crisis, once it had already happened, but the question is how well
Labour, and indeed the Treasury, or the Bank of England, had foreseen
the problems in advance.
It
has taken several years to try to open up the lid of what was going
on.
I
am in no way in a position of knowing in detail what was going on in
the Bank of England, or indeed in the Treasury. What I am more
directly concerned with was what was going on with the politicians,
and in particular how knowledgeable people in New Labour about the
macroeconomics of Britain.
It
does not need all that much insight of economic history, and you can
achieve much in reading books in a good academic library, to know
that:
- There are booms and busts, fast growths and deep recessions, over the years
- Every time there is a bust, it comes about as a big surprise
- Every time there appears to be any period of strong and seemingly stable growth, things bounce back, with a deep crash.
To
add to this, and after the time when I was plodding away at the
libraries, we can add that every time there had been a deep
recession, followed by long and serious growth, there was going to be
plenty of people high up to be able to say with confidence that the
economic problem had finally be solved. If people do think like that,
the likely result is that the resulting problem would be
unnecessarily severe, not least because people in charge will never
have not bothered to set up any sense of cautiousness.
In
my naive days of studying in the eighties, I had over-optimistically
believed that people will have learnt from the 1970s and 1980s, and
would have worked out ways of sorted out some of the worst problems
of cutting out the ups and downs of the economy. It turned out
precisely the opposite. The optimistic upswings through much of the
eighties (after the early 1980s slump) and the 1990s and 2000s (it
goes on and on, a "long boom") meant that, in particular,
in the British context, things would do no wrong. Meanwhile, across
the Channel, there was plenty more extreme optimism that Europe was
secure, with might growth and unending prosperity, as long as the Euro
was going to be set up. And so long as there were long and
complicated rules to set up the Euro, to make sure that the Euro was
going to remain to be prosperous, always passed on the assumption that
there was never going to be a recession. The usual problem arises. If
you assume that there was never going to be a recession, when the
recession arises, it is going to and up disastrously worse.
Ed
Balls, the main intellectual architect of New Labour's economic
theory, has understandably gone much more cautious, but possibly
excessively so. If the byword is "austerity", then we can
never get us out of austerity. The problem though is that we are
unlikely to return to the earlier long boom, from the War to the mid
1960s, as in the western world (in Europe at least), it is infeasible
to assume that there is ever going to be 3+% growth without
difficulty, indefinitely. Other countries, other parts of the world,
people with lower incomes, will gradually catch up. It will be a
very, very long time before China or India, or of course many others,
will finally catch up with the west, and for as long as this process
will take place, it is difficult to imagine western economies will
become more prosperous. A gloomy prospect, I have to admit, but
perhaps not so bad in Asia.
The
problem is that while we may well be in the process of a zero-growth
economy, and while at a pinch this may be tolerable, the way things
are set up under the Conservatives, there is a strong intention that
there will be growth among the more prosperous, while the rest of us
will be struggling with the diminishing number of crumbs.
Few
of us will believe George Osborne's predictions that after a brief
spell of austerity, there will be a bright future in Britain.
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