2010 Ed Balls vs 2014 Ed Balls

Ed Balls’ conference speech last week was notable for the way it committed Labour to pursuing the same austerity policies that have led to such a weak recovery over the last 4 years. The key passage was this one:

“We know there would have been tough decisions on tax, spending and pay restraint in this parliament whoever was in government.

But three years of lost growth at the start of this parliament means we will have to deal with a deficit of £75 billion – not the balanced budget George Osborne promised by 2015.

And that will make the task of governing hugely difficult.

And this goes to the heart of the political challenge we face.

People know we are the party of jobs, living standards and fairness for working people.

But they also need to know that we will balance the books and make the sums add up and that we won’t duck the difficult decisions we will face if they return us to government.

Working people have had to balance their own books.

And they are clear that the government needs to balance its books too.

So Labour will balance the books in the next parliament.

These will be our tough fiscal rules. We will get the current budget into surplus and the national debt falling as soon as possible in the next parliament.

Tough fiscal rules that our National Policy Forum endorsed in July, demonstrating that, however difficult, our party can unite in tough times to agree a radical, credible and fully costed programme for government.

And we will legislate for these tough fiscal rules in the first year after the election and they will be independently monitored by the Office for Budget Responsibility.

So in our manifesto there will be no proposals for any new spending paid for by additional borrowing.

No spending commitments without saying where the money is coming from.

Because we will not make promises we cannot keep and cannot afford.”

Reading this, you have to question whether Ed Balls is an idiot or a liar. In the passage above, there’s a hint it’s the latter. The section I’ve bolded uses quite weaselly language which avoids saying what he thinks, just that other people think a government’s budget is like a household budget. To me this is an admission that he knows perfectly well what he is saying is rubbish, but he believes that’s what other people want to hear, so he’s prepared to pretend he believes it too. Maybe I’m reading too much into this, but as further proof, here’s a passage from a speech Balls gave in August 2010, his famous Bloomberg speech:

“Interviewers look aghast when I tell them that cutting public spending this financial year and pre-announcing a rise in VAT is economically foolish, when growth and consumer confidence is so fragile. ‘But what would you cut instead?’ they demand.

So strong and broad is this consensus that a special name has been given to those who take a different view – ‘deficit-deniers’ – and some in the Labour Party believe our very credibility as a party depends on hitching ourselves to the consensus view.

I am not one of them.

The history of British policymaking in the last hundred years has taught us that on all the other occasions when major economic misjudgements were made, broad-based political, media, financial and popular opinion was in favour of the decision at the time, and the dissenting voices of economists were silenced or ignored.

In 1925, Chancellor Winston Churchill decided to return sterling to the ‘gold standard’ on the grounds that there was no credible alternative which the financial markets would support and that a return to gold would boost confidence and private investment.

He was supported by the broad mass of economic opinion – including the Governor of the Bank of England, Montagu Norman and the leadership of the Labour Party. Only John Maynard Keynes stood out against the consensus at the fateful 11 Downing Street dinner where Churchill made the decision.

But Keynes famously lost the argument and, as he correctly predicted in The Economic Consequences of Mr Churchill, the result was deflation, rising unemployment, the general strike and then Conservative election defeat.

In 1931, two years after the biggest financial crisis of the last century, Labour Prime Minister Ramsay MacDonald said spending cuts were unavoidable to slash the deficit, ease pressure on sterling and satisfy the markets, in the hope of triggering a private sector led recovery.

He wrote: “We are compelled to devise special measures to meet the temporary difficulties. The critics will have to face facts and deal honestly with the interests of the country.”

Labour MPs rebelled, and MacDonald formed a national coalition government with the Conservatives to drive the plan through with broad media support.

Again, Keynes stood outside this consensus, writing that: “Every person … who hates social progress and loves deflation … feels that his hour has come and triumphantly announces how, by refraining from every form of economic activity, we can all become prosperous again.”

And the result of MacDonald’s plan?

The promised private sector recovery failed to materialise. Unemployment soared. Debt rose. Britain faced years of low growth. The parallels with today’s situation are striking.

To me this suggests he knows damn well how damaging austerity has been in the distant and more recent past. Has he now changed his mind? In his 2010 speech, he then goes on to say:

“So the first lesson I draw from history is to be wary of any British economic policy-maker or media commentator who tells you that there is no alternative or that something has to be done because the markets demand it.

Adopting the consensus view may be the easy and safe thing to do, but it does not make you right and, in the long-term, it does not make you credible.

We must never be afraid to stand outside the consensus – and challenge the view of the Chancellor, the Treasury, even the Bank of England Governor – if we believe them to be wrong.

But there is a second lesson too – which is also very pertinent at the present time for the Labour opposition and those of us who aspire to be the next Labour leader: it’s not enough to be right if you don’t win the argument.”

That’s a sentiment to applaud, but one which 2014 Ed Balls has completely abandoned. It seems he thinks he has lost the argument and far from standing outside the consensus, he’s now lining up alongside George Osborne to see who can outbid each other on the consensus (but bogus) concept of fiscal responsibility. He has totally given up on trying to win the argument and is now quite prepared to pretend the earth is flat, believing that enough voters actually do think the earth is flat to benefit him politically. It’s an incredibly cowardly and cynical point of view, and one that takes us all for fools. Whether he is right about the electorate being fools remains to be seen.


Choose a f**king big payday loan

George Osborne chose to invoke the Trainspotting (or was that James Callaghan?) in his speech today. I’m sure some cleverer people than me are producing audio PF Project/George Osborne mashups as we speak, but here’s my written “alternative” list of Conservative choices (adapting the actual song lyrics):

Choose life.
Choose a zero-hours contract job.
Choose a 6 month apprenticeship paying £2.68 an hour.
Choose a family (one man and one woman united in marriage obviously),
Choose a f**king big payday loan
Choose washing machines, cars,
mp3 players, and electrical bread makers.
Choose good health, low cholesterol
and private medical insurance.
Choose help-to-buy 95% mortgage repayments.
Choose a poorly built starter home (on a brownfield site).
Choose your friends.
Choose lounge wear and matching luggage.
Choose a three piece suite from Brighthouse
in a range of f**king fabrics.
Choose DIY and wondering who you
are on a Monday morning (with your curtains closed).
Choose sitting on that couch watching mind-numbing
spirit-crushing Jeremy Kyle shows
Stuffing f**king junk food into your mouth (we will sanction you).
Choose rotting away at the end of it all,
pishing you last in a miserable home
Nothing more than an embarrassment to the selfish,
f**ked-up brats
You have spawned to increase your entitlement to benefits.
Choose your 19th Century past. Choose the Conservatives.


I was right about the mashup. Here’s the man himself:

Map of the day : the world’s billionaires

Real-World Economics Review Blog

from David Ruccio


This map of the world’s billionaires—all 2,325 of them (an all-time record high), with a total wealth of $7.3 trillion (which is higher than the market capitalization of all the companies that make up the Dow Jones Industrial Average)—comes from the new census by Wealth-X and UBS

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Nick Clegg responds to Ed Miliband’s memory loss

I’m often quite critical of the Labour Party, but Ed Miliband ‘forgetting’ to mention the deficit in his conference speech earlier this week, isn’t something I’d have a go at him about. As Chris Dillow rather succinctly put yesterday, the deficit just doesn’t really matter that much, and the point at which it might matter is so far away from where we are now, it’s really not worth spending any time worrying about.

Nick Clegg though disagrees. He thinks Ed Miliband not mentioning the deficit in his speech was a really bid deal, and said as much in what I’m going to call a torrent of gibberish. The Guardian quotes him as saying:

“For Ed Miliband or the Labour party to claim that a budget of £110bn annually will be solved magically by spending £2.5bn extra, it will not.

If you do not know how to pay things for in the first place you cannot support the public services.”

Clegg seems to think Labour’s announcement of a small increase in NHS spending was their solution to the budget deficit (whatever solution means in Clegg’s world). Either that or he thinks we’re all idiots. The second sentence just exposes Clegg’s ignorance. He believes government has to collect tax before it has any money to spend rather than the other way round which would be more accurate.

With someone like Ed Balls, you get the feeling that he knows better, but pretends otherwise because he thinks that’s what people want to hear. With Clegg, I think he genuinely believes the rubbish he comes out with. It’s a little embarrassing sometimes.


“Mr Cameron, keep your mitts off my NHS”

There was an inspirational speech at the Labour Party Conference today. Sadly the speaker wasn’t a Labour front-bencher however. It was 91 year old RAF veteran Harry Smith giving an emotional account of life growing up in Barnsley before the birth of the NHS, and urging us to be vigilant to prevent us from going backwards. Here’s the video of the speech:

Harry has also written a number of columns for the Guardian which you can read here. He has more common sense and decency than most of the House of Commons combined!

Why aren’t we building more of these?

This may be a desperately naive post, but why aren’t we building more of these? I was just watching a little item on Look North tonight about a new Passive House development of 109 homes in Sheffield. These are super-insulated family homes that require barely any energy usage for heating or cooling. This is the largest development of its type in the UK and I think there are only a few hundred Passive Houses currently built here. With energy prices so high and the need to address climate change become ever more urgent, I just wondered why we haven’t made this the minimum standard for house building over here. Is it cost? Do they require specialist materials which means we can’t scale up building? Do they require builders with very specific skills which aren’t available? Does someone have an interest in not seeing more super-energy efficient homes built?

Hopefully I have some housing expert readers who can answer this for me!


Ok, so I got some quite good feedback on the question I posed from some people on Twitter. Thanks for the responses from @ElrondBurrell, @jules_birch and @Kate_de. There was a suggestion that there is a lot of lobbying going on against the ‘red tape’ of zero carbon regulations, which is preventing an improvement in building regulations. It was also suggested that house-builders value profit more than quality which prevents change.

There were some positives though. Elrond Burrell said that the Sheffield development mentioned above, is not actually Passive House standard, but a high quality nevertheless and he seemed optimistic that we would see many more Passive House (or similar) developments over the next few years.

On cost, Kate De Selincourt referred me to two articles she has written on the issue. It seems the costs of Passive House developments has been falling, and may soon reach parity with more conventional builds, and when all the post-build savings are factored in, Passive House standard can be highly cost effective. You can read those articles here:


Kate also says that a lot of social housing providers are looking at Passive House designs for their lower maintenance costs and the fact that their lower energy costs and greater comfort lead to fewer complaints and less tenants falling into arrears. This is good to hear.

So it seems like there are a lot of positive things happening, but the politicians need to catch up and drag the big house-builders kicking and screaming along with them.

Are you going to vote Labour?

It’s the Labour Party Conference this week and what with Ed Balls doing his best George Osborne impersonation today, I thought it might be a good time to ask people if they are planning on voting Labour, and more importantly, why? I genuinely have no idea who I will vote for next year, but I see nothing to persuade me that Labour deserve my vote. The only thing that would sway me slightly is the NHS, but the only reason we are where we are today is because of the reforms made under Tony Blair’s leadership, so can we even trust them with that?

I’m interested to hear why others are sticking with Labour though. Here’s a few reasons I can think of why people might want to:

  • Anyone but the Tories, and Labour are the only ones who can beat them
  • You think Ed Miliband would make a good leader
  • You like policies x, y and z
  • You’ve always voted Labour and believe they can change for the better

Are there any others? Or, if not Labour, who and why?

Labour’s minimum wage announcement is much weaker than it seems

Ed Miliband goes into this week’s Labour Party Conference with another ‘big’ announcement. He is pledging to raise the minimum wage to £8 an hour. The minimum wage will be £6.50 an hour from October 1st this year, so on the face of it, that looks like a big rise. However, the £8 figure is what it will be in 2020. Labour want to raise it in stages in consultation with business. £8 an hour would be 23% rise on the current rate, but that doesn’t take inflation into account. To keep the minimum wage fixed in real terms, it must rise by inflation each year. So if Labour were to simply fix the minimum wage in real terms up to 2020, what would it’s value be?

If we assume inflation of 2% a year, by 2020, the minimum wage would be £7.32 an hour. With 3% it would be £7.76. So all Labour are actually promising is to raise the minimum wage in real terms by between 3% and 9%, which while better than nothing, will not give the low paid that much of an increase in spending power at all.

Labour also want to link the minimum wage to median wages, which seems inappropriate to me. They should be linked to the cost of living, with the wage set at a level that allows workers an acceptable standard of living.

Over the next 9 months we’ll see Labour desperately trying to differentiate themselves from the Tories. If you look beyond the headlines though, you’ll see that the material differences between the two parties is infinitesimal.

Objections to the Job Guarantee

On Thursday I went to Sheffield to watch an excellent lecture on the Job Guarantee by economist L Randall Wray. It was a good chance to meet some Twitter friends in person for the first time and also to see in the flesh someone whose work I’ve been following for the last three years and whose ideas I’ve blogging about for the last two. Wray was talking about the key policy proposal of Modern Monetary Theory – the Job Guarantee. The Labour Party are proposing something called a Job Guarantee, but isn’t really worthy of the name, so I was interested in what the other people at the lecture thought of the idea when fully fleshed out. The people there were probably already pretty sympathetic to the idea, and most did seem positive, asking what other economists thought of it and whether businesses would object. I also wanted to see what people who may not have heard of the idea would think of the Job Guarantee when first exposed to it, so I canvassed for some views on Reddit. Here is what I posted:

…I would like to hear your opinions of an alternative policy, which would be a job guarantee scheme. What is a job guarantee? Here are the main features:

  • The government would offer a job to anyone willing and able to work.
  • The government would pay the wages, but it would be up to local communities to design the jobs
  • The jobs would be paid at a living wage
  • On the job training would be provided

What are your first thoughts/objections?

I got a modest number of responses which were along the lines of what I expected. These are a few of the responses:

Non jobs

If a government creates jobs they will be non jobs equivalent to digging holes and filling them back up again. This argument is often used, and is kind of a misunderstanding of Keynes who said:

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

Source: Book 3, Chapter 10, Section 6 pg.129 “The General Theory..”

So Keynes was arguing that even paying people to perform useless tasks would be better than nothing, but something useful would be much more sensible. Similarly, even if all jobs created under a Job Guarantee were indeed non jobs, that would still be preferable to leaving people unemployed. But with clever job design though and a bit of imagination, we can do much better than that!

Too expensive

This argument is that it would be too expensive to create jobs to hire unemployed people, so it’s better to keep them on the dole and hope things pick up. But how much would it actually cost? At the moment there are around 2.1 million unemployed people. The living wage is around £7.65 an hour (higher in London, but I’ll use the lower figure here. So if we gave all the unemployed full time jobs (35 hours pw) paying the living wage this would cost:

2.1m x 7.65 x 35 (hours pw) x 52 (weeks per year) = £29.24bn. Wow, that’s a lot! But that’s only the gross cost. For the net cost, we need to deduct the cost of paying unemployment benefit (the number claiming unemployment benefit is only around half the total unemployed figure). This is:

1.01m (on JSA) x 72.4 (weekly JSA for someone over 25) x 52 (weeks per year) = £3.8bn

£29.24bn – £3.8bn = £25.44bn

There are some other costs not included about like management, administration and training costs, but there are other savings that may mean the final cost would be even lower because don’t forget, these 2 million now working will be paying income tax and national insurance. Not all will want to work full time, so the average hours worked per week on the Job Guarantee would be less than 35. You wouldn’t need to offer all 2 million a job though because as the newly employed spend their wages, this will create additional jobs in the private sector as sales increase.

Ignoring all that though and using the higher figure, for a net cost of £25bn, we could have a economy in which everyone who wants a job has one. This is about 1% of the UK’s GDP, or less than half our defence budget, or less than 20% of the welfare budget. When you look at that in context, it doesn’t seem that expensive at all. Don’t forget too, this £25bn is much higher than it would be in normal times. As the economy recovers, private businesses would be able to hire from the pool of job ready Job Guarantee workers, and the number of people in Job Guarantee jobs would shrink.

Training and education not subsidised jobs

This is what I would call the neo-liberal line. It says that unemployment mainly occurs because the unemployed do not have the right attitude or the right skills to get the jobs that are there for people who do have the right attitude and the right skills. Those who subscribe to this view argue that the role of government should be to train the unemployed to to find work. This is the strategy we have employed in the UK for at least the last 15 years. The problem is, it’s nonsense. If the jobs don’t exist, no amount of training will help every unemployed person into work. Some of them will always fail. It’s really rather cruel.

Jobs would need to be economically viable

I’m not quite sure what this means, but I think it’s the view that for something to be worth doing, it must make a profit, and that the private sector creates the wealth with which the public sector uses to provide public services. This is just not true though. Government should not be run like a business. The things it decides to fund should not rest on “economic viability”, but on whether the funding will improve the general welfare of the country.

Sounds like communism

Didn’t really get this one, but I suppose it’s a reaction to the government increasing its payroll by up to a couple of million more workers. The Job Guarantee though would only be the offer of a job. No one has to take up the offer. And rather than being communist, it’s actually pro-business in a lot of ways. Businesses often complain that the people they hire lack basic skills or the right work ethic. They view hiring the unemployed as often a risk not worth taking, so they should welcome a job ready pool of workers with recent work experience from which to hire. They just have to make the workers a better offer to the one they get in the Job Guarantee. A little competition in the labour market would be a good thing. The wages paid to Job Guarantee workers would also bolster the sales of private sector businesses.

I guess I can understand a lot of the knee-jerk reaction to the idea that the government should be prepared to give jobs to all the unemployed, but I hope the above has answered why I think these objections are ill-founded. Those who are unemployed and on benefits are already on the government’s payroll, it’s just that we are wasting their talents. Why not pay them a decent wage and get them engaged in useful work? Sounds like a win-win to me.

Wading through the fog of the Scottish referendum debate

I can’t claim to have a particularly strong view either way over Scottish independence. If I lived in Scotland, I’d probably vote yes, and then pray the SNP saw sense before independence actually became official. I feel for those in Scotland who remain undecided though. They are being bombarded with bullshit from all angles. It’s clear virtually all of the media and political class are desperate for a No vote, and are coming up with ever more apocalyptic arguments to try and persuade Scots of the consequences of a Yes vote. Recent polling suggests that if anything, their efforts have resulted in a slight tightening of the polls, so they may be as well to just shut up. As for the Yes side, it seems obvious, they are not actually prepared for what comes next if Scotland does vote Yes, and some of their stated positions particularly their desire to keep the pound in an independent Scotland would worry me if I lived north of the border. 

In this febrile atmosphere then, it’s very difficult to get objective information about the consequences of Scottish independence. On the No side we just hear blatant scaremongering, and from the Yes side quite vague promises about what an independent Scotland would look like. With that in mind, here are a few links I have found interesting in recent weeks mainly focusing on economic aspects of Scottish Independence. I post these mainly because I judge the sources to be objective in the sense that they don’t have any skin in the game, although they are obviously not value-free.

First, this post from the Southampton University politics blog written by someone familiar with independence referendums in Quebec, Canada:

What can the 1995 Quebec referendum tell us about the Scottish referendum?

This recent post by Australian economist Bill Mitchell explains why – given the SNP’s plan for the currency – he would vote No if he were a Scot:

I would be voting NO in Scotland but with a lot of anger

Another economist Paul Krugman gives his own view in a column in the New York Times earlier this week:

Scots, What the Heck?

And finally, Neil Wilson has written a series of posts on his 3Spoken blog trying to dispel some of the (what he calls) myths of the Scottish Independence debate:

How to buy imports?

The currency board

The national debt