Dare They Ditch Their Deficit Denier?

Michael St George October 29, 2012 2
Dare They Ditch Their Deficit Denier?

To all but the most committed Brownite tribalists in Labour’s ranks, Shadow Chancellor Ed Balls must rapidly be becoming an embarrassment.

Still adamant for the most part that there was little fundamentally wrong with Labour’s economic policy for whose devising few others can claim responsibility apart from Brown himself, and hesitant to ascribe to it and himself undue blame for the fiscal black hole into which the UK economy found itself in 2010, he personifies the reason why Labour, in the mid-term of an unpopular Coalition doing unpopular things, is still less trusted with the economy.

The most recent manifestation of this turns on the structural deficits which the vast majority of commentators accepts the UK ran from 2002 onwards, once Brown jilted worthy but unexciting Prudence and turned instead to his more flighty but hazardous fiscal femme fatale, Profligacy. The structural budget deficit is usually defined as the fundamental imbalance between government receipts and expenditures persisting across time and over the economic cycle, as distinct from a cyclical deficit deriving from one-off or short-term factors, common during downturns.

Yet Balls, the avowed neo-Keynesian (although this writer can’t recall where in the General Theory Keynes advocated deficit spending during periods of boom and prosperity) has since 2010 persistently denied that the UK ran expanding structural deficits from 2002 onwards, presumably in attempts to distance himself from accountability. The charts, however, tell a different story.

Not only that, but there’s formidable evidence arraigned against him. Not only did the OECD, in 2011, confirm that the UK “entered the recession with one of the largest structural deficits in the OECD and rising public-sector debt”, but Treasury analysis based on figures from the IMF has shown that the UK was running a structural deficit of 5.2% of GDP in 2007, with a fiscal black hole of £73 billion – larger than previously stated and in a worse position than any other major economic powers.

 Yet just what degree of intransigence Deficit Denier Balls maintains in the face of such evidence was on stark display last week in his car-crash interview with Andrew Neil on the BBC’s Daily Politics.

How much of an electoral problem does this pose for Labour? Voter memory is notoriously short, but the perception that Labour borrowed too much in the good years, and the principal architect of that still dictates its economic policy, seems strikingly resilient during this inter-electoral cycle, and a block on Labour building anything like the commanding lead that ought to be there. And although it’s a crowded field, Balls as Shadow Chancellor probably represents the biggest electoral liability Labour currently has.

Conventional wisdom would therefore dictate replacing him with “a fresh face to articulate our new one-nation message in economic terms”. But would Balls fulfilling a different brief in the Shadow Cabinet, or on the back benches, be any less of a problem? Clearly retaining leadership ambitions, conscious that Miliband holds his position courtesy of the trade union paymasters, and surrounded by the loyal remnants of the Brownite boot-boy cabal, Balls elsewhere and resentful could spell even more trouble than where he is now.

So is it, in fact, the case that Labour don’t dare ditch their Deficit Denier? This is the stuff of which ulcers are made. Your electoral prospects demand you dump him, but your leadership and party unity prospects demand you keep him – even at the risk of going into the next election with opponents gleefully pointing out to the voters that giving Balls the keys to the Treasury is akin to making the arsonist who fired their house a fireman, giving him can of petrol, and asking him to put it out.

 In 2012, the 100th anniversary of the Titanic disaster, it’s instructive to conjure up an image from 1912 to illustrate just what kind of dilemma for Labour’s electoral prospects is posed by Balls, the unrepentant and unreconstructed pseudo-Keynesian. The passengers are trying to secure themselves at least a possibility of rescue. The boats are putting at least some distance between themselves and the stricken ship. Yet rising above the clamour is heard the voice of one man: denying that he was officer in charge of the bridge,  questioning whether the iceberg really did do all that much damage, exclaiming that the lifeboats are rowing away “too far, too fast”, and insisting that the only hope of salvation lies in returning to the Titanic.

 That man is Ed Balls. Who’d book their return passage on the White Star Line with him as First Mate?

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