Poor politics, worse economics…..
Ed Balls was headlining today at the Labour conference. It was his indication that High Speed Rail 2 might be hitting the buffers which made the headlines but I have to confess to being continually mystified by his obsession with sticking to government set spending limits. I am sure it will be said that this is ‘sensible’ fiscal policy but in reality it has little to do with fiscal policy. His commitment can be easily torpedoed by the simple fact that it is highly unlikely that a majority Conservative government would stick to its own self-imposed limits. Indeed, the pattern for this Parliament is that George Osborne has been consistently forced to ignore his own limits on borrowing by his scorched earth austerity economics which has bled demand out of a struggling economy like a determined and very hungry leech.
The recent recovery has been brought and purchased by this government, by stealth, completely reversing its attitude to state borrowing and it is this contradiction, between needing to appear as austerity obsessed but in reality borrowing like a madman that will eventually bring the fragile recovery crashing down. This core contradiction is unsustainable in the long-run but it may be sustainable long enough to purchase the Conservative Party electoral success. Ed Balls however recognises none of this and indeed proposes to continue along the same route for the sake of political positioning.
In fiscal policy, the ‘wait and see’ position is entirely acceptable because most people realise that Ed Balls has no possible way of knowing what the right policy will be if he takes the reins. At least he was shrewd enough to sneak in a get out clause by saying they would be a “starting point” but what appears to be sensible politics, projecting an image of continuity, is in fact deeply ruinous to Labour’s core economic message, that the government got it wrong economically. The same trick worked in 1997 but that was then and this is now, its the wrong political message for an insurgent opposition seeking to portray itself as radical break from its own past and from the current administration. It will do nothing for Labour’s economic credibility, in fact, it greatly diminishes that credibility because its based on fuzzy logic and looks oh so duplicitous. Do we really think the electorate are that stupid? I hope not. I do think Labour’s key strategic thinkers probably are though, they are cooing over what they see as a masterstroke while the government and especially Mr Cameron and Mr Osborne snicker behind their hands.