Two things to say before I write the substantial part of this post:
- I am aware that writing about politics can invite such lovely activities as trolling and flaming. I am more than happy to have people comment and disagree with me (reasoned debate and differences of opinion are vital in a democracy), but if the comments become personal, deliberately provocative or extremist I will feel obliged to delete them.
- I should declare that in the matter of politics, while I will always aim to be fair and open-minded, I am not a neutral observer. I am a member of, and a former party worker and election candidate for, the Liberal Democrats. That said, when I had political ambitions my far horizon was not 10 Downing Street but the Speaker’s Chair – a party neutral position, and I like to think of myself as politically, as well as denominationally, ecumenical, with friends across the political spectrum.
This second point is particularly relevent as my focus for this post is the Labour Party – or rather the current goings on in the Labour Party are the springboard for what I really want to get off my chest. Despite having been out of government for a little over 100 days the Labour Party are still continuing to get the lion’s share of the political headlines, owing to both the release of former PM Tony Blair’s memoirs (I haven’t read them, but I’m sure I will at some point) and the fact ballot papers have now started going out for the party’s leadership election following the resignation of Gordon Brown as PM and Labour Leader. In a recent blog BBC Political Editor Nick Robinson suggests that policy differences are now appearing between some of the main contenders, over the issue of the current deficit and how it should be dealt with. The argument seems to be over the speed and/or manner in which it is dealt with, with Ed Balls seemingly saying we shouldn’t worry about it. And it is this issue that got me wanting to blog, because all the parties, including my own, don’t seem, as far as I see it, to get how economics (or at least Keynesian economics) should work in this case.
Now, I need at this point to admit I am not an economist nor a student of economics, and I have not read Keynes’ actual works. But when I was a student the last time a small number of my classes (in the US and the in the UK) required a basic understanding of political economic theory, and since the classes covered the 20s-70s John Maynard Keynes has come up a bit. I’ve also read books since that cover Keynesian ideas. Basically, in relation to the current economic situation you have two arguments out there. One is that which the left generally takes, which is that we must spend our way out of the recession rather than cut public spending – it’s the way that FDR took the US out of the Great Depression (along with the defense budget required for WWII). The other is that in times of recession people need freeing from the constraints of the tax system, both personal and corporate, so that they can then feel able to spend their money and therefore help spend out of the recession. The current government (including the LibDems) is using this argument to introduce severe cuts in public spending – they don’t want to raise taxes so spending must come down. Labour, or certainly some of their members and supporters, would rather continue spending and raise taxes on those they feel can still afford them (and there are certainly people out there who can still afford it!) Both sides appeal, on occasion, to Keynes to back what they are saying.
Well, as far as I can tell, when it comes to Keynes they are both right, and both wrong, because they forget something – the opposite of deficit is not growth but surplus. It should work like this: during times of prosperity, as we had during the early years of the New Labour government, the weight on the public purse should be less while the ability to pay tax should be greater therefore you raise taxes (or at least you don’t cut them) and create a surplus (ie, the exchequer raises more than it is spending). Then, if and when a recession hits so the revenue goes down and the demand on the public purse goes up, the deficit (ie, the exchequer spends more than it receives) can be covered by the previous surplus. Should the government be spending not cutting? Yes. Should the government be cutting or maintaining taxes not raising them? Yes. Did the previous governments, Labour and Tory, build up a surplus in order to cover this current deficit? No, they did not. And this means there is a choice – cut/maintain taxes and cut spending, or raise/maintain spending and raise taxes. The government have chosen one way, the opposition would prefer the other way. Whichever side of the political divide we sit, we need to recognise that no party is entirely right or entirely wrong on this issue – if you’re a Tory, yes we should be cutting taxes but we should also be raising spending, if you’re Labour, remember that spending should be accompanied by a reduced tax burden, if you’re a LibDem note that Keynes was a Liberal but that we ditched our 1p tax rise right in the middle of the boom years!
And once the recovery is eventually done let’s all remember that the opposite of deficit is surplus!