A wide consensus supporting cuts does not mean they are the right policy—consider the past, writes Ed Ballsby Ed Balls / September 26, 2010 / Leave a comment
Margaret Thatcher oversaw recession, social unrest and rising unemployment. As the government embark on their policy of drastic spending cuts, will history repeat itself?
For more on Labour, see David Goodhart’s review of Tony’s Blair’s “A Journey”
This is a dangerous time for Britain’s economy. History teaches us that recovery from a large-scale financial crisis can be slow and stuttering. We need a clear plan for reducing the deficit, based on a careful balance between employment, spending and taxation. But this can only happen once growth is secured—and over a markedly longer period than the government is planning.
Far from learning from our history, I fear the coalition is set to make the same mistakes as past governments. The basic questions are being ignored: is it right to cut billions from public services, and take billions out of family budgets this financial year and next? What will that do to jobs and growth? What will it mean for the deficit?
There are important dissenting voices—the economists Anatole Kaletsky, Paul Krugman, Robert Skidelsky and David Blanchflower, to name a few. But for the most part, the political and media consensus dictates that the deficit is the only issue that matters in economic policy; that the measures set out in the budget to reduce it are unavoidable; and that there is no alternative to the coalition timetable. So strong is this consensus that a special name has been given to those who take a different view: “deficit deniers.”
Yet the history of British policymaking over the past century shows that, on all the other occasions when major economic misjudgements were made, political, media, financial and popular opinion was in favour of the decision at the time. Dissenting voices of economists were ignored.
In 1925, as chancellor, Winston Churchill decided to return sterling to the gold standard, on the grounds that there was no credible alternative the markets would support—and that it would boost confidence and private investment. He was supported by the broad mass of economic opinion, including the governor of the Bank of England and the Labour leadership. Only John Maynard Keynes stood out against the consensus at the fateful Downing Street dinner where Churchill made the decision. As Keynes correctly predicted in an essay shortly after, “The economic consequences of Mr Churchill,” the result was deflation, rising unemployment, a general strike and then Conservative election defeat.
In 1931, two…