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Thursday, 27 January 2011

Osborne needs balls, but the last thing he needs is Balls

"The harder I practice, the luckier I get", is golfer Gary Player's oft-quoted phrase (although he attributes it to fellow pro Jerry Barber). Yesterday's horrendous economic figures, showing that GDP has fallen by -0.5% must have made new Shadow Chancellor Ed Balls feel very lucky. But he will tell you that he has been practicing for this moment a long time, and it's not luck. He has been arguing for a long time that drastic cuts are not the way out of a recession, better to have a credible growth strategy. The news that the country has gone from growing by 1.1% in the last quarter of the Labour government to falling as it has in the second quarter of Coalition government surely proves Balls right. On the need for a growth strategy, definitely yes. On the lack of need for drastic cuts, the jury should still be out. What is certain is that the Labour Party now have the perfect person in place to argue that it is the Tory-led coalition's policies that have put us in this position. This was not the time to have Alan Johnson as your Economic spokesperson, and I imagine right now George Osborne knows that.

Watching Balls on the Daily Politics at lunchtime on the day the figures came out you saw the difference he makes. Andrew Neil pointed out (rightly) that the negative growth figures were not caused by the cuts, as the last quarter of 2010 saw public spending actually GROW by 5% to the largest amount ever. What Balls was able to do though was repeat his point about there not being a credible growth strategy and also bat away forcefully other economic points made (including showing his understanding of "Ricardian equivalence" - a flexing of his muscles to show the anti-Keynesians he's ready for them).

The fact is that we await April's figures with renewed interest, because if there is another fall in GDP then we have the double-dip recession that Labour have warned against for over a year now, and the effects for the Coalition's strategy could be far-reaching.

That doesn't mean these negative figures mean they should change course immediately - recovering from a recession as deep as the one we just had does usually involve some backward as well as forward steps. But it should cause pause for thought at least.

Most importantly, it renews the importance of communication. I'm convinced of the need to cut the deficit, but I am also convinced that economic growth can help to do that. I don't understand where this growth is going to come from. The fall of the pound has increased export demand for manufacturers (hence its growth) and loose monetary policy leading to low interest rates should help increase borrowing for investment (assuming banks actually are willing to lend money). But neither of these are in the control of the Coalition government.

So what are they doing? What is their growth strategy. Oh for a good Director of Communications........

1 comment:

  1. (His Ricardian line did make me smile, given that on this occasion he was using it - albeit half-jokingly - to support his position, even though no-one (within a margin of error of 'some people') believe in it anymore :P)

    Would be good to read a post on the prospect of persistent stagflation, by the way. I take it from what you say that you don't necessarily support an imminent rise in interest rates, but equally, successive falls in living standards for those in work are not going to be tolerated for very much longer. (And that's not something that I can really blame anyone for, either.)