Tuesday, July 13, 2010

Balls on borrowing

Yesterday Ed Balls said:

Halving the deficit in four years by cutting public spending... I think was a mistake. In government at the time in 2009 I always accepted collective responsibility, but at the time in 2009 I thought the pace of deficit reduction through spending cuts was not deliverable, I didn't think it could have been done.

I think it’s fair enough to say, in a leadership contest after an election defeat, that you didn’t agree with your party’s policy at that election. Collective responsibility in a government matters.

But what I don’t get is why Balls hadn’t recanted sooner. Indeed, just ten days earlier, he still seemed happy with the policy:

Of course we must start reducing the deficit, but it is the economics of the madhouse to do this before the recovery has been secured. In government we set out a plan to do this with a mixture of growth promotion through our new industrial policy, fair tax rises and spending reductions.

I smell tactical positioning. But then, what’s new?

I’ve heard people argue that Balls was wrong to soft-pedal on the deficit (although he has some support), but I’m more concerned about his apparent indifference to one of the main causes of the credit crunch.

On the Today programme this morning, his interview with the increasingly useless John Humphrys shed very little light on anything, except for one point when Humphrys raised the very high level of debt in the economy before the crunch. Balls at first didn’t seem to realise that this meant overall debt (including businesses and households, not just the government), and then once Harrumph had falteringly explained this, he seemed to shrug it off, saying that “the fact is we had low interest rates, the fact is we had low inflation, and people were borrowing – we had a million more homeowners and that was a good thing”.

There’s a significant body of opinion that rates should have been higher during the years before the crash, that we fixated on consumer price inflation to the neglect of asset inflation, and that borrowing in general should have been more restrained, perhaps by law. Balls should know this and at least be willing to engage on it, although to be fair Humphrys had left little time in the interview after wittering for ages about the Mandelson book. Where oh where is Evan Davis when you need him?

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