IMF backs Labour on Economy

The International Monetary Fund (IMF) has backed the government's approach to managing the economy.  Despite calls from some to cut public debt aggressively now, the IMF believes that would be too soon.  The report is called Exiting from crisis intervention policies.

 

The IMF believes that most advanced economies will need to continue with policies designed to stimulate their economies this year and into 2011.  Winding down those policies may be painful and will take some time.  But the essential message is clear - we have been through a huge financial crisis and it's going to take a while to get things back to normal.  The world economy remains in a fragile state.  We should not risk recovery by tightening policy too much too soon.

 

Labour's steady course on managing the economy is increasingly being seen as the right one.  The Conservatives meanwhile would risk plunging the UK back into recession by cutting government spending aggressively this year.  At the end of the day, that means more unemployment.

 


Stephen Beer, 24/02/2010


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Faith, fairness, and family

I'm not sure why Cardinal Keith O'Brien felt the need to go on the attack when a Labour politician made a constructive speech about faith and politics.  Jim Murphy MP, the Secretary of State for Scotland, gave an interesting speech this evening to an event organised by Progress.  I was there so I know that the tone of his remarks was constructive and that he was trying to open a dialogue.  He made the point that the majority of people have some sort of belief in God and that millions attend religious services.  They are also motivated to vote.  Labour should not ignore them, for a whole host of reasons.  He said too that Labour needs to highlight more the role that family plays in peoples lives.

 

Cardinal O'Brien welcomed the speech but suggested a 'tangible example' of how the government had recognised religious values would be welcome.  Well, I'm not sure what Bible the Cardinal is reading but mine has a lot in it about helping the poor and oppressed for example.  It says much about how we are equal before God.  Social justice; equality; these are some of the values that Labour has been putting into practice.  And as Jim Murphy pointed out, faith played a major role in the foundation of the Labour Party.

 

Beyond countering the Cardinal's general point, we should recognise that he is articulating some particular concerns that he has, and fair enough.  But that's why I think his intervention was too hasty.  For the speech he was attacking was focused on starting a dialogue and on listening to each other.

 

 


Stephen Beer, 23/02/2010


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How we tackle the deficit matters to all of us - economists in war of letters

I've just come back from a City meeting on the UK economy and government policy so was already thinking about government deficits and their impact on people when I read the two letters to be published in Friday's Financial Times.

 

Twenty economists wrote to the Sunday Times this week taking the government to task for not cutting the debt more quickly.  Now, a further 60 economists have written to the FT saying the first twenty got it wrong.  The sixty are right.

 

Both letters are worth reading.  One of the letters is linked to Lord Skidelsky, author of the definitive biography of Keynes.  It stresses that the economy is not yet on a sustainable growth path and if growth was hit by tougher measures to cut public debt we would be in a worse position.  People may be worried about the financial markets but markets might be even more concerned about an economy that is going back into deep recession (which means lower tax revenues, higher spending, and higher debt).  A credible deficit reduction plan is essential but growth is what will save the economy.

 

There is also a letter by Lord Layard and others.  It points out that the deficit is sustainable (and has been higher many times in the past) and makes the point that if the government's contribution to demand was reduced next year even more than it will be, the recovery would be in danger, especially while unemployment is so high.  The economists writing to the Sunday Times were calling for more deficit cutting action now.  The letter points out that this would be dangerous.  What is needed is a debate about the detail of the government's plans for the medium term.

 

Most people don't realise that the UK is set to tighten fiscal policy significantly next year - in other words, the Chancellor has taken a prudent approach.  Few other countries are doing this.  The twenty economists writing in the Sunday Times were seen as backing Conservative economic policy (the latest version at least).  Yet such an ideological approach is risky.  This matters in terms of jobs and the futures of a generation (which is how long it will take to cut the debt back to pre-crisis levels, such was the impact of the banking crisis).  I am always wary when economists start talking about satisfying the bond market's demands.  Yes, the concerns of bond investors need to be heard.  But they can change their minds very quickly.  Government fiscal policy takes months or even years to change.

 

A chancellor has to make a judgement and be clear about what he or she is doing to deal with the problem.  There is no strong case to suggest Alistair Darling should be changing his economic policy, as I have argued.  The Sunday Times Twenty are reflecting an economic orthodoxy that did nothing to prevent, or help us escape from, the greatest financial crisis since 1929 and the deepest recession since the war.

 


Stephen Beer, 18/02/2010


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A hung parliament, Tory economic policy...and the City

With the opinion poll gap between Labour and the Conservatives narrowing there has been talk of a hung parliament.  This is pure speculation and I remain of the opinion that as Labour puts its case across, and as the Tories' policies crumble, so the gap will narrow further.  In other words, Labour can certainly win this election.

 

However, it is not just political commentators who are talking about hung parliaments.  City economists and strategists are doing so too.  Usually, their political analysis is not that sophisticated.  But they are worried that a hung parliament might mean action on cutting public debt may not be so firm as they hope.

 

I am not so sure, for two reasons.  First, I think that idea that a hung parliament means less resolute action is a big assumption.  If it's a choice between that and a Tory government that changes its economic policy every couple of days, I think I'd go for the hung parliament (of course, I'd prefer a Labour government).  But my main reason for doubting the conventional City view is that Labour's economic plans are pretty much in the right place, as much as any Chancellor can call.  Too tight a policy too soon and we risk the recovery.  Too light and we risk a crisis over the deficit (even if the bond markets are wrong in their economic assumptions, they are still powerful).  Indeed, we can see that Tory economic policy appears to be trending towards Labour's - well, the last time I looked.

 


Stephen Beer, 08/02/2010


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