Thursday, January 13, 2011

The plus side to incompetence

People seem to be waking up to the fact that the Shadow Chancellor needs to have L and R written on his shoesConcerned lefties are starting to say (as really ought to have been obvious right from the beginning) that if Labour want to look even vaguely like an alternative in Government, then the Shadow Chancellor ought to be someone who can read without needing to use his index finger.  But it’s not actually an entirely bad thing for Labour that their lead economic spokesman is so hopeless.

Since about 1994, the economic principle that drove the New Labour project was to encourage the boom in the financial and property markets, and to use the increased tax revenues from that to finance a substantial expansion in the state. Fears that these booms were just cyclical, and ought either to be reined in or at least regarded as temporary were dismissed – boom and bust had been abolished after all.

One of the more coherent responses from the left to the financial crisis has been that the financial sector was essentially too profitable during the boom years (a refinement on that being that the ‘profits’ being made and taxed were basically illusionary) and that reforms need to be made that reflect that fact. That is, of course, all well and good but getting rid of the sort of massive profits that so rile the left also means getting rid of the bumper tax revenues that go with them.

One half of the equation has collapsed. What does that imply for the other half? Well, Labour could try and maintain increased public spending by substantially raising general taxation. But we’re talking very substantial sums here. Labour say they want to eliminate the structural deficit by 2016 – if this is all to be done through tax rises that’s £90bn they’re going to have to find – 2/3 of the total income tax take. I don’t see this being an electorally successful position.

So cuts of some form are going to have to be made – but cuts are, as we are seeing, unpopular. Why take the hit on suggesting cuts if you don’t have to? Surely it’s better to gain political capital by opposing each individual nasty cut, without having to sacrifice it by proposing your own? Alternatively, deny the validity of the question. There’s no such thing as a structural deficit: growth will take care of it. We can make up what we need by taxing ‘the rich’, ‘the bankers’, ‘the fat cats who got us into this mess in the first place’ etc. None of this is especially credible – but who cares? Economics is complicated, and most people don’t understand it. Give them a tune to hum (‘they say cut back, we say fight back)’ is a good one), and let the messy policy bit go hang for the next few years.

From that perspective, having a genial rather slapdash shadow chancellor is quite a good idea – if it were Ed Balls the media would expect him to have coherent policies, and would pick at any gaps remorselessly. With Alan Johnson there’s likely to be a lot more eye-rolling laxity. Given that there won’t be an election for four years, and that AJ is pretty unlikely to be shadow chancellor when there is, I don’t actually think it’s such a bad thing leaving him in place. That fuzzy incompetence could actually be something of a plus.

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