At a time when the notion that capitalism is in crisis has gone from being a demented Trot cliché to an everyday topic of debate in the Financial Times, the sheer disconnect between reality and Labour’s willingness to think the potential consequences through is immediately striking.

Is this not a good thing though? If we are questioning/witnessing the death of capitalism, we can hopefully get a decent system in its place (and now we argue what this is…). Anyway, the Financial Times is hardly a bastion of free-market thinking, being very much of the same corporatist nature that the last government (and increasingly this one…) seem to have adopted.

A full scale slump on the scale of the 1930s is mercifully not the most likely prospect we face, but neither is it out of the question.

To save Tim W the effort, please remember the US slump in the 1930s was actually unusual – most other economies recovered very quickly. As with the Japanese slump, 1930s US economic failure probably owes a lot to domination of the economy by too few interests (that is not a political point – it could appeal to free marketeers and socialists alike – again it is the solution, not the point, which should be debated).

Yet the timidity of the left’s intellectual response is shocking. The terms of debate are more or less limited to the desirability of slightly tighter financial regulation and the ringfencing of investment banking activity. There is no recognition that cyclicality is built into the system itself.

I would suggest the cyclicality is pretty much the inevitable result of small numbers of agencies having too much power over the economy (and that includes government above all) as it reduces resilience. But the left’s intellectual response is no worse than most of the right’s, which also seems to have the same depressing belief in big banks, big business and big government, and playing with the margins. The major difference is perhaps that the free-marketeers (call them Tea Partyers or whatever if it makes you feel better…) on the economic right are at least offering a fairly clear message about what to do. From the left, even those outside the consensus seem reluctant to suggest a way forward outside of the current situation where government goes hand in hand with big corporations (the most radical solutions have been to nationalise them, which hardly helps deal with the key problem of too much power in too few hands really…). If your most vocal point of view is to deal with tax avoidance (a symptom of the system) rather than address the problem, you may right.

The economic left wing cannot really be dead, but it seems very reluctant to suggest anything radical – Dave sets out a problem, but nowhere do I see a solution (President Obama’s desparate attempts to spend more money he doesn’t have aren’t really dealing with the issues are they?).

Cyclicality is inevitable, a feature not a bug, and not that much of a problem. It does however become a severe problem when politicians stick their oar in and over inflate and lengthen the cycle. What should have been a minor readjustment, or a series of them becomes a total disaster.

As for Ed Balls; he only knows how to spend and he can’t even do that sensibly.

The US Great Depression was prolonged and exacerbated by the massive interventions of the Hoover and FDR administrations, the latter especially was very close to a Mussolini-style economic system. In other words, the state medicine was killing the patient.

Cyclicity is explained by the manipulation of money and credit by the central bank and the government. They create the boom. The bust has to follow. Where this happened in times previous to central banks, there was still the same inflation of credit which caused the boom/bust.

“President Obama – acting, it has to be said, out of opportunism rather than ideological conviction – is posturing as a hardline Keynesian, calling for job creation and taxing the rich, and daring the Republicans to knock him down.

So the first time in my political memory, a Democrat president in the US is discernibly to the left of a Labour Party in opposition in the UK.”

Huh?

Ed Balls’ 5-point plan:

“Repeating the bank bonus tax – and using “the money to build 25,000 affordable homes and guarantee a job for 100,000 young people”"

- taxing the rich, and job creation.

“Bringing forward long-term investment projects, such as schools, roads and transport, to create jobs”

- job creation.

“Immediate one-year cut in VAT to 5% on home improvements, repairs and maintenance”

- job creation.

“One-year national insurance tax break “for every small firm which takes on extra workers, using the money left over from the government’s failed national insurance rebate for new businesses”"

- job creation.

And finally:

“Reversing January’s “damaging” VAT rise now for a temporary period”

- which is, admittedly, less obviously about either job creation or taxing the rich… but seen in the context of Labour’s opposition to cuts in the top rate of tax and in corporation tax, it reflects an overall approach of skewing the tax burden towards the better off.

And this is not to mention Labour’s opposition to the scrapping of RDAs, the Future Jobs Fund, etc. Ed Balls could hardly have put more emphasis on job creation in today’s speech.

As for taxing the rich: Obama’s Republican opponents don’t accept that additional taxes on the rich should play any role *at all* in deficit reduction. Labour’s Tory opponents *do* accept that such taxes will have a role to play, and indeed have rhetorically played up this aspect of their deficit reduction plan (“those with the biggest shoulders”, bla bla bla). So it’s hardly surprising if Obama feels the need to fight harder on that front. It doesn’t follow that he favours taxing the rich more than Labour do, or more than the Coalition do for that matter.

Totally in agreement here, when i heard the news today i was really disappointed, its not like the gaping holes in the system have even been hard to spot, what with massive tax avoidance, the central use of tax havens in our economies, wild financial institutions and massive household debt to name just a few.

And yet when people are more liberal in our countries than at any time in history we are burdened with some of the weakest leadership. I am not sure if they genuinely think these policies are going to work, but do they honestly think they will be vote winners? This isn’t the 90′s, the free market is no longer trusted and people aren’t going to be happy with a few small job creation schemes however inventive they are.

I really hope that they get more hard-line as the years go by, and the economy gets worse and calls for more radical plans become more mainstream, because come the next election i currently have no idea how these guys can galvanize any of their party base to vote for them let alone campaign for them.

@5 “its not like the gaping holes in the system have even been hard to spot, what with massive” compliance with the tax laws.

That was what you meant to say I presume. Evasion is the illegal bit and that hasn’t increased by any extraordinary amount. If you want the tax laws to be different then by all means campaign on that but this avoidance nonsense requires ignoring the rule of law and that will eventually bite you a damn slight harder than you may imagine.

Politicians are in thrall to the markets. After 30 years of deregulation it’s questionable whether they have any control left. Traders can simply pick on a currency at will. So Balls isn’t really talking to Conference, he’s talking to the markets, trying to sound radical without frightening the horses – it can’t be done.

FDR came to the White House castigating Hoover for not balancing the budget, and remained instinctively cautious about stimulating the economy – hence the reversion to type in ’38. Markets have determined the course of events to date – from the bubble to the bail-outs, with politicians largely by-standers. Perhaps it’s only when the markets finally bring about their own total collapse that some kind of alternative will emerge from the rubble?

Keynes’s General Theory wasn’t published until 1936 and even then had little effect on policy until the exigencies of war FORCED the hand of government. Crusading governments are few and far between. Maybe 1945 was a singularity – a result of a unique combination of circumstances – not least a realisation that we were really ‘all in this together’, with all classes fighting side by side reinforcing a recognition that an economy should serve the interests of all rather than a Randian elite.

But Polanyi’s announcement of the death of laissez-faire now seems premature, with the inexorable rise in inequality and collapse in opportunity that has seen the top 1% take control of income and information, and it’s difficult to see how politicians – who have become simple technocrats in the service of a single ideology can break out of the stranglehold.

Let’s say Balls had called for a full-scale return to social democratic principles with its emphasis on ‘positive freedom’, equality of opportunity and reductions in inequality – how would that have played with the markets, our top journalists and their billionaire paymasters, and the think-tanks that direct public policy?

How to get the neoliberal genie back in the bottle?

Falco: “That was what you meant to say I presume. Evasion is the illegal bit and that hasn’t increased by any extraordinary amount. If you want the tax laws to be different then by all means campaign on that but this avoidance nonsense requires ignoring the rule of law and that will eventually bite you a damn slight harder than you may imagine.”

Oh come on – you know what people mean. The fact is that if a person or company accumulates a certain amount of wealth in the UK, they barely need to put in any effort to reduce their tax payments vastly below what would be expected given the tax rates in force. Virtually every company in the nation enters into deliberately byzantine arrangements, with countless meaningless companies and “special purpose vehicles” in Luxembourg, Guernsey and the Cayman Islands making incomprehensible notional payments to each other to avoid fair taxation. Indeed, any business not large enough to sustain such arrangements generally cannot compete (another hammer blow to small business).

Targeting it is a no-brainer, in theory. While clawing back money from benefit claimants and lower paid workers damages the economy (since nearly all that money would have been spent immediately and locally), money clawed back by closing tax loopholes is relatively undamaging…

There is, admittedly, the small matter of the sympathies of the right wing press, and those crucial corporate campaign donors…

Left Right Left Right Left Right Attention!

Well that’s how it goes down in the army anyway but that’s an organization that gets things done, in politics we just have college kids that never grew up, juggling the problems left right left right! Without ever stopping to pay true attention to what they actually are and how there cures can come about..

It matters not – just craft your image to the wanted public perception and your off!

“Markets have determined the course of events to date – from the bubble to the bail-outs, with politicians largely by-standers. Perhaps it’s only when the markets finally bring about their own total collapse that some kind of alternative will emerge from the rubble?”

Hopefully! Maybe investors will cut off all investment to reckless government’s chasing unsustainable and in a lot of cases unwanted dreams eh?

“Cyclicality is inevitable, a feature not a bug, and not that much of a problem. It does however become a severe problem when politicians stick their oar in and over inflate and lengthen the cycle.”

The trouble is, when there’s a credit boom in the offing, all the libertarians are rushing around demanding that politicians stop being such killjoys and “sticking their oar in” and stopping the wondrous free market enriching everyone forever with an endless mega-boom. Afterwards, the same bunch of people turn round and condemn politicians for “sticking their oar in” for failing to prevent the boom.

Not just in denial.

Telling porkie pies again, it seems.

Balls claimed that “we went into the crisis with lower national debt than we inherited in 1997″. That is flatly untrue. Public sector net debt when Labour took over was £350 billion. In 2006-07 it was £500 billion. Even adjusting for inflation, Brown and Balls had added £62.8 billion in today’s money to the national debt they “inherited” by the time the crisis started

http://www.spectator.co.uk/coffeehouse/7268148/balls-brownies.thtml

@ 10 Jungle

“The trouble is, when there’s a credit boom in the offing, all the libertarians are rushing around demanding that politicians stop being such killjoys and “sticking their oar in” and stopping the wondrous free market enriching everyone forever with an endless mega-boom. Afterwards, the same bunch of people turn round and condemn politicians for “sticking their oar in” for failing to prevent the boom.”

Err, yeah right. Which libertarians are these? Obviously not the ones who are in the tradition of Austrian economics, who blame the abandonment of a sound monetary system in favour of a fiat currency, and obviously not those who are in the tradition of Jeffersonian and Jacksonian economics which are also hard money people.

To try to point the finger at libertarians, who are, I’m sure you will agree, a marginal political force, is ridiculous. Of course libertarians call for free markets, but we haven’t got them now, especially when it comes to monetary policy. The central banking system involves government monopoly and central planning. Now, try explaining how that is libertarian or free market.

@ 7 Charles Wheeler,

what colour is the sky on that planet of yours?

@ Flowerpower

For goodness’ sake. Balls was simply following the convention of considering national debt as a percentage of GDP – that being the best measure of its relationship to the economy as a whole and hence its affordability. Google ‘UK national debt graph’ or similar and see how many examples you can find of it being expressed in any other way.

@7 Charles Wheeler

How to get the neoliberal genie back in the bottle?

My suspicion is that it will eventually put itself back in the bottle, when it causes its own collapse.

I also suspect that given peak oil and resource/ecological constraints etc, whatever alternative eventually arrises will be based on the concept of a steady state economy rather than a growth one. Which will require massive changes to the way our monetary and financial systems operate.

Causing panic would be dangerous irresponsible. He has to remember that.

@11 – Absolute figures are worse than meaningless. The only relevant figures can be relative ones.

GO @ 13

For goodness’ sake. Balls was simply following the convention of considering national debt as a percentage of GDP – that being the best measure of its relationship to the economy as a whole and hence its affordability.

It’s not really a test of affordability if you are borrowing in a boom and having to repay in a downturn.

Balls’ claim that he and his colleagues deserve plaudits because the debt was smaller as a percentage of GDP is a bit much since any damn fool can have debt as a smaller looking %age in a boom.

It also rather draws attention to the fact that instead of reducing debt in the boom years, Labour borrowed even more. The result is we cannot afford to reduce it during the downturn and when growth does finally come, we’ll have to choose between using its fruits to pay off debt (despite having many other urgent uses for the money) or burdening the next generation.

Besides, had you followed the link supplied, you’d have seen your weaselly argument was dealt with

Balls’ defenders will say that he meant “debt ratio” – and, to be sure, debt did not rise as fast as GDP over those years so the ratio fell (from 42.5 per cent to 35.9 per cent). But Balls didn’t mention a ratio: he claimed to have cut debt. And that is clearly not true.

…… Given that the debt is held by the British public, run up on their behalf by governments, there is a duty for all MPs to be crystal clear about what they mean. Britain’s fiscal situation is too serious for MPs to get away with saying that debt has fallen, when in fact it has gone up.

Balls also slammed Cameron and Osborne, saying they “thought they knew better… that if they cut public sector jobs, the private sector would more than fill the gap”. Balls claims they’ve been proven wrong.

…….From March 2010 to June 2011, public sector employment dropped by 268,000 while the private sector grew by 575,000: more than two private jobs gained for every public job lost

Hey don’t worry! There’s money to be made in any crash, or future recession. That’s the bottom line according to this City trader in this BBC News video.

” We don’t really care” (about a crash) “we want to make money from it…..I’ve been dreaming of another recession for three years….The Governments don’t rule the world, Goldman Sachs rules the world”.

What a little charmer. Get your hedge fund ready and prepare to make money from other peoples misery.

Doncha just love the City and financiers? (Reform possibly arriving 2019).

Still, at least he’s honest eh?

http://www.bbc.co.uk/news/business-15059135

@17 the much quoted “City trader” doesn’t work in the City or represent anyone in the City. He’s just a random bloke talking his own book.

http://www.leadingtrader.com/about/

Back to the OP, I’m unsure of what the author really wants. The big question is whether 90s-style social democracy can be afforded given that the New Labour solution to growing the state – expanding and taxing the finance sector and property sales – failed. It seems as though Balls is just rehashing those solutions while those to the Left flail around with little more than rhetoric and weak class war.

Given Ed M’s intellectual history and lack of political nous I’m fully expecting a rehashed AES come 2013.

@ 18

Yeah Goldman Sachs (received a $12.9 billion payout from the US government’s bailout of AIG. Goldman Sachs bankers received $15.3 billion in salaries and bonuses in 2010, as revenues fell 13% but pay pot was down only 5%) would never do that sort of thing.

This is the Goldman Sachs that told the EU that Greece was credit worthy for the Euro.

@17

“What a little charmer. Get your hedge fund ready and prepare to make money from other peoples misery.”

He is doing his job. What do you think he should do – go out and lose money?

@20 I suspect that compared with US government spending (c. USD 3.5trn) whatever Goldman Sachs does is neither here nor there. However, they symbolise something else and it’s probably actually that you’re arguing against.

This is an excellent response to Balls’s speech

http://bilbo.economicoutlook.net/blog/?p=16275#comments