An economic defence of Gordon Brown
The more I think about Chris Dillow’s formulation of right-wing “small truths, big errors” the more I like it.
The tendency of those on the right to “use the small truth to obfuscate the big one”, as Dillow puts it, is almost endemic. He notes four good examples in his original blog and another here. Here’s one I spotted.
But the ripest red herring of all has to be the right-wing argument that Gordon Brown went on a spending splurge between 2007-2010 leaving us with the biggest deficit in the OECD and public spending at 51 per cent of GDP.
There is a small truth here. Gordon Brown was running a 3 per cent deficit in 2007-08. That was certainly a mistake in retrospect. The Government should have been running a surplus in those years of plenty. That would have left the national finances in a much better position to weather the credit crisis and subsequent downturn.
But the reason Britain ended up with a £158.9bn deficit (11.4 per cent of GDP) in 2009-10 is not, contrary to what one hears from the Conservative propaganda machine, that the Government went on some sort of mad spending spree.
The economist Giles Wilkes*, in his brilliant Centre Forum paper (page 38/39), performed an analysis of the origins of that projected national debt in 2012-13. He tried to work out what proportion of the debt was due to Brown’s policy errors and what proportion due to the unavoidable** effects of the recession.
Here’s his conclusion:
“In increasing order of significance, the [projected] debt for 2012-13 can be explained by:
about 4 per cent from increases in spending stemming from the recession, most of the automatic responses via the benefits system
about 9 per cent from the banking rescues
another 9 per cent from over-reliance on volatile ‘bubble’ revenues
about 16 per cent from the government failing to fix the structural deficit
about 25 per cent from a loss in revenues from the recession, which includes those deliberately foregone through the VAT cut
the rest (about 37 per cent) from the debt that would existed had there been neither a recession nor a structural deficit.”
This doesn’t let Brown off the hook for over-spending. 16 per cent of the debt can be roughly attributed to that structural deficit. But it puts it in some crucial context. 47 per cent in the debt has nothing to do with Brown’s spending, but results from a collapse in tax revenues as the economy stalled, the bank bailout, automatic stabilisers etc.
Now those foregone revenues include the VAT tax cut, which was a deliberate policy choice by Brown and Darling. And it can reasonably argued that the Government was over reliant, like the Irish government, on revenues from an overheating property market and a financial bubble.
But there is no reason for us to believe that a Conservative Government would have been any less reliant on those bubble revenues. George Osborne was still committed to backing Brown’s spending plans until autumn 2008. Remember the Tory slogan “sharing the proceeds of growth“? They too behaved as if the bubble party would go on forever.
What all this should tell is: don’t fall for the Conservative “big error” that Brown overspent and ruined the public finances, or that this was a crisis born of public profligacy . Britain’s national finances have been ruined by a toxic combination of private sector stupidity and a failure of the public sector to rein in those animal spirits. Brown’s sins were of omission, not commission.
*Giles also explained his calculations in this blog for Liberal Conspiracy
** Those who think the Government should have let the banks go bust or slashed spending as tax revenues dwindled should probably read no furtherTagged in: brown, Centre Forum, george osborne, Giles Wilkes, right, sharing the proceeds of growth, spending splurge
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