The Crash of 2008: No Left Turn

John Rentoul

cover 3d pb The Crash of 2008: No Left TurnExtracts from the 31-page introduction to the paperback edition of Tony Blair’s A Journey are available on the book’s website. This bit, which is not on the website, is interesting, as it follows Blair’s warning to the left in the hardback original against taking the wrong lesson from the financial crisis:

In 2008, it was commonly believed that the left would gain from a mess thought not just to be “of the market” but begotten by unrestricted market practices. That state was said to be back in fashion. If it was, the fashion quickly passed. European elections and the US midterms saw, if anything, a move rightwards. Even the conservative leaders in Europe today tend to be under threat from parties more to the right or on non-traditional platforms rather than from the conventional left.

In other words, “I told you so.”

Tagged in: ,
  • stonedwolf

    What’s there to “to think”? 

    We have one right-wing party willing to exterminate Muslims. We have another right-wing party willing to exterminate Muslims. And we have a smaller right-wing party willing to co-operate with either of the other two. That’s British politics, and it ain’t changing soon.

  • Shipbuilding82

    I have no problem with a good Left v Right argument…the problem with Blair and Blairites, is their assumption they are of the same party…they are not and should go away…and join the Tories

  • takeoman

    I think the end of the world may well be at hand, as I find myself agreeing with you.

  • Firozali A.Mulla

    Good well written only 30 odd pages. I thank you after all he deserves that much only I thank you Firozali A.Mulla DBA

  • PatLogan2

    Excpet the state DIDN’T build up huge debts on the back of the rescues – the net cost of those rescues is looking very small indeed.  Last Friday’s “Economist” reported that the US Treasury actually looks likely to turn a significant profit on the “TARP” programme (to quote:

    “When Congress held its nose in 2008 and approved the Troubled Assets Relief Programme (TARP) to spend up to $700 billion to alleviate panic, the White House reckoned it might end up losing half of that amount. In the end $411 billion was ploughed into financial firms, carmakers and schemes to reduce foreclosures and restart private lending. As of June 7th $308 billion of that had been paid back. The Treasury values the remainder at $130 billion but could quite plausibly garner more.”

    Similarly in the UK - at the moment, the bank interventions are on course to make a net profit of £3.4Bn.

    The deficits come from sonething else – the fact that (in many cases) states were already running deficits before the crash, and worse, they failed to react to the reductions in tax income that came with the crash.  For example, in the UK in 2007, something like 40% of all Corporation Tax was raised from financial sector firms. 

    That’s why we’re suffering a “structural” not a cyclical deficit, i.e. a basic imbalance of spending and tax revenues gathered.

  • JohnJustice

    Structural deficits are not intrinsically bad. Tolerating them can be right thing to do when public services are in urgent need of repair and we need to grow our way out of recession and debt The question of course is whether the debt levels resulting from a deficit are manageable in the interim which they have been in this country at least by historical standards.

  • PatLogan2

    Certainly structural deficits if sustained for any extended period are bad – it simply demosntrates unsustainable levels of spending, without an increasing tax base to support them.

    And if the structural deficit is on current spending, as opposed to investments which might produce a longer term boost to tax revenues, then yes it’s almost certainly bad.  And that was the case with the last government.  Recall, a very large proportion of capital spend, under the last government was shifted onto PFI and similar “off balance sheet” schemes, which, if accounted properly would have had us showing deficits in the 3-5% range.

    The particular problem with the argument that we should sustain spending and borrow, in our current situation, is about where the growth might come from that will eventually replace the spending.  In broad terms, there are three areas of spending that drive growth – consumer, givernment and business investment.

    Maintaining deficit spending indefinitely is obviously not possible.  In our current situation, expanding consumer spending is unwise, given high levels of personal and household debt; if anything, we need to be net savers for a extended period.  Hence, any argument that deficit spending is good, because it boosts consumer confidence is likely to bite us on the backside.

    That leaves business investment.  The problem here is that such investment is rarely short term – certainly anything going into fixed assets, or areas like brand-building are likely to be paying back in a good few years to come.     But, business isn’t, as a rule, stupid.  If they can see that paying back a deficit will entail increased taxation several years down the line, that’s not attractive – because it’ll be hitting when assets invested in now would start to pay back.

    Heavy deficit spending now will if anything deter business investment – and since that’s the growth route we need, we’d be stupid to deter it.

  • JohnJustice

    Nobody is saying that a structural deficit should be maintained indefinitely. I explicitly referred to two situations in which it would be right to maintain a deficit. Obviously when these situations no longer apply the deficit should be adjusted to achieve other economic and social goals.

    Deficit spending creates growth usually through public projects producing a multiplier effect on consumer spending which stimulates other parts of the economy. A Green New Deal could serve this purpose

    Expanding consumer incomes can actually help to reduce personal
    debt whereas restricting consumer incomes can increase personal debt
    if consumers decide to keep up part of their spending by borrowing

    Paying back on the deficit does not necessarily require higher taxes if more tax revenue is generated through increased economic activity

    And deficit spending far from deterring business investment can
    actually stimulate it by creating that extra consumer demand through the multiplier effect.

    That is why I emphasized the need for a knowledge of Keynesian economics rather than economics per se which can lead one into making the kind of possible mistakes revealed in your comment. I say “possible” since nothing is certain in this particular discipline and we should all have the humility to admit it.

Property search
Browse by area

Latest from Independent journalists on Twitter