Why Ed Balls is right

Further to my report back from the Thatcherites for Labour rally* that I attended on Wednesday, I should perhaps explain my statement, “Ed Balls’s economic analysis is absolutely right.”

I said that I thought it likely that it would have been better to plan to cut the deficit less sharply and less quickly than the Government, and that there was a strong Keynesian argument for trying to sustain demand.

I also said that such an argument would not work politically. The voters are simply not prepared to accept that more borrowing in the short term would save public money in the long run.

That is why, I said, the argument of In the black Labour, by Graeme Cook, Adam Lent, Anthony Painter and Hopi Sen, is so important. And it was interesting that Balls welcomed its publication. Labour has to establish its reputation for fiscal responsibility before it can be trusted to run the economy again.

Ed Balls was right about the deficit 18 months ago, therefore, but the weakness of growth since then has narrowed the scope for a different approach. As has been pointed out, the Coalition Government is now going to borrow more than Alistair Darling planned to. Had Labour still been in government, it would now be planning to borrow even more. No matter how astonishingly large the debt figures now are, this could not have been extended infinitely.

*Joke.

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