Balls talk on “growth denial”

This is my latest comment from Fund Strategy.

Ed Balls, a Labour leadership contender, lived up to his name in his speech attacking “growth deniers” (PDF)  last week. He also showed the superficiality of his understanding of economics despite his long association with Gordon Brown (or perhaps because of it) and impressive academic credentials in the subject.

The main point of Balls’ speech was to present an alternative to the arguments of the Conservative-Liberal coalition’s economic vision. In his view the fiscal stimulus should continue for longer than the government suggests and deficit reduction should be implemented over a more protracted period.

For its reluctance to continue the stimulus he accuses the government of consisting of “growth deniers”. This is in turn a riposte to George Osborne, the chancellor of the exchequer, who has lambasted the opposition as “deficit deniers”.

Despite the vituperative language there is less difference between the two sides than might initially appear. The childish name-calling obscures the similarity of their overall visions. And the deliberate echo of the term “Holocaust denial” makes their squabbling particularly distasteful.

Theirs is essentially an argument about the timing of deficit reduction. Osborne wants to start it a bit sooner and get it over with a bit more quickly. Balls wants to start later and spread it over a longer period.

It is also easier for Balls to make such pronouncements now that he is out of government. He can afford to make a big deal out of small differences.

In any case both sides heavily emphasise the consumption side of the economy. Their focus is on imposing austerity, through cuts in public or tax rises, rather than boosting production.

Neither makes a priority of restructuring the economy to make a new round of strong growth possible. Balls’ reference to “growth” refers instead to pumping money into the economy for slightly longer than his political opponents would like.

Balls does make a passing mention of Labour schemes to create jobs and build schools. But none of them constitutes a route to bolstering the economy to raise productivity levels. Nor is there any talk of large-scale investment in infrastructure or encouraging innovation.

At least there is one consolation from Balls’ shallow critique of the Conservative-Liberal austerity programme. It is to be hoped that having such lightweight leadership contenders will hasten the demise of a party that plays no useful political role.