Did we just win? Left Fiscal Conservatism revisited

Now I’ve got that coffee-based silliness out of my system, let’s get back to fiscal policy.

Along with compadres Anthony Painter and Adam Lent, I’ve written an update to 2011’s smash hit Policy network pamphlet ‘In the Black Labour’. The full text of the essay is over at Policy network, and my take on it for Labourlist is here, complete with contrast between sensible fiscal conservatism and Osbornite Fiscal Masochism.

I won’t get into the core of the argument of the essay here, because well, what would be the point of publishing the same thing here as I’ve just linked to there? Go and read it.

A couple of quick thoughts though:

First, it’s a surprise  how uncontroversial what we say feels. Get rid of the VAT cut, Stronger Fiscal Council/Rules, reduce current spending on benefits to focus on capital spend, reduce departmental budgets. None of that seems to frighten the Labour party any more, when it scared it something rotten a couple of years back.

I admit, I didn’t really notice us winning the argument on the left, I more noticed being called a Tory sell-out, but I think we might have won. Not sure how that happened, but I’ll take it.

Second, you will notice we make the case for Tax increases as part of a fiscally conservative package. This isn’t because we think Tax increases are grrrrrrrrreeeeeaaaaaaatttt, but because once you get to a certain point of spending cuts, even the most flinty-eyed hacker begins to think “I’m not sure getting rid of this is such a great idea“. qv Ms T May. By my estimate, we’ll reach that point sometime in 2016-17. Now, we might be lucky and the boom unicorn might come along and mean we don’t need to do the nasty stuff, but I wouldn’t rely on it.

From a political strategy point of view, I suggest that it’s much easier to protect the bleeding stumps battered shield of our public services through tax increases if you’ve started off from a point where people really believe you’d very much prefer not to spend any more of their money than you have to.


So that’s where we are on Fiscal policy. We sort of think we’ve won, but we’re a bit confused, because all the people who should be going absolutely batshit about our victory seem to have gone all quiet.

I even hear rumours that Compass is about to propose cutting wasteful spending and launching a fiscal oversight body with the power to tell off government for being too fiscally incontinent. You can imagine how discombobulating this is.

At a guess, we’ve finally reached a point where there’s been a there’s a real political debate to be had about the distribution of the pain and unhappiness any future government will have to cause.

My hope is that the left of the Labour party will come out for big (possibly scheduled, growth dependent) tax increases, rather than any further cuts. Then we can have a debate about whether that’s wise, what the right priorities are, and how much the electorate will be prepared to bear.

This feels like a much more interesting and important debate than either waiting around for the boom unicorn to make it all easy or just arguing that there’s no big problem with our structural deficit position. (A smarter subset of the argument is to be found around inflating away debt/GDP over time, though in the current “no growth & 3% inflation” environment this feel rather like a gentler version of waiting for the boom unicorn)

Since I’ve long been waiting for this row mature debate, this reminds me that I still owe Duncan Weldon and Chris Dillow a reply to their very important points about the previous government’s fiscal policy.

More on this, and much, much more, after the fiscally restrained victory party.

2 Responses to “Did we just win? Left Fiscal Conservatism revisited”

  1. Simon Reynolds

    Hi Hopi,

    It is good that you are promoting a mature debate about fiscal policy. I don’t know if the following is mature or not, but I personally will be ignoring any contribution to that debate that does not show understanding of sectoral balances and stock flow consistent models.

    I may have missed it, but I can’t see how the left fiscal conservatism as proposed here takes account of the equation:

    public sector balance + domestic private sector balance + foreign balance = 0

    Given that for the UK the foreign balance is now, and has historically been, positive (we buy more from foreigners than they buy from us ==> foreigners are in surplus) then a positive public surplus would imply a private sector deficit.

    Why is a public deficit worse than a private deficit?

    The dangers of public sector surpluses were highlighted long ago by Wynne Godley, who pioneered the use of stock flow consistent economic models. A great paper (written back in 1999) by Godley and Randall Wray on the Clinton administration’s move from large public deficits into public surpluses during the 1990s is definitely worth reading. A couple of quotes should at least raise some questions among fiscal conservatives.

    “Growing government budget surpluses combined with growing trade deficits have generated record private sector deficits. Unless households continue to reduce their saving—creating an increasingly unsustainable debt burden—the impetus that has driven the expansion will evaporate.”

    Public plus foreign surpluses imply, “that economic growth is made possible only by increasing private sector deficits. Firms rarely run large deficits and only for short periods for obvious reasons: they are operated for profit and will cut spending when it exceeds income. Thus, it is up to the household sector to spend more than its income and to accumulate record debt-to-income burdens.”


    An interesting discussion of how things turned out in the US is here:



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