A thought provoking piece on the economy..comment is free in today's Guardian

[Madaboutthrows]

www.theguardian.com/commentisfree/2014/oct/19/britain-political-class-tories-economic-fairytale

I would really like to hear what MNers think of the issues raised as I don't know the ins and outs of the economic crisis so would love to hear from knowledgeable mumsnetters

Although other posters might expect me to say this, factually/economically, it is not a good article IMO, especially as it assumes that the structure and problems of the UK economy in 2010 was similar to 1997 when the money had run out and has not improved - and that all GDP is (sustainably) the same e.g. public or private sector driven, which is key to assuming using standard Debt to GDP measures, how benign/serviceable that debt is, when building an economy after the worst recession since the 1930s.

Between 1997 and 2002, the Labour government ran a conservative spending and tax pledge they had promised in the 1997 election. This was not thier policy, but a conservative one.
Do not forget the masive PPI expansion which kept debt off the books but pledged massive government expenditure going forward.
Also remmber it was the Labour party who changed the management of the banks and financial system, the laxity of which caused the crash.
Only the UK, the US and Ireland really caused the crash with lax bank oversight - most countries banking systems were ok.

I vividly remember the Conservative opposition lambasting Labour economic policy. Deafening, it was. If only somebody had listened!

Oh, hang on...

Interesting article.

RavenAK .. the Parliamentary Labour Party in 1997 had a majority of over 170 seats and still had a majority of around 66 seats in the last election they won in 2005, so blaming a Conservative Party reeling from those electoral defeats and still opposing all sorts from our gold sales to a signed Lisbon Treaty without a Referendum, when Labour had so many more MP ‘voices’ of their own, is a bit rich.

Not that we’d know it, but the job of an opposition party is not to OPPOSE EVERYTHING, and besides Mr Brown who had the country accounts in front of him told us at every PMQT he was being “prudent” and didn’t get the nick name ‘the Clunking Fist’ for listening to people.

Indeed, from the early days when Brown decided to do something no other party had done even in the dire times of the 1970's when Labour called in the IMF in 1976 to 'bail us out', in selling around 40% of our gold reserves through several auctions at a price around $280 an ounce average – he was advised by the Bank of England, most other global central banks, and the City who mentioned that gold was close to a 20-year low price and due a bounce, NOT to do it as if anything it was a ‘buy’ opportunity.

But he did. The City christened that gold period as ‘the Brown Bottom’, as is rose for over 10-years from those sales, hitting over $1,900 an ounce.

The article by The Guardian’s Ha-Joon Chang mentions several issues which assumes the UK from 1997 was a lean, mean, well run, social and economic machine, from which the Coalition with a £157 billion annual budget deficit had a solid base to address the problems of society and our economy, when the opposite was true – and too much time and effort over ONE parliament, has had to go into getting back to BASICS of good governance, that went in the wrong direction for the THREE parliaments before it.

Furthermore, the article assumes that Labour had any solutions to the social, unemployment, housing and economic problems that build up during their administration, when reading their 2010 General Election manifesto (below), there wasn’t one, other than (and similar to France) maintain the fat, expensive government, put taxes up more than the other two main parties (during a cost of living crisis) and then rely on the Mr Micawber economic and employment mantra, “something will turn up”,
news.bbc.co.uk/1/hi/uk_politics/election_2010/8615297.stm

When in France with an annual budget deficit probably a third of ours in 2010, admits penal taxation has backfired, still has a fat inefficient State taking around 57% of economic output, has hardly made a dent in their deficit, but still has over 10% unemployment, no economic growth and won’t have for another year or so at least.

So when The Guardian article looks as the Coalition achievements and severely criticises it choosing to misinform on via some of the “Fairytale” analysis, it disingenuously leaves out that THE ALTERNATIVE was a UK economy structured along the French country model, with massive/critical new investment needed in new homes, new nuclear power stations and other infrastructure projects, with an additional £100 billion (approx) annual deficit a year (versus France), to help the unemployed, the poor, those needing social housing etc etc.

But lets address Ha-Joon Chang’s in ‘bite sized’ chunks, starting with Labour’s 1997 to 2010 spending, as poster caroldecker advised, was INITIALLY ( from 1997 to adopt previous Conservative budgets/spending, that Brown had to promise he’d adopt in the campaign running up to the election, to voters with a memory of 1990’s destructive ‘tax and spend’ policies – pretty much the same as the CURRENT Labour Party in opposition.

Ha-Joon Chang points out that the increase in the deficit from 2002 to 2007 “was not due to Welfare spending,” but fails to mention the HUGE increase in government spending UNPRECEDENTED in Europe in ‘real’ (inflation adjusted) terms, which begs the questions WHY did Mr Brown feel the need to run an annual budget deficits at all, and why wasn’t that huge rise in spending not helping social issues, like building social housing – and if being spent on the Public Sector, why little of it went to increase the salaries of OUR FRONT LINE services e.g. Nurses??

Ha-Joon Chang criticises the Coalition of “savage welfare cuts” (when Ms Rachel Reeves says spending has gone UP £12 billion) and says “a budget deficit should be understood” , and talks about the the Coalitions “government –fuelled asset bubbles in real estate and finance”, when that was WHAT THE COALITION INHERITED and is re-balancing the economy closer to the 1997 structure the Conservatives handed over to Labour, but taking time to achieve.

So lets put some numbers on what I have been talking about, on Labour’s unprecedented spending, what tax receipts backed that spending up, the negative influence of financial bubbles in the pre 2010 UK economy, and why the Budget Deficit was so much larger in actual size, than most other countries, using the following link I believe to be ‘fair’ to that Labour administration – but note the ‘quality’ of GDP to support our debt (currently costing £50 billion a year in interest to the tax payer alone) is key, and I’ll talk about that next.
www.economicshelp.org/blog/5509/economics/government-spending-under-labour/

“During the years 2001-2007, there was a sharp rise in government spending. In real terms, government spending increased from just over £400bn (2009 prices) to £618bn in 2008-09.”

”As a % of GDP Government spending also increased from 36% of GDP in 2000 to 46% of GDP by the end of 2008-09”

”This increase in government spending contributed to budget deficits and higher public sector debt.”

”After a short period of budget surplus (due to spending restraint) in the late 1990s, the UK experienced a budget deficit of 2-3% of GDP between 2002-2007.”

”By historical standards, this is relatively low. It still met the Maastricht criteria of keeping budget deficits to less than 3% of GDP.”

”However, the budget situation was also improved by impressive tax revenues from the housing and financial boom. When the credit crunch hit, tax revenues rapidly dwindled causing a marked deterioration in public finances.”

• If the government had entered the credit crunch with a budget surplus and lower public sector debt, the government would have had much more room to pursue a real and sustained economic stimulus. However, because there was already a deficit, the recession caused a rise in the cyclical deficit. The deficit of 2009-10 of 11% of GDP was primarily due to the deterioration in public finances, only a small part of this deficit was due to expansionary fiscal policy (VAT cut)

• A great failure of spending decisions of the 2000s, was to allow budget deficits during rapid economic expansion. A budget deficit of 3% of GDP may have sounded relatively low. But, in hindsight, this exaggerated the underlying deficit because tax revenues were boosted by tax revenues which evaporated during the credit crunch.

I've only read it briefly, but I'd say the article looks sensible, and a plenty of well respected economists would agree with his analysis. H-J C is basically a soft left social democrat, very much in the Cambridge tradition of economics (unsurprisingly, given that's where he's been for the last 20 yrs).

I'll come back later when I'm not at work, but certainly I think he makes plenty of good points. My view has always been that the Conservative project is about using the economic crisis to follow their political program: ie, to reduce the size of the state and allow increasing inequality. (Which obviously is good if you're on the up-side, especially if you are in business and want to have plenty of low-wage workers readily available to employ!)

The complicating factor is that the natural comparison economies in the rest of Europe are mainly Eurozone members, which gives them a whole different set of problems. (I hold no torch for Gordon Brown, but I think the one unquestionably good thing he did for the UK was keep us out of the Euro.)

What is more sustainable and allows money to flow to social projects, an efficient State, or a Private Sector where by 2010, their employment had gone up 18% from 1997, when the Private Sector supporting those salaries, had only risen 7% over the same time?

As to inequality, from 1997 under Labour during a boom it INCREASED, the fact is whether in good times or bad, the government should respect taxpayers money - rather than use it to increase their power e.g. the apparatchiks running Quangos that costed £170 billion, which would have bought a lot of new social homes.

“How Francois Hollande changed but Ed Miliband stayed the same.”
www.trendingcentral.com/francois-hollande-changed-ed-miliband-stayed/

Takver: "I've only read it briefly, but I'd say the article looks sensible, and a plenty of well respected economists would agree with his analysis. H-J C is basically a soft left social democrat, very much in the Cambridge tradition of economics (unsurprisingly, given that's where he's been for the last 20 yrs)."

Ah, he may have spent 20 years as an academic at Cambridge, but he clearly doesn't know as much about economics as Mumsnet's resident expert isitmebut who knows so much about everything.

at hackmum

Hackmum …. Clearly Mr Ha-Joon Chang STARTED with an objective that “the Conservative economic narrative has allowed the coalition to pursue a destructive and unfair economic strategy” but the FACTS kinda got in the way of his academic argument - and has used the 20-years of economic experience in Cambridge (wherever) to construct an argument using misleading data, that no doubt will be factually correct, that data no where near tells the whole story.

I left school with a few GCEs (I was a slow starter) but have spent nearly 40-years following economies throughout the world and their capital markets and have met, listened to, and read articles by many economists who mainly made their mark in large financial institutions, where if they visited large pension funds and central banks and put that analysis in front of them, they would be both laughed at and out of a job.

I fully understand and endorse what he is looking for, but by not acknowledging the unbalanced economic, financial, and social state of the State in 2010, and what the Coalition has achieved since then that has alluded most other G7 countries, that were not as badly affected as the UK during the worst recession for 100-years – the article as a whole, sucks a big one. IMO.

P.S. Bearing in mind the OP request, if you want to dispute my views further above, I’d be very happy to discuss, or further qualify those views with you.

Typical leftie Guardian bias really. But this bit caught my attention:

"Whether debt is a bad thing or not depends on what the money is used for."

Agreed. So their example of student debt is a good one. Students borrow money as an investment into their future. Their enhanced education will (hopefully) mean better earning power in the future. Ie. Good debt.

Borrowing to invest in say....HS2. Again. It's an investment because in theory it promotes better trade which in turn creates jobs and eventually more tax revenue. Ie. Good debt.

But look at what we were borrowing for before. Well I would except I've no idea. WTF were we borrowing all that money for?