Labour and the Current Economic crisis. Was it really their fault? Explain to me please.

[Tortington]

I do not follow politics nearly as closely as i ought to. I was listening to Ed miliband on radio 2 on thursday and jeremy vine ripped him a new one over the position that we currently find ourselves in and how it's all the labour parties fault having borrowed when the govt were actually collecting more taxes than ever before whilst we were enjoying the good times. His accusation being, that labour couldn't manage money at the height of the good times and had to borrow even more.

Ed's reply was something like - well, in retrospect, we didn't know it was the height of the good times, and that a crash was round the corner - a crash that wasn't the fault of the government, a crash that has affected america and europe.

Yes, he said - Labour did borrow at the height of the good times ( not knowing it was such at the time) becuase they had made a promise to invest in the countries infrastructure - hospitals, transport etc.

So, despite Jezza laying into him, and despite Ed sounding proper posh {which put me off} i thought he answered really well ( apart from starting every sentence with the Tony Blair stock "Let's be clear about this")

So is is labours fault we are in an economic depression or is it the fact that the bankers fucked things up and we have a recession in many countries?

becuase, i can't help but wonder why the tories continue to make us all poor, they are not cultivating economic growth - surely the VAT rise curtails spending and hinders the economy? Its not just the poor who are feeling the pinch. those in the middle are too. people who vote!

this has turned into an essay, but wondered if anyone had any thoughts and whether they could explain

The previous administration started running a deficit budget (ie piling up the national debt, and stoking the production if the "bubble") in 2000.

So yes they've got a lot to answer for.

stoking the bubble?

And piling up the national debt - was this something that would have been in hand if it weren't for the sub prime lending crash catastrophe?

No, it wouldn't have been in hand.

It stoked the bubble of unaffordable expansion of the public sector and central government initiatives. The nation became so hopelessly overdrawn and overcommitted that it was, despite rhetoric, in a weak position when the international crisis struck - we got it a lot worse than the other big economies.

but we only know this with hinsdight?

shouldn't a government borrow sensibly to invest?

the international crisis wasn't Labours fault. Should a government or could a govt operate in a non investment 'just incase' policy?

A big mistake the Labour party made was not that they didn't foresee the global economic crisis.... it was of a magnitude that hardly anyone anticipated.... but that they didn't plan for a downturn of any kind. Gordon Brown famously stated that it was an 'end to boom and bust' and his spending plans were always based on an unrealistic expectation of continuous growth.

The second mistake was to rely too heavily on the tax revenue from one sector. In this case, the financial sector. It was so crucial to the spending plans of the government that it was allowed to run away with itself with little to no regulation. No brakes. In fairness, that situation began under the previous administration but Labour opted to enjoy the cash and change nothing. As a friend of mine in that industry commented.... a Ferrari without brakes is fine when it's going at 150mph in a straight line. When it hits a curve it's fucked.

'Ed's reply was something like - well, in retrospect, we didn't know it was the height of the good times, and that a crash was round the corner'

Our economy is set up so there will always be boom and bust. If a politician says they didn't know there would be 'bust' then they are lying.

Labour didn't regulate the banking sector properly. If they had then there would of been less of an bust, but it would of happened anyway.

No, it wasn't just hindsight.

Figures are outlined in the Budget, and published in detail idc (see ONS website, for example). The heaping up of the National Debt was evident, and a source of concern, especially to those who remembered the 1970s.

There was contemporaneous criticism, but it tended to be drowned out.

The word "invest" is synonymous with "spend". You do not have to borrow to spend; the consequences of living beyond ones means is painful whether you are an individual, a family or a nation.

I'd go with Chil's post.

But let's not forget George Bush was in charge of the States when they kicked all this off. And the US national debt had been massive for years and years - I remember seeing the figures mentioned in a news story and thinking 'why aren't they worried about this?' The financiers and politicians all thought it was fine.

Don't remember the Tories kicking up much of a fuss about it during the boom, either, although I'd be interested to see if anyone knows different. Think when Cameron came in he promised to match Labour spending plans, much as Blair promised to match Tory for the first two years of his administration.

I'm sure we could dig out Hansard and find unwise promises on both sides. :) However, like any management position, it's not who said what before and afterwards but who made the decisions when they were in the hot seat and whether they got it right or not. History would suggest that a Tory government (as opposed to speeches) wouldn't have regulated the banks any better than Labour but that, faced with a booming economy, they would not have spent more on the public sector and would have instead used any spare cash on tax cuts.

Maybe but the problem was Labour had to make up for years of public sector starvation under the Tories. Infrastructure and services were horribly run down. I think most people have forgotten that the NHS was so short of resources healthcare was rationed. We had been spending less on healthcare than any other EU nation. Rationing was crude and brutal ? by who could survive longest. Millions of people on waiting lists of 18 months or more.

To take just one example, one procedure for people who had had heart attacks was rationed by lengthy waits. Problem is the procedure has to be performed within (IIRC) six months to be of any use at all. The waiting list was a year. The heart surgeons were in despair - one told me it would be better just to operate on everyone whose name began with A-K, then at least some people would stand to benefit, rather than almost no-one.

Years of desperate, severe underspending left a deficit that required massive investment. Labour wouldn't have had to spend so much if the Tories had been less savage (and hadn't given us three recessions, with all the consequent poverty and ill-health).

Although there is an argument, supported by one reading of the evidence, that Labour's new contracts for GPs and hospital doctors were far too generous. If some of the money poured into doctors' pay had been put into services and equipment, the NHS and the public might have been better off. Not entirely sure I agree with the OECD here but it's an interesting point of view. Think our doctors went from underpaid compared to the EU average to amongst the very best paid. Again, perhaps the truth is the Tories should have spent a bit more and then Labour could have spent a bit less.

There's another entertaining theory that having an economist in the Treasury (Brown) was very bad news and you are better off with a minister who is an outsider and therefore sceptical when it comes to economics and economists in particular.

The problem is Labour were very naive, Gordon Brown believed that he had abolished the economic cycle (no more boom and bust) and so decided to rack up debt even in good economic times. This meant that we had a small structural deficit going into the recession which has now increased to a frightening size which we are now having to make large cuts in public spending as well as tax rises to deal with.
Labour also changed the regulatory system of financial services and this system failed to regulate the banks effectively and helped contribute to the financial crisis in 2007-08.

Yes, I remember him famously saying that (no more boom & bust). I also remember thinking "omg, what an idiot!" I also wonder what my old economics tutor would have thought! Probably the same.

Since the dawn of capitalism, there has always been boom and bust. It's unavoidable. The only difference is the height of the boom and the inevitable bust which follows.

It's a bit like how Labour will run up debts then the Tories have to pay it off. It's like night following day really.

^Maybe but the problem was Labour had to make up for years of public sector starvation under the Tories. ^
Have you ever thought why the Tories didn't throw money at the NHS like Labour did? I suspect your answer will be because they're all rich facists who don't care about the downtrodden etc. etc.

Or could it be that the Tories realised we have to live within our means. That's why they handed over an economy with a balanced budget. And it ran tickety boo whilst Labour stuck to the Tory spending plans.

Labour then threw money at the NHS. What happened? They gave themselves huge payrises, built loads of hospitals on bottomless PFI contracts and wasted £6 billion on an IT system noone wanted.

I still see waiting lists, I still see people not getting the service they expect.

I don't have the answer but I know throwing money at the NHS is not one of them.

I agree there was a lot of waste - GP contracts, PFI, best value/diversity initiatives, failed IT projects, etc. So much money has gone to lawyers, consultants, accountants, outsourcing specialists.

What worries me is that the present cuts will be even more expensive in the long-term because of the ideology behind them - so even MORE outsourcing contracts, privatised management companies, PFI deals.

The interesting part will be to see if the hike in tuition fees depresses the housing market for years to come. Grant Shapps seemed pretty confident prices will be depressed for a long time. That's a not a bad thing but have they been honest about why that is?

Thank you, edam, you saved me a long response!!

I think (trying to impartial) that it's hard to pin the blame on any single government. I firmly believe that the culture of grab now, pay later was driven by Mrs Thatcher's government and policies and that this has fuelled the current situation. I also believe (and please correct me if I'm wrong) that the deregulation of the banks occurred under Tory leadership.

I also feel that the current severe reining in while decreasing corporation tax when the companies benefitting are not actually creating new jobs to make up for the losses in the public sector is a optimistic.

It's no secret, however, that I would sooner vote Monster Raving Looney (if they still existed) than vote Tory.

Given Labour appear to have accepted that the structural deficit exists, is a problem and needs sorting - it does beg the question - what would Labour do (have done)?

I don't mean a list of what they wouldn't have done. And I know they would have delayed any cuts - to avoid a double dip recession, and they planned to increase employer's national insurance contribution.

But at some point 2012(?) they would have had to start some dramatic public spending cuts and some significant tax increases.

Any idea what they would have been?

Re the 'no more boom and bust'

I think that, around the year 2000, that people persuaded themselves that all the old rules were gone, we had shifted to a new paradigm (or some such stuff and nonsense) and that in our New Millenium we could outwit basic economic theory because we had clever computers!
They believed their own hype.

Back to the OP:
We are in a mess because the Labour Govt spent money that we didn't have (note how they always measure by how much they spend, never whether it was a wise decision. Any idiot can spend billions on a new hospital. The real questions are: do we need it, can it be done better, can it be done more economically etc). Other countries have survived the financial crisis (Canada, Australia - note: countries with a common heritage) because their core economics were stronger than ours and they were not so closely tied into the financial sector.

That's the problem isn't it Jack. They're saying "Oh yes there's a problem....but we wouldn't do anything yet and we're not saying if/when we did, what that would be either"

Ahh... the luxury of Opposition :)

A need to spend more on NHS does not mean that large-scale borrowing was the way to fund it. A sustainable, affordable trajectory within a balanced budget would have been much more in the national interest.

The main mistake with gold was that he told everyone what he was going to do. It wasn't so much that the price quadrupled after the sale, it was that his megaphoning of the policy caused a depression in the price before the sale. D'oh!

Yup, for a clever chap he was capable of making some very daft decisions. Abolition of the 10p tax threashold was another.

Edam - fabulously explained thank you. :)

Thanks Marula!

I think that Chil's post is good and to the point.

I think that Labour are also to blame in that they had the opportunity, and the political capital, to re-regulate the financial services sector, but chose not to do so.

Certainly I would say that you would expect the Left to have taken a more interventionist approach.

Overall (coming from a left-wing perspective here) I would say that Labour tried to carry on with the economic policies of the previous Conservative government, and just bolt on added social spending. Which worked ok-ish in the short term, but was never going to work as a long term approach to dealing with the problems of global capitalism.