Why you’re not really a fiscal conservative either
You are curious about why I chose to comment on your paper, In the Black Labour (ITBL), six months after its publication. You have your co-author, Anthony Painter, to thank for that. Following a recent post in which I referred to the need for Labour to rebuild its reputation as a party of fiscal responsibility, he tweeted a recommendation that I read ITBL. I decided to do so and was immediately overcome by the urge to set out what I think is wrong, dangerous and sometimes right in what you propose, or at least seem to propose.
Let me state again for the record that I do not believe you and the other authors of ITBL to be fiscal conservatives in the proper sense of the term. Your confusion on this point has two sources. The first is the fact that I chose to discuss true fiscal conservatism and your ideas (wrongly described as fiscal conservatism) side by side. The second arises from your own paper, which is somewhat opaque about where the boundary between these two things precisely lies.
Fiscal conservatism, as I‘m sure you know, is an American term. Google it and the vast majority of page references that come up relate to American politics – indeed, the few European hits are mostly about ITBL. In America, the term also has a precise meaning. It applies to those who believe that governments should be prevented from spending more money than they raise, not just in the medium term, but in each fiscal year.
This position is very clear in the countless attempts of fiscal conservatives to get a balanced budget amendment enshrined in the US constitution. These amendments not only require budgets to be balanced year on year, but set the bar for any deviation impossibly high; conditions of war or severe economic crisis, two-thirds majorities in both houses of Congress, renewable annually. This is because fiscal conservatives believe that the sole purpose of public spending should be to cover the costs of (preferably minimal) government services, not fulfil a bigger role as a tool of macroeconomic management, attempting to smooth out the peaks and troughs of the economic cycle. In other words, you cannot be both a fiscal conservative and a Keynesian any more than you can be both a Marxist-Leninist and an Anglican vicar.
I imagine that if you ever met a real fiscal conservative – someone like Senator Orrin Hatch of Utah, for example – he would sniff your backside and growl. That’s because he would recognise you for what you are; a Keynesian, albeit one concerned about the need for fiscal responsibility. Indeed, your view that budgets should be balanced in the medium term, with surpluses accumulated in good times used to cover deficits in bad times, represents the true Keynesian position. So why not call yourselves true Keynesians instead of fiscal conservatives?
I suspect the reason is that you wanted to make a splash and thought it would help if you used a term the left found provocative. It certainly worked. But if you are going to appropriate a label for its shock value, don’t then be shocked when people find it shocking. And don’t be surprised when people take you at your word, mistake you for the real thing and attack you accordingly. I read your paper closely and realised straight away that you were striking a pose: hence the teasing comparison with the eleven year-old punk rocker I used to be. But others have been less forgiving. In your case, it is better to be teased than believed.
This is a largely presentational issue, I admit, but one with political implications. I have also made three criticisms of substance.
The first is your suggestion that linking fiscal policy to the economic cycle was “a mistake” and that future Labour governments should instead give “a commitment to deliver a surplus on the public finances towards the end of a concrete timescale such as the lifetime of a single parliament”. This isn’t either fiscally conservative or Keynesian; it’s just plain daft. Why align fiscal policy with the parliamentary calendar instead of the frequency of sun spots or the life cycle of the Downing Street cat? The chances of it being right for the economy are probably about the same.
Yes, I get it. You want to solve the problem of how to restore public confidence in Labour’s economic policy. This might look like smart short-term politics, but it’s lousy economics, and lousy economics invariably turns out to be lousy politics in the end. The economic cycle might be difficult to define, but that doesn’t make it a fiction. To push through pro-cyclical policies – such as deflating in a downturn – simply in order to meet an arbitrary political timetable would be madness.
As you say, Francois Hollande has pledged to balance the budget by 2017 when he can be reasonably sure that France will be at a very different point of the economic cycle. What he has not done is argue that fiscal policy should be tied to the presidential term as a matter of course. Did you really mean to propose something open-ended or were you talking about a one-off commitment for the next parliament, as you hint in your reply? Is this a change of position or the result of loose drafting in ITBL?
You ask what I would propose as an alternative. I happen to think that Gordon Brown’s Golden Rule was right, not least because it made a distinction between expenditure on consumption and investment, promising to balance the former over the economic cycle, but leaving flexibility for sound investments that pay for themselves in the longer term by raising our economic potential. Fiscal conservatives regard this distinction as anathema, but I’m not clear where you stand. Where Brown erred was in playing around with the definition of the economic cycle in order to give himself more room to borrow. There may have been an economic justification for this, but it undermined confidence in Labour’s fiscal self-discipline. So I agree with you that the enforcement of fiscal rules will have to be subject to some kind of independent oversight in the future.
My second criticism concerns what I see as ITBL’s one-sided focus on repairing the national finances through spending cuts while ignoring the other side of the fiscal equation; the need for higher taxes on the wealthy. I assumed this was a product of ideological defensiveness rather than a sign that you share the true fiscal conservative hostility to taxes along with its preference for minimal government, but I wasn’t certain. You have now addressed that omission in ITBL by coming up with an impressive battery of potential ways to make the better off pay their fare share that I couldn’t have bettered myself. If you agree that reducing the deficit requires a mix of spending cuts and tax rises for the better off, I will happily shake hands on it.
My third criticism might be less easy to fix. It stems from my observation that you have nothing to say about reform of the private sector. I would never dream of criticising you for failing, in a short paper, to attempt something as ambitious as “a fundamental reconceptualisation of Market capitalism”, except that in ITBL you were happy to talk vaguely about “a different conception of the state”. I saw the contrast as significant and perhaps a nod to the true fiscal conservative position that government is the main problem.
You explain the omission by saying that you “don’t know quite how we should differently conceive of capitalism”. Come off it! This isn’t metaphysics. Different kinds of capitalism are not theoretical abstractions. They exist as observable realities and can be compared. Many of them work better than our own, especially in Northern Europe. It is argued that you can’t simply transplant a foreign way of doing things onto British soil. This usually comes from people who are happy to take any off-the-peg idea from America, whether it’s workfare or elected police commissioners (no, Hopi, I don’t mean you).
There is a vast body of literature on how to reform British capitalism and an abundance of foreign examples to draw on. Conceiving of it has never been Labour’s problem. The real problem, especially in the last twenty years, has been a reluctance to take on the entrenched interests of wealth that would be expected to resist it.
This may be where the actual difference between us lies. I’m no longer willing to settle for a version of progressive politics that turns a blind eye to the country’s real social and economic problems in order to buy off the opposition of wealth and power in the pursuit of short-term electability. I have seen what it means. It led to boom and bust economics for Britain and boom and bust politics for Labour. I thinks it’s time we had more ambition and integrity.