Bollocks to Balls
| February 9, 2011 | Posted by Ben Brooke under national |
Ed Balls was recently appointed as the shadow chancellor in Ed Miliband’s shadow cabinet. On first glance it looks like a good move as Miliband has replaced Alan Johnson (an ex-postman) with Balls – a well-educated economics expert who is widely considered one of the most feared and respected MPs in Westminster. Some were critical of Balls’ appointment as he is reportedly too prone to backstabbing and disagreements to be a team player, but on the other hand one could argue that Balls’ aggression and his ability to make life hard for his rivals are in fact his strengths as the shadow cabinet will need hardened arguments and fierce critiques if they are to effectively scrutinise the coalition. His main weakness however is that he is frequently wrong on many areas of the economy, despite his prestigious education in the field (Balls obtained a first in Philosophy, Politics and Economics (PPE) from Oxford). For example, Balls was the key economic adviser to Brown during his ten years as chancellor and he boastfully claims authorship of many of Brown’s policies despite the fact most of them turned out to be catastrophic. Take, for instance, the new system of financial regulation which Balls and Brown put in place after 1997; it led to the worst string of bank collapses for more than a century. They also allowed the housing market to run wild and mortgage lending to spiral out of control, all this occurring whilst Labour were racking up debt and becoming increasingly cosy within the city of London.
Balls is also insistent that the coalition’s plans to reduce the deficit would cause the country to slide back into recession. However, as Harvard economist Alberto Alesina states in a paper he wrote for Ecofin: “Not all fiscal adjustments cause recessions. Many sharp reductions of budget deficits have been accompanied and immediately followed by sustained growth rather than recessions, just look at Sweden, Britain and Canada in the early to mid-1990s.” Cutting the deficit helps in other ways too. It improves confidence; as consumers and businesses worry less about future tax rises, real interest rates may fall as the markets grow more confident about government finances, and that stimulates both domestic and foreign investment. Ed Balls however insists that the opposite is true. It could be that Ed is right and we do slip into recession, but if modern history tells us anything it’s that his prediction that deficit reduction leads to recession is little more than a load of old balls.
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