Thursday, 31 March 2011

Johnson: 'Deficit is bullsh*t' - Deficit Denier edition

[I would have posted this earlier had it not been for the lack of decent computer access. With a new laptop at hand, I can forge ahead].

Last week, the Right Honourable Alan Johnson MP, former Home Secretary and Shadow Chancellor, came for a little visit to my University's Labour Club (the former Labour Society collapsed due to infighting a year or so ago, to my knowledge). I assume he expected a receptive and sycophantic audience and for the most part he did. There were a few troubling questions though.

He had to deal with things relating to AV (anyone who is against AV is old-fashioned of course), its effects on Northern Ireland, a case he dealt with whilst Home Secretary and one other question.

As usual Johnson followed the typical Labour Party line, in that, all of the deficit was due to the Global financial crisis, caused of course, by America (evil capitalists). My question was simply "if that's true, why did you run up a deficit every year between 2003 and 2007?" (I should have noted that 2002 also had a budget deficit - I was without notes). Johnson was taking questions three at a time and initially "forgot" to answer mine (I suspect he was attempting to come up with some answer). Eventually he returned to my question - I was not impressed by his response.

After some initial wrangling, he managed to say something along the lines of "most economists agree that the structural deficit is wrong. Its just bullshit." He went to to explain that Labour could have slowed down the economy around 2003, but didn't. He also says that it's a reasonable debate to have over how large the state is, but of course, the deficit can be ignored. Not important says Postie.

Now, a structural deficit is, essentially a deficit run when the economy is doing well, one that occurs year on year (FT definition). It would be very difficult to argue that there isn't a structural deficit based on this terminology. Every year from 2002 the UK has had a budget deficit - and the deficit was rising all the time. So, no, it is real, and we have it, Johnson. The thing is, this appears to be roughly the official Labour Party line - surely someone in the party has some founding in economics?

Next up, 'slowing down the economy'. This is derived, I assume, from the Keynesian C+I+G formula. Government spending being the magical ingredient to fix any problem. The problem is, those years where Labour didn't reduce the deficit (prior to 2007) were 'good years'. Even using Keynesian theory, the government should be operating balanced budgets/surpluses in order to pay off the debts amassed during the previous crash (we still had plenty of debt to pay off - so no excuse not to follow this). Given the post 2001 general election splurge, surely, if Johnson is right, we should have seen a massive growth increase, right? 2002 above average? What about 2003? In fact, no year breached the target 3.5% growth that Brown was after. So much for the magic G. Overcrowding? Perhaps. This doesn't exactly decimate the neo-Keynesian, however it does highlight that Labour had no idea what they were doing with the economy and are still, firmly in denial of the facts.

And this could have been our next Chancellor.