Labour's economic narrative was always a bit of a balancing act, and now it is coming apart. It is tempting to blame the messengers (Ed Balls and Ed Miliband), but its own contradictions are the real problem.
But what is this narrative? It is rarely reported sympathetically, so confusion is widespread. This is how I understand it:
- The Labour government's careful middle way between free markets and social democratic intervention rewarded Britain with a prolonged period of economic growth, and growth too in public services. Contrary to what political opponents and a hostile media claim, this was perfectly sustainable. Indeed by 2007 Labour had won over most of its critics and the Tories were saying that they would do much the same.
- But in 2008 it collided with a global economic storm, originating in foolish economic policies elsewhere in the world, and misguided financial management, mainly in America. Since full participation in globalisation was part of Labour's economic policy, and had delivered enormous benefits, Britain could not but be affected. After the first shock, sensible economic policies under Gordon Brown were delivering a sustained recovery. These policies were based on maintaining aggregate demand in the economy, in particular by sustaining government expenditure, with only a gradual, carefully measured slow down.
- This was all undone by the coming to power of the Coalition in 2010. They panicked (or else were driven by a malign wish to undo Labour's good works) and cut back too far, too soon. This has set off the classic Keynesian doom loop, where reduced government expenditure reduces private demand, causing further hardship. There are any number of distinguished economists who point out the folly of excessive austerity (Paul Krugman being a favourite).
- The Coalition policy is failing, as growth has tailed off and government forecast after forecast is being missed. This is doing long-term and lasting damage to the economy.
- Because of this long term damage, by the time we reach 2015 it will not be so easy to pump things back up again to where they were before. As a result, Labour cannot promise to restore the cuts - even as we now declare they are foolish.
It is not my point today to pick holes in the economic logic of this. Both Mr Balls and Mr Miliband are economically literate, and we have every reason to believe that they believe what they are saying. It is not falling apart in terms of economic logic - and the likely future turn of events is not likely to undermine it. The only thing that would be a problem for them is if the economy should start to pick up some serious speed. Nobody believes that it will.
The problem is the politics. Labour have been trying to achieve a tricky balancing act here. The dismantling of so much of Labour's legacy by the Coalition has sent their supporters into a frenzy of anger. Labour needs to harness this anger to sustain its political "ground war" - the hard graft of daily political advance, for the most part achieved by unpaid volunteers, even if the wider public seems more sceptical. This angry brigade has not accepted that any cuts are necessary, and grasp at the writings of Krugman et al, adding a little A-level economics, to sustain the idea that all the economy needs is more government expenditure to reflate its way back all the way to 2008. They think that the Coalition is waging economic warfare on the poor, as one commenter on this blog put it, with the naive Lib Dems being taken for a ride, along with a large part of the public.
The angry brigade hears what it wants to from the "too far, too fast" mantra and thinks that the Labour front bench is on its side. But the Labour leaders also know that the economy has shrunk so much that many, indeed, most, of the cuts will have to be made eventually. Labour's plans to cut the deficit before they left office weren't so very different to the current government's, and very little at all compared the surprisingly slow pace at which the deficit has actually been cut. Their plan is actually to win back and exercise power again, rather than simply have fun as an opposition party. They know they need to present credible policies for when they are in power again - after all, look what happened to the Lib Dems when they promised that they could cut university tuition fees to harness student anger for their own ground war. And a close reading of what Mr Balls and Mr Miliband have been saying is not nearly as reckless as the mood music of anger.
But Labour have encountered a wider political problem. The passion and anger of their activists burns as bright ever, but the public are simply not convinced. Why? It is tempting to blame economic naivety, which allows the government and its supporters to present the government's finances as if they were a household budget. Actually I think the feeling runs deep that the economic prosperity of the late Labour years was unsustainable. There is no naivety about that standpoint. Government debt catches the blame - but in fact it was private sector debt that was more to blame. And for those that did not have a government job, the suspicion the state was too big and benefits too generous ran deep. In my description of the narrative most people can't get past the first paragraph.
And so the two Eds have started to reach out to the sceptics by emphasising paragraph 5 - that the cuts will have to stay. The hope is that this will then give them an opportunity to get a hearing for whatever else they have to say, on corporate greed, the NHS reforms and so on. But the activists are apoplectic. The Guardian's weekend article has attracted a whole host of disbelieving and hostile comments from a group of people that is now feeling disenfranchised.
But the narrative is too complex to be accepted by the sceptics either. Only a confession that the economy before 2008 and unsustainable, even without a financial crisis, will do that. Alas the two Ed's don't think they can say that. And so politically the narrative falls apart. I would be surprised if Ed Miliband lasts the year. He has had some bright ideas, and has begun to take Labour out of its denial phase. But as denial moves into anger, he will surely be a victim.