Response to Phillip Milton's letter comments - NDJ 9 Jan 2014

I may be being a little unfair but reading Philip Milton's letter commenting on my article (see earlier post) reminds me of Denis Healey's famous quote.  When referring to an attack on him by Geoffrey Howe, Healey responded -  " it was like being savaged by a dead sheep".

But to address his substantive point about the state of the economy in 2010, he, like all his fellow Tories continue to perpetuate the idea that Labour's economic policy was to blame for all our current economic woes. This has been politically astute - if you repeat a lie often enough it gains currency and acceptance. What is clear is that most objective observers have a somewhat different view. I quote below an extract from William Keegan's article in the Observer last August where he refers to an article in the Oxford Review of Economic Policy whose author paints a much more realistic picture of Labour's economic record. In particular Philip should note the final sentence - "The line that the Labour government was responsible for leaving a disastrous fiscal position which requires great national sacrifice to put right is pure spin,"

What Philip also needs to accept is that Labour was taking the right action to respond to the recession between 2008 and 2010 and that Coalition policies have been responsible for holding the recovery back and leave us facing the prospect of more economic woe in the years to come.

"I strongly recommend the spring issue of the Oxford Review of Economic Policy. It covers the economic record of the 1997-2010 Labour government in considerable and balanced detail, warts and all. The chapter of particular relevance to the austerity policy is the one by the economist Simon Wren-Lewis, who is widely respected in the profession, and who played a notable role in the famous "five tests" study published in 2003 – which ended in the conclusion that Britain should not join the eurozone. Wren-Lewis finds that fiscal policy (taxation and spending) was actually too tight in the early years of that administration, overcompensated in the middle period, and failed to correct sufficiently in the final years.

But in the face of the great recession, the supposed benefits of tighter policy in the latter years would have been small: "The debt-to-GDP ratio in 2007 was lower than its level in 1997, and the net borrowing requirement was fairly close to a neutral 2% deficit, so it cannot be said that fiscal policy was seriously deficient over this period."

Wren-Lewis concludes that, with the onset of the recession, "the Labour government had two key fiscal decisions to make: by how much, and by what means, to try and stimulate the economy … and how quickly to plan to correct the deficit caused by the recession and any countercyclical action it took … my own view is that the government was absolutely right to try to use fiscal policy to mitigate the impact of the recession, and it was also right to plan to correct the deficit relatively slowly."

This rigorous academic observes that is it is unfortunate, but hardly surprising, that the Labour record of this time has become highly politicised. "The line that the Labour government was responsible for leaving a disastrous fiscal position which requires great national sacrifice to put right is pure spin," he says."