Three minutes with Ed Balls
Last week I seized the opportunity for a quick interview with Ed Balls, candidate for the Labour party leadership.
And when I say quick, I mean quick. Around 5 mins 20 secs for the lot, including the pleasantries and finding somewhere where I stood a chance of recording something audible (the resulting quality was not great, but I think I got everything).
The 20-odd questions I’d wanted to put to him on a range of matters, if I’d had the hour originally sought, became a couple of quickies on his political economy. There was also a linked one about working with European socialist parties I threw in at the end, but I’ll leave that out for now.
In a subsequent post I’ll be offering my own commentary on how Ed Balls responded to questions about the deficit from a slightly provocative post-Keynesian/MMT angle – a different angle I suspect than the one he generally gets. MMT adherents will not like a great deal of what he had to say, but what is clear is that he understood the arguments, and responded to them clearly.
I will also be setting out how I think the Left should vote for Ed Balls, with a particular focus on his political economy thinking.
Suffice to say for now, though, that he strengthened his case as the most competent economist of the five contenders, and he remains my first pick for Labour leader. This is not 1994. This is 2010. The Labour party leader needs someone who can lead on the economy.
Here’s the interview.
Me: Do you agree that one of the key problems Labour faces, as it opposes the current coalition’s cuts, is that the coalition’s ‘national debt’ narrative, which aligns itself to the concept of household debt, is actually quite strong?
EB: Well, I agree with you. But I don’t think it’s insurmountable at all, and I think people know it’s simplistic, but if you aren’t putting the alternative argument then, you know, intuitively it can make some sense to people.
Me: Let’s just tease out what that alternative is then, if we can?
I was really interested at the end when you mentioned what Yvette had said about ‘almost full employment’ [in an earlier Q and A session, Ed had referred to Yvette Cooper's claim that Labour had brought the economy to something near a full employment situation].
Now, I can see that that is fine in an economy which is going well, but what about a struggling economy?
What, for example, do you think of the Modern Monetary Theorists, people Randall Wray and Bill Mitchell, and the guy in the States, Warren Mosler whose running for Senate now, who say that actually what we should be doing is using deficit spending up until the point at which we can guarantee full employment, and that should be the ‘hook’ for our economy, rather than where the deficit sits, in a fiat currency economy.
EB: [After a pause] I think that Keynes would have thought they were wrong.
Me: And why do you think he would have thought they were wrong, in a post gold standard age?
Because public and market confidence, that you can service your debt, is important.
And we know what happened to countries within the single currency area, to countries on a fixed exchange rate, places like Argentina 10 years ago, but also to floating exchange countries like Sweden in the early 90s where there where there’s were a big doubt about whether they could service the debt. The confidence is important and the ability to service the debt on international markets is important
I think the mistake is to think that this confidence comes from being tougher.
I think the markets are more discerning than that. They know that the most important thing is whether people mean what they say and can deliver.
And so if you say I’m going to make more draconian cuts to get the deficit down faster, and ‘I’ll deal with the political consequence, don’t worry about that’, I think that something that’s destabilizing to market confidence rather than stabilizing.
Me: Hence your reference [in the preceding Q&A] to Moody’s statement of last week?
Me: Do you think there are elements of this argument, though - which is that we should be prepared to grow the deficit until we’ve got maximum utilization of resources – that you can exploit in the economic narrative you wish to develop?
EB: I think the deficit is not the right concept. The right concept is debt and debt interest – whether or not you can afford, given your other objectives, to service the level of debt you’ve got.
The deficit is just a flow which measures the rate at which you accumulate your debt.
The question the markets will ask you is not ‘what’s the the level of deficit?’ It’s ‘can you afford to roll over given the term structure and the level of interest rates.
If you start to lose market confidence, what then happens is you start to borrow shorter and more expensively and at that point it becomes very difficult to actually pay your way.
I’m not sure that a deficit goal is the right goal. I think that maintaining confidence for servicing debt makes much more sense. The right way to do that is to have a strong and growing economy. That’s why I don’t think there’s a problem with deficit financing at this stage in the economic cycle.