Home > General Politics > Three minutes with Ed Balls

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?

EB:  Exactly.

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.

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Categories: General Politics
  1. August 30, 2010 at 9:55 am

    Ed Balls has produced what he (or his office) call a Manifesto, but like the one from Ed Miliband it is a scissors and paste job. From the five candidates, we have a Manifesto, 2 Minifestos and the two Eds. See – http://dronfieldblather.blogspot.com/2010/08/manifestos-of-intent.html

  2. Carl
    August 30, 2010 at 10:28 am

    Didn’t sign himself up to a course of MMT though – would Keynes have deplored it so much?

  3. August 30, 2010 at 11:54 am

    Very interesting, well done!

    Notice that he did not say that deficit spending to the point of full employment would risk inflation along with currency depreciation. I supposed he believes that inflation is in the hands of the BOE?

    Instead, his concern is about confidence with regards to funding and debt service- the notion that the UK could be the next Greece.

    To overcome that mistaken belief could hopefully be a lot easier than the belief that the UK could become the next Zimbabwe, as there are continuous examples of nations with non convertible currency and floating exchange rates where confidence has been lost yet interest rates remain where the central bank sets them. And no examples to the contrary.

    But, of course and unfortunately, that might not be nearly enough to win the day.

  4. Agog
    August 30, 2010 at 11:58 am

    Paul,

    Did you ever read any of the classic papers by Evsey Domar on the burden of government debt? He engaged with the problem in the mid 1940s when of course national debts were proportionally much higher than they are now. And of course back then his arguments, and similar ones, were listened to and we all successfully grew our way out of trouble. Quote:

    “…real national income can grow at some 2 or 3 per cent per year for some time to come. But whether it actually will grow depends on our fiscal and other policies. If we are timid in our decisions and afraid of the debt, national income will probably fluctuate about some relatively low level,so that the “burden”of the debt, as described [earlier], will indeed rise. But if, without fear of the debt, we pursue a bold policy directed at maintaining full employment, national income will grow, and the debt “burden” will never become serious. If the government definitely commits itself to such a policy and demonstrates sufficient determination in carrying it out, we may yet be surprised at the relatively small magnitudes of deficits which will be required. An assurance of a large and always rising national income is still the best method for encouraging private investment.”

    (Author’s italics, source here – I think it’s free for anyone)

  1. September 1, 2010 at 10:11 am
  2. September 2, 2010 at 11:02 am
  3. September 11, 2010 at 6:19 pm
  4. October 8, 2010 at 11:05 pm
  5. November 5, 2010 at 11:31 pm

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