Home > Fiscal Policy, Monetary Policy > Ed Balls Embraces “Monetary Activism”

Ed Balls Embraces “Monetary Activism”

Ed Balls, October 2011:

“With our economy stagnated since last autumn David Cameron and George Osborne are now betting on a bail out from the Bank of England.

“The Government’s reckless policy of cutting spending and raising taxes too far and too fast is demonstrably not working. But rather than change course the Government has spent the last week urging the Bank of England to step in and essentially print more money. The Bank of England has been left with no choice but to step in and try to offset the contractionary effects of George Osborne’s Budget plans

“This is the Bank of England’s contribution to a Plan B. But while another round of quantitative easing may help, I fear it will do little to create the jobs and growth we desperately need if we are to get the deficit down. When monetary policy is already so loose – with interest rates at record lows – and with confidence depressed this is, as Keynes said, like pushing on a string.”

Ed Balls, July 2013:

Very different policies have resulted in different outcomes for the British and American economies. In the US, the combination of monetary activism and President Obama’s fiscal growth plan has helped ward off global threats, strengthened the recovery, and seen a continued fall in the deficit.

“Fiscal growth plan” is an excellent phrase, there’s so much nuance packed in there, and it avoids all the negativity in phrases like “cutting the deficit” or “fiscal austerity”.  Just take the word “fiscal” and add “growth plan” – who will notice?

Year US
2010 -8.5
2011 -7.7
2012 -6.4
2013 -4.6

Source: IMF WEO (April 2013)

All we need to do is to cut the deficit and print money – sorry – “a fiscal growth plan and monetary activism” – Ed Balls’ new “One Nation Labour” macro policy?

[Edited: added links]

  1. James in London
    July 22, 2013 at 11:29

    Perhaps Balls is endorsing monetary activism in order to stop Carney doing it, and Osborne getting credit? One thinks Balls gets it, but if he does, the last thing he’ll want to to see is the policy being successfully implemented just before the election. He’s a politician, so he has to play politics first and foremost.

    And if it is implemented successfully, then at least he can try and take some credit for the policy. Not a lot, of course, but better than looking foolishly wrong, like Krugman et al. Remember, Balls did warmly endorse Carney’s appointment last year, surprisingly so.

    • July 22, 2013 at 12:08

      I think that’s right, though I wouldn’t say Balls is trying to *stop* “monetary activism”. But we’re seeing the narrative shift – growth under “monetary activism” will be claimed as vindication for the positions of those who rejected “austerity”.

      To be fair to Balls, his broad diagnosis of the UK economy – “insufficient AD” – has always been spot on.

  2. James in London
    July 22, 2013 at 14:35

    “To be fair to Balls”, how that must stick in your throat, even if true. As far as I have seen he’s never been fair to anyone else. And he was right behind the Brown/Darling pre-election spending binge and encouragement of Scottish and nortthern banks like RBS, HBOS and their very special Northern Rock – bringing mortgages to the masses.

    Off topic, and amongst that bunch, it’s amazing Darling seems to have come out of their spending/lending spree with an enhanced reputation, somehow or other.

    • July 23, 2013 at 13:08

      We’ve got to rise above their level, James, and be equally fair to all of them. Or equally nasty :)

      Darling is a genuinely impressive politician. He avoids 95% of the partisan playground bickering that people like Osborne and Balls appear to live for.

  3. July 23, 2013 at 12:14

    I agree that his plan’s to position himself better, but I think it’ll have no chance of getting through to the wider public. At most they’ll see QE as being “monetary activist” (too much so, for the more suspicious among them), and so not see much change from Carney making forward guidance, let alone make the leap to say “aha, Balls was right all along”.

    The key thing is what he said at the end about his ‘inclusive prosperity’ commission with Larry Summers. He must know that if – as seems likely – the economy’s chugging along at 2% growth in 2014 and 2015, the austerity vs. stimulus argument is at an end. So the argument changes from “there’s no growth – we need stimulus” to “it’s the wrong kind of growth – we need to intervene”.

    • July 23, 2013 at 13:21

      I really don’t know about the first point. From where I’m sitting Balls has done a good job equating “(fiscal) austerity” with liquidationism – the media talk about “austerity Britain” and so on. Will people not understand what he means, that Osborne has shifted from “liquidationism” to “stimulus”? I just don’t know.

      Your second point sounds exactly right. We’ll be back to the traditional politics of interventionist left-wingers versus interventionist right-wingers!

  4. July 23, 2013 at 13:45

    It’s a very tricky argument to get across, bearing in mind that although the media talk about “austerity Britain”, it’s only ever a minority that’s supported a fiscal stimulus. Osborne has always been formally pro-QE, went out of his way to appoint Carney, and has even used the “monetary activist” wording before. So on monetary policy per se, short of arguing for (say) more inflation – which he won’t do – it’s difficult to see how Balls can flank him there. Balls stays competitive, but no real gain here.

    If he argues Osborne has shifted to “stimulus”, through Help to Buy etc., then things get trickier. He can argue that he’s shifted, but H2B excepted, the shift happened back in 2012 when he didn’t correct the deficit reduction plan for slower growth. Having said Osborne was ideological and inflexible, he’s now making him look sensible and adaptable – Balls ends up looking like a ranter, somebody who always wants to go further. If he makes the argument, it helps Osborne, not hurts him. Osborne has been pretty effective – like Brown used to be – at setting the baseline for the debate.

    Most importantly: voters won’t care about who was right or wrong in an argument that now seems to exist only in the past.

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