“We have solved boom and bust”

From the Notebook – Henry and Lawrence Gruijters question some recent claims by Ed Miliband. First Published on The Graduate Times. 

On the Andrew Marr show, Ed Milliband was questioned about Labour’s spending during their time in office. Whenever it was put to him that Labour spent too much he denied this was the case. His argument was that it was not Labour which created the huge budget deficit, but the financial crisis.

Similarly, it was not overspending that caused the budget deficit, but the bad regulation on the financial system. When questioned about Keynesian economics and saving in good times, for the bad times, his answer was similar. Overspending was not a problem, overspending was an investment in our future. The problem was the financial crisis which then put us into more debt. It is true that the financial crisis drastically increased government debt from 6% to 10%, but how can a government credibly claim that there will never be an end to boom and bust?

As Tony Blair and Alistair Darling’s memoirs show, the reality is that Labour were worried about overspending, but did not want to cut back. In times of crisis, politicians may want to defer the saving to better times (not a bad economic thing to do).

However, the government has not saved during the good times either. Politicians inflate the good times and then blame this subsequent overspending on a bust. The market, however, can not be fooled by a session of Prime Minister’s Questions or an Andrew Marr interview.