John Lanchester, the Left's go-to guy when it comes to economics, has been writing again in the London Review of Books. Lanchester is an engaging novelist and undoubtedly a well-meaning man, but unfortunately his writings on the dismal science reveal a grasp some way short of competence.
My wife has chucked the LRB into the recycling, so I am going to have to do this from memory.
The thrust of the two pages the editor gives Lanchester are that the economy is not growing, and that therefore George Osborne's policies are not working. Osborne doesn't realise, writes Lanchester, that if you cut public spending then GDP goes down as well, possibly by more than the amount you've actually cut. "This", Lanchester intones, surveying the scene, "is what failure looks like".
Well, not necessarily. Lanchester is guilty of assuming that the success of Osborne's policies should be measured purely in terms of growth. But growth isn't the only criterion. Sure, Osborne would be delighted if the economy were growing. But what he'll be really concerned about is the deficit. As long as he can tell the world the deficit is shrinking in real terms, Osborne will be able to say that he is putting the nation's finances in order. And he'll be right. As long as the gilt markets - who don't have to lend to us, remember - believe in the direction of travel, it will be cheap for Britain to borrow the billions we need every week just to keep going.
To put it the other way round, GDP is not the same as tax revenue. If GDP falls because the government has spent less, that doesn't mean the government doesn't gain. If the tax revenue HMG loses and the extra money it has to pay out in benefits are in combination smaller than the savings from the spending cut, the government wins. That is Osborne's calculation, and that is partly why the deficit is going down. I think Osborne will be quietly pleased with the situation.
Here is a list of other considerations that are strangely absent from Lanchester's article. If you haven't read it, you'll just have to take my word for it.
One, there's no acknowledgement of the headwinds Osborne is facing from a Eurozone economy gripped by an existential crisis.
Two, there's no attempt at suggesting an alternative strategy to Osborne's.
Third, although I think we're entitled to assume that Lanchester thinks there is such a strategy, he shows no sign of understanding that this might just be one of those problems to which there is no solution at all. I think it is not stretching matters to say that no-one really knows what to do now, and that Osborne's way is likely to be as good as any. At least, by enabling us to afford current borrowing, it is enabling us to keep going.
Fourth, Lanchester displays no understanding of the wider context in which the economic crisis is taking place, which is that Western governments and individuals, helped along by the finance industry, borrowed for decades to sustain a lifestyle their income did not justify.
Fifth, there is no acknowledgement that in the long run, states, like individuals, must live within their means. The policies of Balls and Miliband merely pretend that this isn't true, but it is.
Sixth, Lanchester displays no understanding of the consequences of this fact for Western Social Democratic parties. The soft Left is dedicated to the creation of societies with high welfare spending to help those at the bottom end. The events of the last few years demonstrate that this isn't fiscally possible at current levels of general taxation, and may not be politically possible at any level.
Seventh, to look at the biggest picture of all, Lanchester doesn't seem to grasp that, at heart, our problems are a consequence of loss of competitiveness to Far Eastern economies. Until that loss can be restored to some extent, the kind of big state solutions Lanchester favours will never be affordable again in Britain.
If John Lanchester really wants to know what failure looks like, he might want to imagine a room containing these seven rather large elephants.
Does any of this matter? If I still counted myself amongst the denizens of the Centre Left I would be exasperated at the failure of my peers to get to grips with the cause of the UK's problems. I would be appalled by their lazy acceptance of the seductive alternative narrative, one which says it was all the bankers' fault, but never asks what exactly it was the bankers were doing (lending us all money) and why (because otherwise we couldn't afford to live the way we wanted).
It may well be that Labour will win the next election anyway - as long as the Eurozone continues to be a zombie economy it's hard to see the UK's fortunes improving markedly or at all. But if they don't, it'll be because they have failed to put before the public a believable economic case. The task of doing so starts further back, with a clear-headed analysis of how we ended up where we are and what the consequences are for Labour's vision of a good society. That's partly the responsibility of the politicians, but also partly a responsibility of Labour's public intellectuals like Lanchester.
Judging by this article, he still can't see the zoo for the elephants.
