I am having a wrangle with a friend at the moment about who will win the next election. He thinks the Tories will scrape home, whereas I think the combination of UKIP's rise and the Lib Dems' scuppering of boundary reform will do the same for Labour. We agree that one of Labour's difficulties lies in presenting a coherent argument about the economy, but whereas he says Labour is thinking hard about how to get better public services for the same money, I think that's not enough - they should be looking to get better services for less money: after all we know we can't afford current spending, so whoever wins in 2015 will have to make cuts.
My friend is a Labour insider, and I think his slip is revealing, because it seems to show that even in its most intelligent core the party has not come to terms with the financial crisis. You can see this in all its utterances about the economy, but most recently with its change of tack on growth. First Miliband and Balls said austerity would prevent growth; when that turned out not to be true they said it was the wrong kind of growth; now the mantra seems to be that growth may be back, but living standards are still falling.
There are two assumptions here, namely that rising living standards are our due, and that they are unequivocally a good thing. Neither assumption bears examination. Leaving aside the environmentalist point that rising living standards are destroying the planet, higher wages for some mean fewer jobs for all. In the private sector, higher wages increase a company's cost base and erode its competitiveness. In the public sector, higher wages for dustmen, for example, mean less money to spend on education.
But its worse than that. High wages were what got us into this mess in the first place.
Britain became prosperous because 150 years ago we made things and sold them to the rest of the world. Then we sold the machines for making things abroad and discovered to our horror that foreigners could make them cheaper - and often better - than we did, because wages and living standards were lower in the Far East. Then to make up the income gap we borrowed money to keep our economies going. Then when that got harder and harder, our banks devised all sorts of ingenious products to enable risk to be spread, so that loans could be made to people who might well not be able to pay them back. Then when it turned out that quite a lot of people couldn't pay them back, no-one knew exactly which banks were exposed to default. Inter-bank lending dried up. Hence the 2008 crash.
The bankers may have been repellent, but they got rich on the proceeds of lending to westerners who were greedy for credit.
Viewed in this context, it was the expectation of high wages and high living standards which led to the erosion of manufacturing capacity and hence to the debt ridden mire in which we're currently floundering. If you are a person who has had no pay rise for the last five years, that is not much fun. But our best hope may be that our living standards drift downwards while those in the Far East drift upwards. It would be fairer, and it would give more people jobs in the West.
Higher wages are the last thing Britain needs. There is a curious delusion that cuts across party lines to the effect that in this country we are somehow entitled to affluence. We aren't. We can only justify affluence - and the Social Democratic public spending that affluence might make affordable - by making things or providing services that other countries want to buy. Higher wages just make that happy position harder to achieve.
