Jonathan Todd

Prior to the CSR last week I wrote for Labour Uncut on how Labour might approach it.

Social and economic debates on tax and spend run through the messages George Osborne will project tomorrow: his actions are fair (the social debate), best for the economy (the economic debate), and necessary, which intersects both debates. Clarity, and Labour’s cause, is aided by disentangling these strands.

Deficit reduction strategies need not only beginnings (start this year, next or when?), endings (completed in this parliament or next?), and content (tax and cuts mix?), but, crucially, they must also say what this content means for tax and spend in each year of this parliament. Political debate has so far failed carefully to pick over budgetary consequences from year to year.

There are opportunities for Labour in this examination. The government plans that cuts will account for three-quarters of the deficit reduction by 2014. However, next year, half the fiscal consolidation comes from tax rises. That spending cuts are intended to take greater strain over the longer-run has obscured the fact that 2011 sees ominous tax rises: increases in VAT and national-insurance.

We rejected spending cuts this year (and we should reap credit for this if the double dip about which Ken Clarke worries materialises). We might now align ourselves with the Economist and Samuel Brittan and oppose the tax rises planned for next year. Keynesian and monetarist economists, much like Labour and Tory politicians, take different views on the effectiveness of public spending as a stimulus. It is hard, however, to argue that dampening consumer spending will not harm a faltering recovery.

Yet, the government claims, in spite of this additional taxation of the already squeezed, that economic growth will accelerate next year to 2.3 percent. This stretches credulity. And if growth doesn’t stay on target it’s hard to see the biggest fiscal consolidation in post-war Britain being executed on the trajectory Osborne envisages.

His growth plan rests on the private sector enterprise currently “crowded out” by the state. While it’s easy (and justified) to be cynical about this, his plan b – to look for more quantitative easing – both threatens inflation and doesn’t convince either. Ultimately, Osborne may be forced, over time, to adopt a third way and slacken his punishing deficit reduction strategy, conceding that we were right and he was wrong.

However, if we are to argue that he is also wrong on tax increases for next year, we have to do so in straightforward acknowledgement of the full implications for our deficit reduction package. Otherwise, we risk a precious commodity: credibility on the deficit.

If we wish to oppose tax rises next year (and, while the Economist and Brittan make this economic case, the political case is that it undermines the perception that we are a party of high tax), and develop our stock in this commodity, we need to flip the coalition’s projected mix of tax and cuts. Where they front load tax increases, we’d focus on cuts. When their cuts really bite, we would be putting more emphasis on the tax component of our package (assuming that the game hasn’t changed entirely due to the collapse of Osborne’s deficit plan).

However, this wouldn’t mean that the cuts we advocate would exceed or even equal the government’s actual cuts. This is because we are not proposing to do as much work in this parliament. Our plan only halves the deficit in this parliament; whereas they intend to eliminate it. They have £40bn of extra fiscal tightening to explain.

Once we have told our truth – identified precisely what we’d cut and tax – we’ll be better able to expose the dangers of this £40bn. Being upfront about addressing the deficit undermines the habitual (and disingenuous) Tory-Liberal comeback that we have no deficit reduction strategy. Once we have clearly laid our cards on the table, the government’s taxes and cuts that would be unnecessary under our plan are more easily exposed.

Our cards need to signpost the way to an economy which can prosper in a world tilting – with Chinese and Indian growth rates racing ahead – ever eastwards. Such an economy needs science funding, green investment and a reformed financial sector. The spending debate shouldn’t just be about how much the state spends, but what it invests in and the coalition is cutting deeply into economically vital spending. Cuts which are deepened by the illogical NHS ring-fence and reconfiguration.

Labour tax proposals should also contain these signposts. We should shift the tax burden onto (unearned) wealth and away from (earned) income. We should also adapt it – absorbing an important lesson on the growth of the deficit – to make receipts less vulnerable to sectoral downturns; especially in finance and housing. A land tax would help on both fronts. This recasting of our tax system should be key to the tax that we argue should increasingly take the strain over the course of our deficit reduction plan.

Winning the economic debate greatly assists in winning the social. The government soils the social debate by conflating it with the economic. As Armando Iannucci tweeted: “I know I promised never ever to piss on tramps but sadly today’s climate means regrettably I may have to do so.”

We need to be able to say that pissing on tramps – or cutting child benefit or pricing kids out of university – is wrong and unnecessary. Because we have an itemised plan for tackling the deficit that doesn’t involve pissing on tramps. We win the social debate when we get to this point. But getting there requires a sufficiently fleshed out economic plan to win that debate.

On 11 September 2010 I made this comment on Labour Uncut:

“George Osborne won’t say this but the only “plan B” that he seems to have is to look to the Bank of England for more monetary easing, which will have to come in the form of quantitative easing (QE) given how low interest rates are. We live in very uncertain times and it is hard to say where any of this is going. But further quantitative easing on the scale which may become necessary due to Osborne’s early and deep cuts would make it more likely that the “ketchup in a bottle” theory of inflation becomes a reality: all the money that has been printed suddenly catches up with us in the form of inflation. If we were to have double dipped, this would leave us with negative growth and inflation. That’s right, stagflation. Osborne might think his macroeconomics takes us back to Thatcher’s 1980s but stagflation is, of course, the curse of the 1970s.”

I note that 19 days later the Economist reported:

“If the economy stutters … the current plan B relies on monetary policy. The Bank of England is expected to resume the quantitative easing (QE)—injecting money into the economy by buying financial assets—which it stopped earlier this year.”

The Economist concurs with me on the nature of Osborne’s plan B. As he has given himself no room for fiscal manoeuvre, his plan B is to abdicate management of the economy to the Bank of England. They share my concerns about what this plan B may mean for inflation:

“Pumping more money into the economy might jolt up inflation expectations, given that inflation has been above the government’s 2% target for most of the past four years.”

They are also doubtful about the effectiveness of further QE as a stimulus:

“The bigger worry is that, while banks remain so reluctant to lend, more QE will prove inadequate to counter fiscal austerity.”

The Economist goes on to suggest that Osborne may not want to proceed with fiscal tightened at quite the pace he has proposed:

“The overall fiscal consolidation is tilted towards spending cuts, which will account for three-quarters of the deficit reduction by 2014. But next year, tax rises will make up nearly half of it. The main rate of VAT, a consumption tax, will rise in January from 17.5% to 20%, and national-insurance contributions will also go up in April. Depending on what the data show in the coming months, a temporary reprieve on tax rises might be a good idea.”

I’m pleased that my reading of Osborne’s strategy is shared in so many respects by the Economist. We’ll have to wait and see whether he sticks to the dangerous course on which he has embarked. I fear that George may not be for turning.

“I was not commenting and I will not comment on the wisdom of making the decision to put a mosque there. I was commenting very specifically on the right people have that dates back to our founding.”

What?

That is surely the sound of a President splitting hairs to such an extent as to abdicate leadership. While the Economist’s chronicling of the American left’s despondency with Barack Obama says as much about the lack of backbone and realism on the part of the American left as it does about Obama, this backbone would be significantly fortified by genuine leadership from Obama. 

He seemed to show this leadership when he initially appeared to endorse the plans for the Cordoba Centre in NYC with words which Alex Massie accurately described as his ”best words in god knows how long”. Yet he quickly rowed back from this act of principled leadership with the words I quoted at the start of this blog.

The likes of Harry Reid and Howard Dean may have shamefully betrayed the best American instincts in voicing opposition to the Centre. But Obama should be bigger and better than that.

If ‘yes, we can’ means anything it should mean, at least, ’yes, we can do things in a different way from right-wing Republicans’. I’ve consistently argued that Obama should reach across the aisle to form a radical centre with reform-minded Republicans and these Republicans have consistently proved themselves conspicuous by their non-existence. Obama’s instinct is invariably to seek compromise and to split the difference and such instincts on the part of the President are a precondition of America finding a radical centre. But non-Democrats being willing to play ball with Obama is also a precondition of a radical centre and this precondition has not been satisfied. The right response to this is not equivocation but for the President to draw some lines in the sand.

And a line in the sand should have been drawn over the Cordoba Centre.

Obama should have been clear that the aim of Al-Qaeda is to divide Americans against Americans; to make American Muslims be Muslims first and Americans second. It is astonishing that the likes of Newt Gingrich and Sarah Palin have opposed the Centre with logic – I use the term loosely – consistent with that of Al-Qaeda. America, obviously, needs to rise above such logic and demonstrate that it embodies and will continue to embody virtues of plurality, tolerance and diversity. This is why the Cordoba Centre matters. If it doesn’t go ahead, America will have compromised on and been seen to have compromised on its most precious values.

America is a beautiful idea as much as it is a wonderful country. Just as Al-Qaeda is an appalling idea as much as it is an organised terrorist network. If Obama can’t spell out and stand his ground on the relevance of the Cordoba Centre to this, he’ll only have himself to blame if the Democrats find themselves lacking in activists in November. Ok, some Republicans will be even less likely to his friend but they don’t want to his friend anyways and Obama should stop pretending that they do. Instead, he should concentrate, like Harvey Milk said, on giving his supporters some hope. This doesn’t mean stopping being pragmatic; stopping cutting deals with Congress where they have to be cut, as they had to be on health care.

But it does mean clearly and unambiguously articulating your most important beliefs, even if these beliefs may not be shared by everyone. In fact, it is even more important when they are not shared by everyone. Obama seemed to promise all things to all people when he became President, which always made his presidency a hostage to fortune, but the very least that we could expect him to be was more sane and humane than the administration that went before him and Republicans of that vintage. This demands that he sees the Cordoba Centre for what it is – everything that is best about America – and says so very loudly and clearly. Everyone who cares about all that is best about America should hope that he is capable of this.

There is a fascinating article in the Economist on the large-scale pattern of atmospheric circulation which links the heatwave in Russia and the floods in Pakistan. There is also a great article in the Sunday Times by Jemima Khan on the floods and Pakistan’s future. There are some obvious dots to be joined up between these articles.

The Economist writes:

“As Russia burns to a crisp, thousands of kilometres to the south-west torrential storms visit unprecedented flooding on Pakistan. Both events can be attributed to the same large-scale pattern of atmospheric circulation. They are also both the sort of thing climate scientists expect more of in a warming world.”

It concludes:

“Both heatwaves and heavy precipitation are more common everywhere than they were 50 years ago. Reflecting the latter trend, the Indian monsoon has been seeing more of its rainfall in extreme events than it did in the past. No single one of those events can be directly attributed to climate change; nor can Russia’s heatwave. The pattern of increases, though, fits expectations—and those expectations see things getting worse.”

Khan provides some perspective on the comparative challenge which the floods create for Pakistan:

“On top of the war against the Taliban, with almost daily suicide bombings, a separatist uprising in the province of Baluchistan, a hostile neighbour, recession, inflation and unemployment, Pakistan seems to face a natural disaster almost every year. Nothing, though, compares to the catastrophe of the floods … 14m people — about one in 10 of the population — need help … Two million people are now homeless, electricity grids have been closed down to prevent electrocution, water supplies are contaminated, livestock drowned, 1.7m acres of crops destroyed, bridges, roads, schools, whole villages swept away. Experts have warned of the high risk of a cholera epidemic and further monsoon downpours are forecast.”

Pakistan’s President, who, according to Khan, ”is alleged to have acquired up to $1.5 billion (£960m) through corruption” continued with a planned trip to the UK to launch the political career of his son, Bilawal Bhutto Zadari, heir apparent to the Bhutto dynasty, rather than attempt to attend to this devastation. Unsurprisingly, Khan reports, this exacerbated ill-feeling towards the government, who have been unable to fully address the problems created by the floods.

Into the void and despair left by a natural disaster and an ineffectual and ineffective government step jihadi-linked charitable organisations, who, Khan writes, ”have been very effective at providing aid in times of crisis. The 2m children in Pakistan’s madrasahs are provided with free shelter, food and limited education where there is no government-funded alternative.”

Khan is right that “the floods are likely to lead to massive poverty and unrest in an already volatile nuclear-armed country.” She’s also right that this is potentially a geopolitical catastrophe and is certainly an immense human suffering, which demands our fullest response. However, as climate change not only makes our weather warmer and weirder but also threatens festering niches for extremists to exploit, it seems the kind of situation which may become increasingly commonplace. It should motivate us not only to address the immediate suffering of Pakistan but to redouble our efforts to both mitigate climate change and to improve the ability of all parts of the world to adapt to its already inevitable consequences.

As Neil Buckley describes in the FT today, Russia’s infrastructure has coped poorly with the demands placed upon it by the fires. Given that Russia is a richer country than many in the world, this gives us some indication of how ill-prepared many countries must be for the adaptive challenges that climate change will surely present them with. Where states fail to meet these adaptive challenges, extremists could well step up to the plate. In this context, the dirty power stations which the Conservative-Lib Dem coalition are now set to allow to be built are not just ill-advised features of our energy and climate change policies but also potentially add to the security threats facing the UK.

Anthony Painter has recently written about movement politics for Progress. He recounts how “equal voting rights and civil rights”, the fruits of the civil rights movement, ”changed America. But it was the movement that followed it and, in part, was a reaction to it, that was America’s most successful ‘movement for change.’ That was the audacious and many headed conservative movement. If the civil rights movement was driven by a sense of moral injustice, the conservative movement was motivated by a sense of moral outrage.”

Painter doesn’t, however, draw the more contemporary parallel: the movement that powered Barack Obama into the White House was driven by a sense of moral injustice, while the Tea Party movement, the most visceral counter reaction to this victory, is motivated by a sense of moral outrage. They are outraged with the ‘socialism’ of Obama-care, outraged with the free market perversion that is the bank bailouts, outraged with the extension of the big government leviathan that has been the fiscal stimulus, outraged by illegal immigration, outraged with plans to build a Mosque near Ground Zero and outraged by the indifference of Washington DC to all of this. They want their country back.

But who took their country from them?

Some fusion between socialists and al-Qaeda, which may very well be personified by Obama. His middle name is Hussein, after all. Sarah Palin trades on the same suspicions that the name Hussein arouses when she describes the proposed Cordoba Centre in NYC as the ’9/11 Mosque’. “Of course”, as Alex Massie sarcastically points out, ”it’s planned as a tribute to al-Qaeda and of course it’s perfectly reasonable to suppose that all muslims are really just the same and we know what that means don’t we?”

The main contribution of Newt Gingrich, the former Republican speaker of the House of Representatives, to the debate on the Cordoba Centre has been to declare, ”there should be no mosque near ground zero so long as there are no churches or synagogues in Saudi Arabia”. As the Economist points out, “to Mr Gingrich, it seems, an American Muslim is a Muslim first and an American second. Al-Qaeda would doubtless concur.”

Sarah Palin’s contribution to this debate has been more illiterate, just as offensive and has passed the bumper sticker test: her argument can be condensed into the space available on a bumper sticker. And, as certain as night follows day, the bumper stickers have arrived. And the t-shirts. They are a celebration of a misspelling in that they build on Palin’s infamous ‘refudiate’ tweet to attack Obama and socialism.

It is striking both how easily they conflate a dispute about a Mosque with Obama and socialism and how willing they are to proclaim, literally as a badge of honour, Palin’s spelling error. This proclamation speaks to the anti-intellectual fire in the bellies of many of Palin’s followers; many of whom make up the Tea Party movement. What they want, as Palin puts it, “is a commander-in-chief, not a constitutional law professor lecturing us from a lectern”.

Palin has an ability to tap into a raw nerve that many middle and working class Americans seem to have about being ‘talked down to’ by a liberal, east-coast elite. This raw nerve makes her straight-talking the stuff of authenticity and empathy. Her misspelling, and the condescending response to it, has deepened this emotional connection between her and her followers. “She validates me and she validates my life”, as I recall one of her followers once telling a TV camera. No constitutional law professor could ever provide such validation.

Now, it’s all too easy to look at this and sneer about people clinging to their guns and their bibles. Obama once seemed to do exactly this. However, reading this fantastic reportage from the FT makes me wonder whether something else is going on.

“Mention middle-class America and most foreigners envision something timeless and manicured, from The Brady Bunch, say, or Desperate Housewives in which teenagers drive to school in sports cars and the girls are always cheerleading. This might approximate how some in the top 10 per cent live. The rest live like the Freemans. Or worse.”

The Freemans are a family in Minneapolis that the article very movingly describes.

“Last year the bank tried to repossess the Freemans’ home even though they were only three months in arrears. Their son, Andy, was recently knocked off his mother’s health insurance and only painfully reinstated for a large fee. And, much like the boarded-up houses that signal America’s epidemic of foreclosures, the drug dealings and shootings that were once remote from their neighbourhood are edging ever closer, a block at a time.”

There are some harsh economic realities underlying the position that the Freemans’ find themselves in.

“The slow economic strangulation of the Freemans and millions of other middle-class Americans started long before the Great Recession, which merely exacerbated the “personal recession” that ordinary Americans had been suffering for years. Dubbed “median wage stagnation” by economists, the annual incomes of the bottom 90 per cent of US families have been essentially flat since 1973 – having risen by only 10 per cent in real terms over the past 37 years. That means most Americans have been treading water for more than a generation. Over the same period the incomes of the top 1 per cent have tripled. In 1973, chief executives were on average paid 26 times the median income. Now the ­multiple is above 300.”

Michael Spence, a Nobel Prize-winning economist, reflected upon the consequences of this economic position by telling the FT:

“I have this gnawing feeling about the future of America. When people lose the sense of optimism, things tend to get more volatile. The future I most fear for America is Latin American: a grossly unequal society that is prone to wild swings from populism to ­orthodoxy, which makes sensible government increasingly hard to imagine. Look at the Tea Party. People think it came from nowhere. While I don’t agree with their remedies, most Tea Party members are middle-class Americans who have been suffering silently for years … To be pessimistic about the future is so new for Americans and so strikingly un-American.”

As the swings from the civil rights to the conservative movements and from the Obama to the Tea Party movements attest, movements are both part of and create the weather of American politics. However, perhaps, one doesn’t have to be a fully signed up Marxist to see these movements as being in some senses superstructures determined by the economic base. The Tea Party seems as much about the economic exasperation of the anxious middle as about guns and bibles. Still, it is testimony to the enduring power of movements and conservatism in America. As the likes of Palin fire fear of the other – be that ‘socialists’, Muslims, illegal immigrants or anything or anyone who isn’t carrying a gun and a bible – and China’s rise heralds an era of contested modernity, it’s hard not to share Spence’s concerns that the Tea Party are a harbinger of more angry and troubled times in America.

Let’s hope that enlightened government from Obama can avert this. But no matter how intelligent Obama’s policies may be, they are unlikely to resonate unless the arguments for them can be summarised on a bumper sticker.