Insincere apologies

Should politicians make false apologies? I ask because of Janan Ganesh's claim that Labour has been "monstrously incompetent" in failing to apologize for its fiscal policy before the crisis:

Had the Labour party owned up to its profligacy in office during the previous decade, it would now have the moral licence to mock [Osborne's] failed deficit target...
Instead, Labour will not even concede that it was wrong to run a structural deficit in the years leading up to the crash, by which time Britain was a decade and a half into an economic expansion. A party that is still borrowing in those circumstances will never see a reason not to borrow.

The economist in me disagrees with this. I sympathize with Simon's retort that allegations of profligacy are "nonsense." I say so for four inter-related reasons.

First, there was no boom before the crisis of 2008. Quite the opposite. The IFS said:

The last decade as a whole was characterised by a very poor performance for average incomes. Between 2002–03 and 2009–10, no single year saw an increase in median income of  more than 1.0%.

It estimates that in the five years to 2007-08 median real incomes rose just 0.5% per year. This is the sort of stagnation which might justify counter-cyclical fiscal policy.

Secondly, in the mid-00s the corporate sector was running a large financial surplus: because of what Ben Bernanke called a dearth of investment opportunities, its savings far exceeded capital spending. As Frances says, sectoral balances must sum to zero. A corporate surplus thus requires someone to run a deficit. With foreigners also loath to borrow, that someone was the UK government. To put this another way, had the government tried to tighten fiscal policy against a background of the investment dearth, we'd simply have had even weaker economic activity*.   

Third, given the inflation target, tighter fiscal policy means looser monetary policy. That might have led to even worse speculation and malinvestments by banks.

Fourthly, bond yields were falling during the 00s; from 2001 to early 2007, ten year real yields fell from over 2.5% to under 2%. That tells us that financial markets were not worried about "profligacy" but were concerned about weak real growth.

And even George  Osborne at the time agreed. In 2007, he promised that a Tory government would match Labour's planned spending increases.

I'm pretty clear, then, that it would be bad economics for Labour to apologize for its fiscal policy**.

But would it be bad politics? Here, I'm not so sure. On the one hand, doing so would play into the silly Tory narrative that they are cleaning up Labour's mess. But on the other hand, a false apology might serve the same function as apologies for other historical misdeeds such as the slave trade. As Theodore Dalrymple said, insincere guilt can be a form of moral self-aggrandizement. And because people tend to take others' self-assessments seriously, this might give Labour a better basis for criticizing Osborne's failure to to cut the deficit by much. Politically, therefore, Janan might be right.

The issue here, though, extends beyond fiscal policy. Labour says it "got things wrong on immigration in the past." If I vote Labour in May, it'll be because I believe that apology to be insincere. In a polity in which the media is biased and the public irrational and ill-informed, there might - just might - be place for lies in politics.   

* As I've said, it wasn't the case that fiscal policy in the 00s crowded out capital spending: the investment dearth was exogenous to fiscal policy.

** I don't say this to exonerate Labour. You could argue that looser fiscal policy should have taken the form of tax cuts rather than spending increases. And you can certainly argue that its spending was unproductive. 

Comments

[e]

Please...would you have us believe that Ganesh doesn’t know that in opposition (in pre crash “sun shining” circumstances) Tory Boy Osborn was happily matching New Labours spending plans, while arguing for looser “purse strings” and Bank regulations to combat the “dearth” you talk of? (Dearth, as I understand it, being the phenomenon of shortage among plenty). That Ganesh, in his bid to form opinion, isn’t every bit as politically motivated as Osborn; every bit as wedded to the poisonous Tory ideology that New Labour bought into, and Conservatives – even the good ones – even now post the banking crash, cannot move beyond? It’s not lies when its politics, its willing selective memories with little or no interest in “collateral damage”. And of which, there’s no shortage. So what possible reason could there be to promote still more? Perhaps to ensure those irrational ill-informed voters remain just so.

[theOnlySanePersonOnPlanetEarth]

"In a polity in which the media is biased and the public irrational and ill-informed, there might - just might - be place for lies in politics."

This is never in doubt. The real question is whether there is a place for truth in politics.

If we pretend for a minute that Ganesh is right and Labour doesn't have the moral licence to mock Osbourne, the rest of us surely do.

So shouldn't the question be about Osbourne's record rather than the playground argument that says you can't criticise me cos you are stupid, nah nah nah nah nah.

[CreamOnTop]

Nationalising debt without reform. Sweetheart tax deals. PFI when borrowing costs 2%. Handing out Gold Reserves to save Goldman Sachs apparently. Sounds pretty profligate to me. What's that half a Trillion? 300 Bn?

[An Alien Visitor]

"Handing out Gold Reserves to save Goldman Sachs apparently"

yes the cream always need help when rising to the top!

[Metatone]

You would hope that the FT would have a more economically literate political columnist... but alas that appears not to be the case...

[ChurmRincewind]

Dearie me. So "the media is biased and the public irrational and ill-informed" are they?

By all means let's disregard the consensus of views that the media reflects, and the opinions of the public.

Because we know better. I mean, we're all Oxbridge graduates (aren't we?). And thus by definition entitled to dismiss the views of all those ghastly oiks who didn't pass the Common Entrance Exam.

I would expand on this argument, but QI is starting on the BBC, and I'm keen to see people who didn't go to Oxbridge being humiliated.

[Jim]

" in the five years to 2007-08 median real incomes rose just 0.5% per year."

Hmm, now what happened in 20004-2008? Ah yes, the influx of hundreds of thousands of migrant workers from Poland and other new EU countries. Do you think that might have affected what employers had to pay to get labour, particularly at the bottom end? Thus producing no upward pressure on wages throughout the wage structure?

No of course not as we all know having lots of extra workers floating round the economy has zero effect on the price of labour, everyone on the left keeps telling us this, and they're always correct (they keep telling us this too).

[An Alien Visitor]

"So "the media is biased and the public irrational and ill-informed" are they"

I would say that on balance ill informed is almost a given fact. Irrational is a different matter.

[ChurmRincewind]

Alien Visitor: "Ill-informed is almost a given fact." How so? Can you cite any evidence for this? For myself, I'm reluctant to disregard the views, experience, and knowledge of sixty million people, simply on the basis that I know better.